Indian states to tap infra trusts to replicate New Delhi's success, sources say

Indian states, traditionally cautious about innovative funding models, are turning towards infrastructure investment trusts (InvITs) to monetise their assets, following the federal government's success, said four sources aware of the matter.

States such as Maharashtra, Gujarat and Tamil Nadu are preparing to launch independent InvITs, while Rajasthan is in advanced talks with the National Highways Authority of India (NHAI) to pool its assets under a central road development arrangement, the sources told Reuters.

They requested anonymity as they are not authorised to speak to the media.


The finance departments of the states did not immediately respond to a Reuters email seeking comment.

InvITs are investment schemes similar to mutual funds that allow individuals and institutions to directly invest in infrastructure projects. The investors earn not only a share of the income generated, but also the capital gains on the appreciation of the units they own.

InvITs are an alternative to traditional financing methods as they allow the sponsor to recycle capital and fund new infrastructure.

The total assets under management of InvITs in India exceeded 7 trillion rupees ($78.86 billion) as of March-end, while their market capitalisation stood at 2.40 trillion rupees, according to Bharat InvITs Association (BIA).

The move will attract a wider investor base, deepen market participation, and create fresh opportunities for long-term capital, said NS Venkatesh, CEO of BIA.

Traditionally the domain of the roads and power sectors, InvITs by the states will diversify the industry, "...with the possible addition of newer sectors such as ports, sewage and water treatment plants, and urban and railway infrastructure", he said.

Some states are also in preliminary talks with the National Bank for Financing Infrastructure and Development (Nabfid) to support their trusts, one source said.

Federal success

The federal government has monetised assets worth 926.3 billion rupees over the past five years through models such as toll-operate-transfer (TOT) and an InvIT launched in 2022, according to a report by rating agency ICRA last month.

The TOT model allows a private company to collect tolls from a specific road segment for a period in exchange for a lump-sum upfront payment to the government.

ICRA projected road monetisation between 350 billion rupees and 400 billion rupees for the current fiscal year.

While states aim to replicate this success, experts have raised concerns about investor enthusiasm if states proceed without backing or guarantee from the central government.

"We need to see the exact structure before deciding whether they will be successful or not," one source said.

Maharashtra has the largest state highway network at 31,992 km, followed by Gujarat (16,557 km), Rajasthan (15,165 km), and Tamil Nadu (11,169 km) as of March 2020, according to central government data.