India pension regulator eyes boosting infrastructure investment

India’s pension regulator is open to facilitating more investment in the country’s booming infrastructure space after the government launched a credit enhancement program for bonds that finance projects like roads and ports.

The government on Thursday launched the program with the aim of boosting the rating of infrastructure bonds and in doing so, attracting investors like pensions and life insurance companies that tend to only invest at the higher end of the credit spectrum.

“We will certainly want to make sure there is a smooth flow of money to infrastructure bonds or infrastructure projects if Nabfid provides a credit enhancement guarantee,” Sivasubramanian Raman, the chairman of the Pension Fund Regulatory and Development Authority, said in an interview.

Infrastructure is a core component of Prime Minister Narendra Modi’s economic goals, driving the administration to look for ways to incentivize investment and close a large funding gap. Indian infrastructure will need more than INR 25 trillion ($284 billion) of debt over the next four fiscal years to meet those goals, about a quarter of which will need to come from bonds, according to a report by Crisil Intelligence.

Even though overall capital outlay for infrastructure has boomed over the last decade, increasing nearly 600%, bond issuance from the sector has been lackluster.

The program is operated by the National Bank for Financing Infrastructure and Development, or Nabfid, and will allow the agency to guarantee up to 20% of the bonds. It aims to encourage more issuance by reducing the borrowing cost for issuers and attracting investors who might have otherwise been deterred by low credit ratings.