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Economic Survey 2026: Key Insights on Infrastructure Financing
Simrat Singh | finserv@vinodkothari.com
This year’s Economic Survey focuses less on the expansion of credit and more on the quality and sustainability of credit. In infrastructure financing for instance, the Survey notes that the emphasis shifts from the sheer scale of investment to project quality and risk allocation. In this short note, we explore major observations of the Survey w.r.t infrastructure financing and microfinance.
Infrastructure financing
The Survey 2026 treats infrastructure financing not as a question of “how much more to spend, but how to finance better.” The message is clear: public capital expenditure will continue to lead, but the future of infrastructure finance lies in diversification and market-based instruments, with InvITs and REITs playing a pivotal role.
Public capex still has the lion’s share
The Survey firmly reaffirms public capital expenditure as the backbone of India’s infrastructure push. Government capital expenditure has nearly doubled between FY22 and FY26, underscoring the public sector’s continued leadership in financing infrastructure.
At the same time, the Survey highlights why high public spending alone is not sufficient. Weak project preparation, delays in statutory clearances and rigid contracting structures are identified as key contributors to financial stress in infrastructure projects. The underlying message being that better-prepared projects attract better financing. Public expenditure must increasingly focus on de-risking projects upfront, rather than merely funding asset creation.
Moving away from bank-dominated financing
A gradual move away from infrastructure financing being overly dependent on bank credit is observed. While banks remain important, the Survey recognises the limits of using short-term deposits to fund long-gestation infrastructure assets. Instead, financing growth is increasingly coming from:
- NBFCs;
- Capital markets;
- Pooled investment vehicles such as InvITs and REITs
This shift is seen as essential to reduce systemic risk and prevent a repeat of infrastructure-led stress on bank balance sheets.
Infrastructure Investment Trusts
InvITs are no longer presented as a niche product. The Survey positions them as core infrastructure financing institutions, especially for mature, revenue-generating assets.
Their role is threefold:
- Attract long-term institutional capital such as pension and insurance funds;
- Remove operational assets from bank balance sheets, reducing asset-liability mismatches;
- Enable asset recycling, freeing capital for new infrastructure creation.
Importantly, the Survey sees InvITs less as tools for raising fresh debt for infrastructure spending and more as mechanisms for capital rotation i.e. monetising what is already built to finance what needs to be built next.
InvITs and PPPs: Financing the second half of the project life
The Survey draws a quiet but important distinction between greenfield and brownfield risk. While banks still dominate construction-stage financing, InvITs have become the preferred vehicle for post-construction assets, particularly in roads, power transmission, ports, and telecom. Majorly due to the regulatory requirement of having at least 80% completed and revenue generating assets.
This has strengthened PPP outcomes by:
- Providing exits to developers;
- Improving liquidity in infrastructure markets;
- Making infrastructure a credible asset class for long-term investors
The proposed launch of the first government-owned public InvIT in 2026 signals the government’s intent to embed InvITs deeper into public asset management, not just private monetisation.
Regulation catching up with financing reality
Supporting this transition, the Survey recognises important regulatory reforms for infrastructure financing such as:
- RBI’s Project Finance Directions, 2025 (now subsumed into Credit Facilities Directions), which improve stress recognition, align infrastructure definition and prevent evergreening by introducing stage-based disbursal of funds etc. (Our video explaining the project finance directions can be accessed here and our article on the same can be accessed here);
- SEBI’s Small and Medium REIT (SM REIT) framework which has lowered the minimum asset size threshold from ₹500 crore to ₹50 crore and introduced a scheme-based structure, allowing multiple sub-₹500 crore asset pools to be housed within a single SM REIT which expands the universe of monetisable real estate assets and facilitates the participation of smaller, stabilised commercial properties in regulated pooled vehicles.
- From 1 January 2026, SEBI has classified Mutual Fund and Specialised Investment Fund (SIF) investments in REITs as equity-related instruments. A move which would introduce much needed liquidity in the REIT space.
What the Survey does and does not claim
The Survey is careful not to oversell InvITs. They are not substitutes for public capex, nor solutions for early-stage project risk. Their success depends on stable cash flows and regulatory certainty. But within those limits, InvITs represent a correction in India’s infrastructure finance model, one that shifts risk away from bank balance sheets and towards diverse long-term capital aligned with infrastructure economics.
Read our other resources
Climate Finance: domestic resources insufficient to bridge funding gaps
Microfinance and NBFC-MFIs in Economic Survey 2026
Simrat Singh | finserv@vinodkothari.com
The Economic Survey 2026 takes an honest view of India’s microfinance sector. Rather than celebrating credit growth alone, it frames microfinance as a household balance-sheet business, where the real test of success is whether borrowing improves stability and resilience at the last mile or not. NBFC-MFIs, as the primary delivery channel, sit at the heart of this assessment. In this short note, we explore major observations of the Survey w.r.t infrastructure financing and microfinance.
Microfinance remains central to financial inclusion
The Survey reiterates the importance of microfinance in extending formal credit to underserved households. Women account for the vast majority of borrowers and most lending continues to be rural. Over the past decade, the sector has expanded rapidly in both outreach and scale, with NBFC-MFIs accounting for the largest share of lending, followed by banks and small finance banks.
This expansion has made microfinance one of the most effective channels for last-mile credit delivery but it has also exposed the sector to sharper credit cycles.
Recent stress reflects excess lending, not weak demand
The slowdown seen in FY25 is presented as a supply-side correction rather than a failure of the model. The Survey attributes the stress primarily to over-lending and borrower over-indebtedness in certain regions, driven by multiple lenders targeting the same customer base after the pandemic. The key takeaway being that access to credit was not the constraint credit discipline was.
NBFC-MFIs: essential but cycle-prone
NBFC-MFIs remain indispensable to microfinance, but the Survey recognises their structural vulnerability during rapid growth phases. Unsecured lending and limited visibility into borrowers’ total debt make the model sensitive to concentration risks. Regulatory responses have therefore focused on restoring balance rather than tightening credit indiscriminately. The RBI’s decision to lower the minimum qualifying asset requirement has given NBFC-MFIs room to diversify, while self-regulatory measures have reinforced borrower-level safeguards. The Survey notes early signs of stabilisation in asset quality and disbursement trends.
The core challenge: understanding the borrower better
A recurring concern in the Survey is the lack of reliable tools to assess household income and repayment capacity. Many borrowers carry obligations beyond microfinance such as gold loans or agricultural credit that are not always visible at the point of lending. The Survey sees digital public infrastructure as a gradual solution. Wider use of digital payments, data sharing frameworks and account aggregators is expected to improve cash-flow assessment and reduce reliance on informal income proxies. Using all this information about its borrowers, the MFIs are expected to improve their credit assessment.
Rethinking what “impact” really means
One of the Survey’s most important observations is its critique of how success in microfinance is measured. While private capital has helped scale the sector, growth-centric metrics can unintentionally encourage repeated lending without sufficient regard for borrower outcomes. The Survey argues for a shift towards welfare-oriented indicators such as income stability, reduction in distress borrowing and sustainable debt levels rather than portfolio size alone. In doing so, it challenges the assumption that more credit automatically translates into better outcomes.
What the Survey ultimately says
The Survey neither dismisses microfinance nor romanticises it. It acknowledges its critical role in inclusion, while warning that unchecked expansion can weaken household balance sheets. Long-term sustainability, it suggests, depends less on how fast credit grows and more on how responsibly it is delivered. The Economic Survey’s message is simple: the future of microfinance lies in lending better, not lending more. For NBFC-MFIs, this means aligning growth with borrower capacity, using data more intelligently and treating household stability, not loan volumes, as the true measure of success.
Read our other resources
Climate Finance: domestic resources insufficient to bridge funding gaps
State of Climate Finance: Domestic Resources Insufficient to Bridge Funding Gaps
Economic Survey 2025-26 highlights the position of climate finance in India and developing countries
Anushka Ganguly, Executive | corplaw@vinodkothari.com
The relevance of climate finance in climate action cannot be undermined, since climate change mitigation and adaptation require large-scale mobilisation of financial resources. The Economic Survey 2025-26, tabled in Parliament by Union Finance Minister Nirmala Sitharaman on January 29, 2026, highlights that the current climate finance levels are inadequate for developing countries to achieve their climate goals. This climate funding gap is not a lack of ambition, rather, is imbibed in the structural weaknesses of the international financial system.
- Climate Finance gap in India and other developing countries
By 2030, developing economies are estimated to need USD 5–6 trillion1 for effective climate action. With that in mind, the following may be noted:
- Despite global efforts, developing countries continue to face a significant funding gap of around USD 4 trillion annually for sustainable development, as highlighted at the Fourth International Conference on Financing for Development (Compromiso de Sevilla)2.
- Climate finance in India remains skewed towards only the mature sectors such as solar, wind energy and energy efficiency.
- Critical areas, including adaptation, financing for micro, small, and medium enterprises (MSMEs), urban infrastructure, and hard-to-abate industries, remain underfunded.
1.1. Challenges in mobilising private capital for climate finance
In 2023, global financial assets under management totalled USD 1.9 trillion, with private capital accounting for nearly USD 1.3 trillion3. Most of this private capital went to advanced economies, with China receiving another 30%, whereas other developing countries, excluding China, received merely around 15%. The reasons for such a gap include:
- Developing countries, being more vulnerable to climate change, face higher borrowing costs owing to currency volatility, lower sovereign credit ratings, and financial systems that lack depth.
- Most of the abundant global capital flows to developed economies with stronger financial markets and economies that pose minimal risks.
- Investors often hesitate to finance climate resilience projects in developing countries.
- Policy Initiatives towards bridging the Finance Gap
While the overall progress of the country towards the climate goals remain insufficient4, India has, over years, through policy initiatives and regulatory reforms, have mobilised climate finance to the extent that has resulted in a 36% reduction in emissions intensity since 2005 and achieved 50% non-fossil power capacity ahead of schedule. The policy initiatives taken include the following:
- Allowing 100% foreign direct investment in renewable energy projects.
- Implementing SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework, green bond guidelines. [Refer to our BRSR resource centre]
- Provision of credit lines and financing for climate-related investments by Development finance institutions in India, including IREDA, NABARD, SIDBI, PFC, and REC.
- Issuance of Sovereign Green Bonds to fund low-carbon public infrastructure, providing policy signalling and market benchmarks. [Refer to our article on SGBs here]
- Introduction of green deposit framework by RBI that optimises the flow of credit to green activities/projects by channelising institutional and household savings, with guardrails in place to overcome greenwashing challenges. [Refer to our article on green deposits here]
- Incorporating risk mitigation, reconstruction, and recovery, as well as prevention, under the State Disaster Mitigation Fund (SDMF) and the National Disaster Mitigation Fund (NDMF), institutionalised as part of the Disaster Management Act 2005.
- Implementation of Glacial Lake Outburst Flood Mitigation Programme approved under NDMF to monitor glaciers and glacial lakes in the Indian Himalayan region.
2.1. Bridging the gap domestically
Currently, around 83 per cent of India’s finance for mitigation and 98 per cent of finance for adaptation is sourced domestically, reflecting strong internal financing. While relying solely on domestic resources is insufficient to meet India’s overall climate investment needs, some steps towards strengthening the domestic financial system may include:
- Issuing municipal green bonds can unlock USD 2.5–6.9 billion for local bodies driven climate action over the next 5–10 years.
- Strengthening the financial ecosystem through the mobilisation of blended finance, de-risking of projects, and capacity building through technical assistance and training through specialised development finance institutions like IREDA, NABARD, SIDBI, PFC, and REC can play a critical role in advancing India’s climate finance landscape by supporting low-carbon and renewable energy projects.
- Extending insurance coverage to safeguard people against economic losses associated with the physical risks of climate change, and improving the creditworthiness of climate-exposed borrowers such as farmers and MSMEs.
Conclusion
There is a wide disparity between the climate vulnerability and the funds available towards supporting the climate action. While policy incentives are being shaped towards mobilising domestic finance, an effective global response is required, particularly towards the developing countries. The global capital allocation needs to be mobilised towards areas where the investment needs for sustainable development are most pressing.
See our other resources:
- Microfinance and NBFC-MFIs in Economic Survey 2026
- Economic Survey 2026: Key Insights on Infrastructure Financing
- Resources on Sustainability Finance
- Resource Center on ESG and sustainability
- UNFCCC (2024, September 10). Second report on the determination of the needs of developing country Parties related to implementing the Convention and the Paris Agreement: https://unfccc.int/documents/64075 ↩︎
- UNDESA. Sevilla Commitment Fourth International Conference on Financing for Development: https://financing.desa.un.org/sites/default/files/2025-11/FFD4%20Outcome%20Booklet%20v5_EN_Digital%205.5×8.5.pdf ↩︎
- Climate Policy Initiative. 2025. Global Landscape of Climate Finance 2025: https://www.climatepolicyinitiative.org/wp-content/uploads/2000/06/compressed_Global-Landscape-of-Climate-Finance-2025.pdf
↩︎ - https://climateactiontracker.org/countries/india/net-zero-targets/ ↩︎
Representation with respect to NBFC-related Regulatory Issues
– Team Finserv | finserv@vinodkothari.com
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Full Day Workshop on Securitisation, Transfer of Loans and Co-lending
The Pre-Summit workshop dated 28th May, 2026 is Sold Out! We have announce a repeat workshop on 27th May, 2026. Register your interest now before the seats fill up again!
Register Here : https://forms.gle/maTWJ2kBowndrLVS8
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Our Other Upcoming events:
Updates to RBI’s PSL Directions: Clarifications and Minor Amendments
Harshita Malik | finserv@vinodkothari.com
Refer our detailed write-up on the topic titled as Bank-NBFC Partnerships for Priority Sector Lending: Impact of New Directions
RBI Integrated Ombudsman Scheme 2026 – Key Changes
– Chirag Agarwal & Siddharth Pandey | finserv@vinodkothari.com
Background
The framework for Integrated Ombudsman Scheme (IOS) constitutes a cornerstone of the RBI’s customer protection and grievance redressal mechanism across the financial sector. With the objective of providing customers a single, unified and accessible platform for redressal of complaints against Regulated Entities, the RBI introduced the Integrated Ombudsman framework.
The RBI has now introduced the Reserve Bank – Integrated Ombudsman Scheme, 2026 (“IOS 2026”), which supersedes the earlier Reserve Bank – Integrated Ombudsman Scheme, 2021 (“IOS 2021”). The new Scheme shall come into force with effect from July 1, 2026.
Key Changes
The IOS 2026 seeks to refine and reinforce the existing mechanism by expanding the scope of coverage, strengthening the powers of the Ombudsman, tightening procedural timelines, enhancing disclosure and reporting. The table below highlights and analyses the key changes introduced under IOS 2026 as compared to the IOS 2021, to enable stakeholders to assess the regulatory and operational impact of the revised framework.
| Provision | IOS 2021 | IOS 2026 | Analysis / Impact |
| Definition of “Customer” & “Deficiency in Service” | The term “Customer” was not defined. Limited definition for ‘Deficiency in Service’, largely linked to users/applicants of financial services. | ‘Customer’ means a person who uses, or is an applicant for, a service provided by a Regulated Entity. (Para 3(1)(h)) ‘Deficiency in Service’ now applicable across all services provided by Regulated Entities and not just restricted to financial services. (Para 3(1)(i)) | Broadens the scope of protection by covering all services offered by Regulated Entities, not just financial services. |
| Definition of “Rejected Complaints” | Not expressly defined | New definition introduced – complaints closed under Clause 16 of the Scheme. (Para 3(1)(o)) | Clarificatory in nature; definition is not used elsewhere in the Scheme |
| Power to Implead Other Regulated Entities | No explicit power | Ombudsman empowered to make other Regulated Entities a party to the complaint if such Regulated Entity has, by an act, negligence, or omission, failed to comply with any directions, instructions, guidelines, or regulations issued by the RBI. (Para 8(6)) | Expands investigative and adjudicatory powers of the RBI Ombudsman |
| Annual Report on Scheme Functioning | The Ombudsman was required to submit an annual report to the Deputy Manager of the RBI; however, the RBI was not obligated to publish it. | It has now been made mandatory for the RBI to publish an annual report on the functioning and activities carried out under the Scheme. (Para 8(7)) | Enhances transparency and public accountability of the Ombudsman framework |
| Interim Advisory | No express provision | Ombudsman expressly empowered, if deemed necessary and based on the circumstances of the complaint, to issue an advisory to the RE at any stage to take such action as may lead to full or partial resolution and settlement of the complaint. (Para 14(6)) | Enables interim reliefs/directions and more effective complaint handling. This would help in resolving disputes by settlement at any stage. IOS permits advisories i.e., communications from the Ombudsman advising REs to take actions for full or partial complaint resolution. Advisories are non-binding and serve as a pre-award tool to facilitate quicker settlements. |
| Principal Nodal Officer (PNO) – Change Reporting | Reporting obligation not specified | Any change in appointment or contact details of PNO must be reported to CEPD, RBI (prior to change or immediately post-change) (Para 18(2)) | Additional intimation requirement for regulated entities |
| Compensation – Consequential Loss | Capped at ₹20 lakh | Enhanced to ₹30 lakh (Para 8(3)) | Increases the limit of potential financial risk for Regulated Entities |
| Compensation – Harassment & Mental Anguish | Consolatory damages capped at ₹1 lakh | Increased to ₹3 lakh (in addition to other compensation) (Para 8(3)) | Compensation limit tripled |
| Limit on Amount in Dispute | No monetary cap | No change – still no limit (Para 8(3)) | Ombudsman continues to have wide jurisdiction irrespective of dispute value |
| Timeline for Filing Complaint | 1 year from RE’s reply; or 1 year + 30 days if no reply from RE | Complaint must be filed within 90 days from the expiry of the RE’s response timeline (30 days) or last communication, whichever is later. (Para 10(1)(g)) | Considerably tightens timelines; this would mean the customers must act swiftly |
| Guidance on Complaint Filing | Dispersed across the Scheme | Consolidated guidance provided in Part A of the Annexure along with Complaint Form. (Annex) | The guidance merely reiterates the points from the scheme that relate to admissibility of a valid complaint, but this is useful for the complainant as he will be aware of the complaint filing requirements and shall not be required to be thorough with the scheme itself |
| Modes of Filing Complaint | Specified the options to file a complaint through portal, email, or courier at CRPC. | Explicitly specified the email-ID of CRPC, and the address at which the complaint shall be couriered. (Para 6(2)) | Specification of the details for filing complaint |
| Data Consent in Complaint Form | No explicit consent requirement | Explicit consent for use of personal data mandatory. (Annex) | Aligns complaint process with evolving data protection and privacy standards |
| Categorisation of Complaints in complaint form | Limited classification | Detailed categorisation of complainant type and nature of complaint. (Annex) | Enables better routing, analytics, and faster resolution |
| Maintainability Check in Complaint Form | No upfront maintainability warning | Explicit note stating non-maintainable scenarios (court pending, advocate filing, etc.). (Annex) | Reduces frivolous filings and early-stage rejections |
| Appellate Authority | Executive Director in charge of concerned RBI department | Executive Director in charge of Consumer Education and Protection Department (CEPD) explicitly designated. (Para 3(1)(a)) | Clarificatory in nature |
| Introduced system-based validation | No such provision | Complaints received via portal, will undergo a system-based validation/check and will be rejected at the outset for being non-maintainable complaints. For the complaints received via e-mail and physical mode, CRPC will assess their maintainability under the Scheme. (Para 12(1)) | This would enhance the “gatekeeping” responsibility of the CRPC, which should speed up the process for valid complaints by weeding out inadmissible ones. |
Actionables for REs:
- REs should review and align their internal grievance handling and escalation processes to ensure all service-related complaints are covered.
- REs shall provide prior intimation to the CEPD, RBI for any change in the appointment or contact details of the Principal Nodal Officer (PNO)
- REs shall take note of the enhanced compensation limits under the Scheme and accordingly reassess potential liabilities, update grievance redressal frameworks, and sensitize relevant teams to ensure compliance with revised thresholds.
- Para 18, as in the earlier Scheme, requires REs to display the salient features of the Scheme, a copy of the IOS 2026, and the updated contact details of the Principal Nodal Officer on their website and at their branches/places where the business is transacted.
Other Related Resources:
Internal Ombudsman for NBFCs: RBI’s 2026 Framework at a Glance
Manisha Ghosh, Senior Executive | finserv@vinodkothari.com
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