Regulatory asks for Infrastructure sector from 2026 Budget

The article was first published in The Economic Times Edge Insights.com on January 28 2026. Please click here to read the article.

As the countdown to February 1, 2026, begins, the Indian infrastructure sector–the backbone of the government’s ‘Viksit Bharat 2047’ vision–is pinning high hopes on the upcoming Union Budget. With the current fiscal year showing robust GDP growth but lingering global headwinds, industry leaders and policy analysts are calling for a "Budget of Certainty." The focus this year has shifted from mere headline allocations to the fine-tuning of the tax and regulatory gears that drive project execution and capital flow.

The capex push: From billions to trillions

Expectations are high that Finance Minister Nirmala Sitharaman could announce the National Infrastructure Pipeline (NIP) 2.0, a successor to the original pipeline, covering the period from 2026 to 2032. Industry bodies like the Confederation of Indian Industry (CII) have recommended a 12 per cent hike in central capital expenditure.

However, the sector’s primary plea isn't just for more money, but for the implementation of a Capital Expenditure Efficiency Framework (CEEF). This framework could ensure that every rupee spent translates into faster physical progress by penalising procedural delays and rewarding early project completion.

Solving the FVCI-InvIT regulatory knot

A critical regulatory expectation involves resolving the persistent ambiguity surrounding Foreign Venture Capital Investors (FVCI). The Foreign Venture Capital Investor (FVCI) route is a specialised investment channel that allows overseas investors to fund high‑growth and emerging sectors in India. Under this route, eligible foreign entities can invest in unlisted Indian companies, particularly those operating in infrastructure‑related areas. The framework is regulated by SEBI and the Reserve Bank of India.

While SEBI has progressively eased norms for FVCIs, there remains a disconnect with FEMA (Non-debt Instruments) Rules. Currently, the eligibility of FVCIs to invest directly in units of Infrastructure Investment Trusts (InvITs) sits in a "gray zone."

Since InvIT units are hybrid instruments, the lack of explicit alignment between SEBI and RBI (FEMA) regulations often forces foreign funds to seek expensive "workarounds" with respect to their investments in the infrastructure sector, which proposes to transition into an InvIT or avoid the route entirely. Industry experts expect Budget 2026 to explicitly permit FVCI participation in InvITs, potentially unlocking billions in patient, long-term global capital.

The OpCo-HoldCo ambiguity for infrastructure and FVCI investment

Beyond InvITs, the industry is highlighting a second major gray area: FVCI investment in "Operating-cum-Holding" (OpCo-HoldCo) companies within infrastructure platforms. Many large-scale developers operate as platforms that hold multiple Special Purpose Vehicles (SPVs) while simultaneously managing core operations. Under the current RBI classifications, these entities often risk being labeled as Core Investment Companies (CICs) or NBFCs.

Because FVCIs are generally prohibited from investing in the "Negative List" (which includes non-banking financial services), these vital infrastructure platforms are often starved of venture capital. The sector is urging the government to explicitly exempt infrastructure-focused OpCo-HoldCos from the NBFC classification for the purpose of FVCI investment, allowing them to act as central vehicles for scaling multiple sub-projects efficiently.

Widening the 'Harmonised List' for a green future

To meet India’s 2030 climate goals, the industry is hoping for the Harmonised Master List of Infrastructure to be significantly widened. Currently, being on this list is a prerequisite for accessing cheaper credit, longer-tenure loans, and External Commercial Borrowings (ECB).

The sector expects Budget 2026 to grant "Infrastructure Status", inter alia, to:

EV Charging Infrastructure

To de-risk the transition to electric mobility and allow operators to access priority sector lending
Green Hydrogen Facilities

Specifically, for electrolyser manufacturing and storage plants to kickstart the domestic ecosystem
Smart Meters

To support the Revamped Distribution Sector Scheme (RDSS) and modernise the national power grid, ensuring better revenue collection for DISCOMs

Conclusion

A regulatory blueprint

As India enters the final years of the decade, the 2026 Budget should be more than just a balance sheet; it should be a regulatory blueprint. By resolving the FVCI-FEMA deadlock, clarifying the status of holding companies, and expanding the infrastructure umbrella to include new-age green tech, the government can transform the sector from a state-funded engine into a self-sustaining, private-capital-led powerhouse.

Co-Authored with Kunal Rathi, Director, M&A and PE Tax, KPMG in India