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Economic Survey 2026: Key Insights on Infrastructure Financing

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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:

  1. NBFCs;
  2. Capital markets;
  3. 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:

  1. Attract long-term institutional capital such as pension and insurance funds;
  2. Remove operational assets from bank balance sheets, reducing asset-liability mismatches;
  3. 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:

  1. Providing exits to developers; 
  2. Improving liquidity in infrastructure markets;
  3. 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:

  1. 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);
  2. 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.
  3. 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.

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Microfinance and NBFC-MFIs in Economic Survey 2026

Microfinance and NBFC-MFIs in Economic Survey 2026

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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