How InvITs are playing pivotal role in bridging infrastructure funding gap, experts weigh in

Infrastructure Trusts, commonly known as InvITs, have emerged as a transformative financial instrument in India, playing a pivotal role in revitalizing the country's infrastructure sector.

In the past decade, infrastructure developers in India faced challenges in securing capital at the development company level, particularly for greenfield projects. Pratik Agarwal, managing director of Sterlite Power and Chairman of Serentica Renewables emphasised that InvITs have provided a solution by allowing developers to recycle capital efficiently.

“What InvITs did is effectively allowed you to recycle capital. So developers can do what they do best- bring in projects from the paper stage to the commissioning stage and then offload that into this instrument, which can then recycle that capital. And I think it has done exceedingly well with thousands of crores of assets now in these vehicles.

And as we look forward, India, just in the power sector will spend about ₹20 lakh crore in generation and about ₹5 lakh crore in transmission. That's the amount of development that's needed in the next eight to nine years alone. Therefore, InvITs provide this amazing vehicle by which in a safe way, developers can put those assets into different vehicles, recycle their capital, and then make sure that this ₹25 lakh crore gets built in the next seven, eight years," Agarwal stated in an interview to CNBC-TV18.

Since their inception, InvITs have successfully raised funds exceeding a lakh crore, with a predominant focus on infrastructure segments such as roads, renewables, and telecom assets. This influx of funds has played a pivotal role in alleviating the capital-intensive and cash-starved nature of the infrastructure sector, paving the way for sustained growth and development.

Suraj Krishnaswamy, executive director of Investment Banking at Axis Capital, highlighted the maturation of InvITs as a financial product, attracting a diverse range of investors. Corporate treasuries, mutual funds, insurance companies, and bank treasuries are now actively participating in InvITs, regardless of the prevailing interest rate cycle. Krishnaswamy predicted a continued increase in capital allocation towards InvITs, with a potential influx of riskier assets in the near term.

Suresh Goyal, MD and CEO of NHAI InvIT emphasised the critical role of infrastructure in driving the country's growth. Goyal underscored that while India has made significant strides in building new infrastructure, capital flow into these projects had been constrained.

InvITs provided a unique avenue to tap into the vast pool of long-term savings in the country, including pension funds, insurance companies, and financial savings of investors. This approach not only supports the capital-intensive nature of the sector but also aligns with the risk-averse nature of long-term investments.