The government is actively seeking to address India's infrastructure financing challenges through targeted policy measures. As reported by The Economic Times, India is grappling with a funding shortfall as long-term liabilities are rapidly decreasing, with more than 90% of bank deposits and debt now having maturities of less than three years, compared with 60-65% earlier. To counter this issue, the government is proposing insurance and pension products to generate longer-term liabilities for investment, alongside tax incentives targeted at long-term savings. This initiative comes as crucial infrastructure projects requiring decades of support face funding risks due to the shrinking pool of long-term financial instruments.
ICICI Prudential Life Insurance CEO Anup Bagchi has called for tax incentives on long-term insurance policies to counter the growing preference for shorter-duration instruments. Speaking at NaBFID's Infrastructure Conclave 2026, Bagchi suggested that tax advantages should be provided for 10-year-plus policies or 15-year-plus policies to help insurers build stable liability pools for infrastructure investment. According to reports from Business Standard, Bagchi noted that insurers need parity with the tax advantages that equities enjoy over debt to increase long-term liability pools. As per The Economic Times, Bagchi emphasized that when we look at liabilities for the long term, then we should also see that there is any tax advantage between asset classes.
The insurance sector is experiencing a significant shift towards shorter-duration investments, with bank deposits under three years rising from 60-65 per cent to 90 per cent. As reported by The Economic Times, Bagchi highlighted that today almost 90% plus of the deposits and debt are less than three years now. It used to be 60-65%. So clearly it is shortening. Shorter policy durations leave insurers with less stable long-term funding to match against long-duration assets like infrastructure, potentially creating mismatches in duration, liquidity and cash flows. According to Business Standard, Bagchi noted that mutual funds are also seeing higher demand for short-duration options, creating challenges for insurers seeking long-term liability funding.
Despite insurance and pension funds being naturally suited to long-term infrastructure investment, they must carefully manage credit, interest-rate and liquidity risks that are further complicated by infrastructure's variable cash flows. According to the report, insurers have shifted over the past decade from funding infrastructure NBFCs to participating directly in large asset pools and SPVs such as airports. However, credit enhancement mechanisms haven't kept pace, reducing loss given default rather than the probability of default, leaving insurers wary of insolvency risk, NPA management and reputational exposure. As per The Economic Times, the scale of infrastructure investment required in India would be substantially higher than current government spending.
LIC MD Dinesh Pant emphasized that insurance and pension funds are poised to play a transformative role in infrastructure financing, but only with proper risk-balanced governance frameworks in place. As reported by The Economic Times, Pant noted that the industry needs to create a governance structure, which ensures that these desired outcomes are balanced between the borrowers or the investment requirements for the sector plus people who are going to invest. The industry leaders stressed the need to re-evaluate the type of instruments available and the overall governance framework to support infrastructure investment. Pant also flagged the need to balance infrastructure funding requirements with the interests of policyholders while addressing the scale of infrastructure investment required in India.
