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India’s surety insurance bond market has not yet taken off due to unaddressed risks and the absence of market makers, despite its potential being huge.
As per research, the estimated maximum possible supply of bank guarantees over the next 5 years would be about INR35tn ($421bn) whereas Infrastructure projects would need guarantees totaling INR95tn over the period. This represents a huge shortfall of INR60tn ($722bn).
This gap in guarantee provides Surety insurance as an alternative allowing stakeholders to tap surety bonds to meet demand. India is expected to spend about INR100tn ($1.2tn) on infrastructure through the National Infrastructure Pipeline in the next 5 years, obligating the need for bank guarantees of about INR90tn in the same period, which is beyond the capacity of Indian banks.
This situation presents a unique opportunity for the general insurance industry to diversify its portfolio and play a critical role in nation-building. In Budget 2022–23, surety insurance was allowed as a substitute for bank guarantees in government procurement and gold imports.