Cover Story

Infra Growth 2.024

July 2019

With capital investment in the infrastructure sector proposed at Rs.100 trillion over the next five years, CW delves into the expectations and opportunities as the Modi Government steps into its second term.  

Once again, the mood is Modi! And, as the NDA regime steps into its second term, there is optimism about the economy, along with the key sectors of infrastructure, oil and gas and renewable energy, among others.

  • The government’s focus on infrastructure is expected to continue in the coming five years. 
  • Key infra segments expected to contribute to Rs.15-18 trillion of orders to the construction sector over next five years.
  • Long-term measure: Setting up a dedicated infrastructure sector 
  • DFI could address the issue of financing to a large extent.

In a recent report titled Sectoral Development Prospects for NDA 2.0, ICRA lays emphasis on how the re-elected NDA regime can provide momentum to macroeconomic growth. According to the report, the macro indicators of the Indian economy have taken an unfavourable dip in terms of slowdown in GDP growth, moderation in consumption, liquidity tightness and contraction in agricultural and industrial output. This apart, the unemployment rate is at a 45-year high. Therefore, revival of economic growth will be of utmost priority for the new government. With the focus also being on fiscal consolidation, it remains to be seen how this revival will be crafted. Other factors that may play spoilsport are inflation, worsened trade deficit and crude price volatility, which can disturb the long-term dynamics of India’s current account deficit. Amid these, the government will have to boost infrastructure investment and private consumption, while maintaining fiscal discipline.
Undoubtedly, the government’s focus on infrastructure is expected to continue. The past five years have witnessed a massive push towards Bharatmala, Sagarmala, inland waterways, Housing for All, AMRUT, Smart Cities, metro-rail and railways. And, with the continuity in government, ICRA estimates a growth in the total budgetary allocation. 

As Shubham Jain, Group Head & Vice President-Corporate Ratings, ICRA, says in the recent report, “The next five years will see massive infrastructure build-up in India. The capital investment in the sector has been proposed at `100 trillion over the next five years, a huge increase from the current level. Among key segments, transport infrastructure is expected to see a major jump with an estimated `25-30 trillion of capital outlay over the next five years. 
Such an investment will provide tremendous long-term benefits for the Indian economy.” He mentions that construction companies are likely to be the major beneficiaries and will witness strong order inflows, estimated at `15-18 trillion on the basis of these infrastructure capex plans.
Bold policies, tough decisions
Given the tightness of the fiscal condition, bold policies and tough decisions are expected to be seen in the next five years.
“The Bimal Jalan committee report is awaited and likely to be submitted sometime in July 2019,” says Samata Dhawade, Vice President and 
Lead Economist, Aditya Birla. She adds that the report will provide clarity on what percentage of RBI’s excess capital can be transferred to the government and in which form. “The Finance Ministry was of the view that the buffer of 28 per cent of gross assets maintained by the Central Bank is well above the global norm of around 14 per cent. There are expectations that it may be part cash transfer, as full cash transfer seems unlikely. So the possibility is that transfers will be in other forms of bonds. Nonetheless, it is estimated that `3 trillion will come in over three years and is most likely to be used for regular government spending.” The distribution of profit from RBI to the government will be utilised partly to recapitalise public-sector banks, partly to retire public debt with RBI, and partly for the government’s expenditure. 
If successfully implemented, the government will be able to strengthen public-sector investments in infrastructure.
For his part, Abhishek Gupta, Assistant Vice President-Corporate Ratings, ICRA, points out that major policy measures, if implemented, will be positive for the construction and infrastructure sectors by way of improved liquidity, ability to take up newer projects and increased private-sector participation, thereby reducing the burden on government spending. According to him:

Measures as per the recommendations of Kelkar Committee can be implemented to improve the PPP environment. Also, an independent regulatory body for key segments like roads can be formulated.
The mechanism of claims settlement can be further strengthened and fast-tracked. One-time settlement of long-pending claims can be taken up.
Slow-moving legacy projects can be mutually foreclosed or terminated or their scope reduced to remove the uncertainty surrounding them.
Facilitating/supporting higher usage of investment vehicles like InvIT, infrastructure debt funds and the National Investment and Infrastructure Fund, which have been formulated to improve financing avenues. Besides, strengthening the corporate bond market can also help channel long-term patient capital into infrastructure assets. Further, select strong infrastructure CPSE can be permitted to raise long-term funds through infrastructure and tax-free bonds.

For the construction sector, Madan Sabnavis, Chief Economist, CARE Ratings, highlights two elements: “First is the construction activity driven by the government, which comes from the Budget. Here, the capex of the government is important, which is restricted to the room available in the Budget. The expenditure is basically on roads, railways and, to an extent, urban development.” These expenses are generally on target every year with a possible slippage of less than 5 per cent in case aggregate revenue does not increase. 
“The second element is private construction, where companies get involved both as EPC operators and on their own accord like real estate. The latter is where the government can continue with its policies on, say, affordable housing. There is potential to increase construction in this area in the next five years as Housing for All gains traction.” He says that the non-conventional housing segment will still be dependent on the reaction of individual companies and households given the expansion of commercial space required or the requirement of housing, as is the case with the latter.
With the slowdown in economic growth over the past couple of quarters, it is imperative that policy decisions provide necessary impetus to the infrastructure sector to ensure growth. “While increasing budgetary allocation is required, addressing funding issues is the key to future growth and private participation,” says Vishal Kotecha, Associate Director, India Ratings. “Strengthening the financial system and improving the bank’s balance sheet is essential to ensure increased availability of credit in the short term.” However, as a long-term measure, he believes setting up a dedicated infrastructure sector DFI will address the issue of financing to a large extent. 
Kotecha also points to ensuring timely payments from government counterparties as critical for funding projects. “Subsequently, providing comfort to lenders with a tripartite as a payment security mechanism would ease payment uncertainty risk,” he says. “Acting on land acquisition-related issues to ensure projects are not stuck and ensuring prompt resolution is also important.” He adds that asset monetisation of operational projects and channelling resources towards building new assets is critical.



“Implementation of river interlinking will raise the ultimate irrigation potential.”
With KNRCL being among the dominant players in infrastructure projects, specific to irrigation projects, K Jalandhar Reddy, Executive Director, KNR Constructions, shares more on the segment and growth opportunities coming along with river linking projects.

How do you view the current growth and construction opportunity in the segment?
India Water Vision 2025 estimates that the gross water demand for multipleuses will double 25 years from now, with corresponding investment needs of Rs.200 billion per year. As of now, India’s irrigation infrastructure is expanding by 1.8 Mha of irrigation potential with a public outlay of `70 billion per annum. Six states – Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Telengana, Bihar and Odisha – together account for 50 per cent of the irrigation potential created and 45 per cent of net area irrigated in the country. In many irrigation commands, command areas effective irrigated area has declined owing to deterioration in distribution infrastructure. The overall results of the current growth of the sector and the construction opportunity are just average. 

How do you view the availability of funds for project execution?
Water resources projects are planned, funded, executed and maintained by state governments as per their own resources and priorities. To supplement their efforts, the government of India provides technical and financial assistance and encourages sustainable development and efficient management of water resources through various schemes and programmes, such as the Accelerated Irrigation Benefits Programme (AIBP) under the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY). Under PMKSY, 99 ongoing irrigation projects were identified for completion in mission mode by December 2019. The total requirement of funds for completion of these projects was estimated at Rs.775.95 billion with central assistance of Rs.313.42 billion. 
The Telangana Government is all set to complete its prestigious s.800 billion Kaleshwaram mega irrigation (and drinking water) project in addition to the Palamurulift irrigation scheme of Rs.320 billion and Baghiratha drinking water scheme of Rs.400 billion by resorting to institutional borrowings and budgetary support. Other states such as Uttar Pradesh and Maharashtra are also working out the same model.

How do you view the construction opportunities in the sector for the next five years? 
The river interlinking programme is of national importance and has been taken up on high priority. Under the National Perspective Plan (NPP) prepared by the Ministry of Water Resources, the National Water Development Agency (NWDA) has already identified 14 links under the Himalayan Rivers Component and 16 links under the Peninsular Rivers Component for inter-basin transfer of water based on field surveys, investigation and detailed studies.The interlink project has been split into three parts: A northern Himalayan rivers interlink component, a southern peninsular component, and an intra-state rivers linking component. The Prime Minister is planning to speed up the ambitious Rs.5.5-trillion river interlinking plan, which aims to link rivers through a network of reservoirs and canals across India. 
A separate ministry, namely Jalasakthi, has been formed to give greater impetus to irrigation, drinking water and waterways. The recent presidential address also alluded to the government’s spending of `25 trillion to this sector. NWDA has received 46 proposals of intra-state links from nine states: Maharashtra, Gujarat, Jharkhand, Odisha, Bihar, Rajasthan, Tamil Nadu, Karnataka and Chhattisgarh. These river linking projects will provide substantial growth opportunities to EPC contractors, including KNRCL, in the next five years. 

Any recommendations to give a further fillip to the sector?
Implementation of the river interlinking programme under the National Perspective Plan (NPP) will give benefits of 35 million hectare of irrigation, raising the ultimate irrigation potential from 140 million hectare to 175 million hectare and generating 34,000 MW of power, apart from the incidental benefits of flood control, navigation, water supply, fisheries, salinity and pollution control, etc. The funding pattern for this programme is to be finalised. Creation of the Jal Shakti ministry may be a first step in this direction. Increased fund allocation has to be made by the Budget as a follow-up to boost irrigation and drinking water to villages.

Considering irrigation and other construction segments, which sectors will the company’s business focus on?
As a prudent measure to grow profitably and maintain a light balance sheet, KNRCL has always maintained a reasonable balance between building an order book and on/before schedule delivery via faster execution. The company’s guiding principle is to quote projects with a reasonable EBITDA and avoid accumulating projects with aggressive quotes and limit the number of projects to such an extent that monitoring and execution can be perfected and completed in a timely manner. The ongoing thrust on NHAI’s Bharatmala projects, upcoming river linking projects in various states, state-leand rural areas that are digitally connected through the BharatNet project. While there has always been a ‘push’ from the Centre for the smart city concept, better Centre-state coordination, adequate and timely funding and a greater sense of purpose from city authorities and municipalities through empowered SPVs and nodal agencieswill be required to give the sector a much-needed fillip. 

“The decision-making process and awarding of contracts need to be faster.”
At present, Tata Projects is executing works on important stretches of the Eastern and Western Dedicated Freight Corridors. Rahul Shah, COO-Urban Infrastructure, Tata Projects, elaborates on the factors bringing optimism to the railway sector in the coming years. 

How do you view the current growth and construction opportunity in the sector? 
Indian Railways has achieved the highest ever capital expenditure of about  Rs.1.32 trillion in 2018-19. This is a jump of `300 billion from the Rs.1.02 trillion achieved a year ago. 
In addition, the government has proposed a conversion of all viable rail tracks to broad gauge, electrification of all railway tracks, and completion of the two dedicated freight corridor projects by 2022. Hence, there is huge potential for capacity augmentation and modernisation across the sector.

How do you view the availability of funds for project execution?
Indian Railways is one of the largest carriers of both passengers and freight across the nation. Projects in this segment are economically viable and, therefore, will not face funding constraints. Also, many domestic and international financial institutions are keen to fund railway projects.

How do you view the construction opportunities in the sector for the next five years?
We look forward to garnering significant orders whenever the government awards projects in this sector, thereby contributing to the company’s overall growth. Also, Indian Railways is an important factor in the nation’s development if one considers it in terms of length of lines covered (67,000 km of track), freight volume handled (1.1 billion tonne) and passenger numbers (8 billion). In addition, it is also among the nation’s largest employers with about 1.3 million employees.However, there still exists immense scope for further capacity expansion and modernisation. In the next five years, we foresee huge capital expenditure in the expansion of rail lines and modernisation of allied amenities such as signalling, electrification and railway station upgradation. 

Any recommendations to give a further fillip to the sector?
The current government intends to continue initiatives to expand and modernise the railways, which is encouraging. However, we feel the decision-making process and awarding of contracts need to be faster. The issue of securing local-level permissions needs to be simplified and quicker. Right of way is an issue that needs to be addressed so that timely project completion is achieved. Disbursals of financing to contractors need to be done in a timely manner. This will not only support the government’s developmental agenda but spur the domestic industry.

Considering the railways as well as other construction segments, which sectors will the company’s business focus on? 
In its manifesto, the government had proposed $1.44 trillion to build roads, railways and other infrastructure, a boost to manufacturing and a doubling in exports. Hence, we are expecting major capital expenditure from governmental and private sources into all major infrastructure sectors. We will continue to leverage our expertise in executing large and complex urban and industrial infrastructure projects, thereby ensuring higher growth in the years ahead.

“Disbursals of financing to contractors needs to be done in a timely manner.”


Metro-rail lines are one of the best mass-transit options for the public in congested city areas. Rahul Shah, COO-Urban Infrastructure, 
Tata Projects, shares his views and elaborates on the big construction opportunities coming up in 
this segment. 

How do you view the current growth and construction opportunity in this segment?
There are 67 metro-rail projects across 27 cities in India. Of these, nearly 54 projects are at various stages of development and many more are being planned. Hence, huge potential exist for setting up metro-rail lines across Indian cities.

How do you view the availability of funds for project execution?
These projects are economically viable and, therefore, will not face funding constraints. In addition, many domestic and international financial institutions are keen to fund metro-rail projects. 

How do you view the construction opportunities in the sector for the next five years?
We are currently undertaking projects in Mumbai, Pune and Ahmedabad. We have also recently executed metro-rail projects within stipulated timelines in Lucknow and Ghaziabad.
We feel there is a huge potential to setup metro-rail lines across Indian cities. About 650 km are currently operational, and another 600 km of sanctioned metro-rail lines are under construction and are expected to be operational in the next five years. In addition, proposals for about 1,000 km are under planning. This gives us immense confidence in the long-term potential of the sector and shall contribute significantly to our company’s overall growth. 

Any recommendations to give a further fillip to the sector?
By 2030, it is estimated that India will have 71 metropolitan cities, of which, seven would have a population of over 10 million. This will make our cities denser and congested, thereby necessitating a reliable and top-notch, intra-city commuting option. Here, metro-rail networks will emerge as the best mass public transportation model that can be adopted nationwide. However, we feel the decision-making process and awarding of contracts needs to be faster. The issue of securing local-level permissions needs to be simplified and quicker. Right of way is an issue that needs to be addressed so that timely project completion is achieved. Disbursals of financing to contractors need to be done in a timely manner. This will not only support the government’s developmental agenda but also spur domestic industry.

Considering the metro-rail and other construction segments, which sectors will the company’s business focus on?
As an end-to-end player in the infrastructure sector, we expect enhanced opportunities across the entire business, thereby spurring the company onto higher growth levels in future. We feel the government will continue to focus on infrastructure projects and expedite their implementation. We foresee huge potential in metro-rail, roads, water supply and wastewater management, power and transmission, housing, smart cities, industrial facilities and allied amenities such as construction of hospitals, hotels, educational institutions and tourism facilities. 

“Infrastructure should precede residential development and not the other way round.”

Sriram Mahadevan, Managing Director, Joyville Shapoorji Housing, shares more on the potential of affordable housing in India and the company’s focus going forward.

How do you view the availability of funds for project execution? 
For corporate developers, availability of funds has never been a challenge. The situation has not changed much, even during the current liquidity crunch witnessed overall in the financial market.

How do you view the construction opportunities in the sector for the next five years?
Demand for affordable housing has always been there; this lends itself to huge opportunities for construction. The healthy pipeline of construction activities in the affordable segment will keep generating employment opportunities that, in turn,will fuel the GDP growth rate going forward. Thus, construction of affordable housing will surely contribute positively to the overall growth of the economy.
Any recommendations to give a further fillip to the sector? 
Building affordable housing in far-flung areas with scanty connectivity and social infrastructure is not desirable as the target segment may not like to displace themselves and move to such a place. 
The solution is to fuel the infrastructure of metros connecting the far-flung areas through an efficient mass transport system, which would ensure that an increasing amount of land is made available in the market for development. Infrastructure should precede residential development and not the other way round. Approval timelines have remained a challenge for the real-estate sector. Single-window clearance with defined timelines will surely help the viability of the business and ensure more supplies are infused in the market.

How do you view growth in affordable housing in the coming five years? 
Joyville is catering to the mid-income segment, which is important in the India's growth story for the next five years. We are present in four metros so far and would like to focus on getting into other job-creating metros like Bengaluru and Hyderabad, apart from expanding in Mumbai, Pune and Delhi (NCR).
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“I strongly recommend modification in the qualification criteria.”

Based on the company’s experience of executing airport projects in Shirdi, Mangaluru, Belgaum and elsewhere, Vilas K Birari, Chairman & Managing Director, Harsh Constructions, shares his views on the airports sector and expected opportunities.

At present, how do you view the availability of funds for project execution?
AAI is an adequately funded body. It is prompt in making payments to contractors on the submission of running bills.

How do you view the construction opportunities in the sector for the next five years? 
There is a huge opportunity in this sector. Apart from expansion and modernisation of existing airports, the government has announced the construction of many airports under the Regional Connectivity Scheme (RCS) to realise their commitment under UDAN.

Any recommendations to give a further fillip to the sector?
AAI has introduced a new concept in the construction industry, considering the floatation of current tenders on EPC mode. As a result of the stringent qualification criteria, limited bidders have been qualifying. I strongly recommend modification in the qualification criteria to open up the sector to more competition. 
I suggest tenders up to Rs.5 billion; the existing bidding system should be continued to ensure smooth operations, which will avoid monopoly and overtrading of some limited construction companies.

Considering airports as well as other construction segments, which sectors will the company’s business focus on?
We are expecting major funding in water treatment, sewage treatment and waste management, wherein major projects shall be opened up by the government. 
As a company, we are seriously evaluating our entry into these sunrise areas.

“Promote more ports and terminals on BOT basis.”

Having successfully undertaken several port development projects, Navayuga Engineering Company specialises in ports and harbour structures as well as operating ports. Dr Ir PV Chandramohan, Sr President (Technical), Navayuga Engineering Company, shares more on 
the potential he envisages in this area. 

How do you view the availability of funds for project execution?
Ports should be taken as opportunities for trade. The major income of countries such as Singapore comes from port activity. If a port is taken as a business, it is a question of profit and loss. Ports are gateways to the nation. All incoming and outgoing trade has to pass through these gateways. The government will come out with funds; more and more entrepreneurs are considering ports as a business investment. We will have to promote this. 

How do you view the construction opportunities in the sector for the next five years? 
At present, we are at the launching point of a great leap in the field of ports. This is mainly because of the initiative taken by the government. The climate for investment has certainly changed. Sentiments have improved and there is optimism all round. The company specialises in port and harbour structures. We are operating Krishnapatnam Port and two other ports are in the offing. We hope to grow in construction and trade in the coming days.

Any recommendations to give a further fillip to the sector?
Promote more ports and terminals on BOT basis. This will help construction companies participate in the ports business, apart from being confined to construction alone. This will bring in more investments.

Considering ports as well as other construction segments, which sectors will the company’s business focus on?
With agriculture being a core sector, irrigation is a field connected to it. The government will prioritise this sector. We are involved in a big way in irrigation in Telengana, Madhya Pradesh and Andhra Pradesh. We are deeply involved in dams, which are a part of irrigation. 
provide elbow room to get the money in, says Jagannarayan Padmanabhan, Director CRISIL Infrastructure Advisory."Asset monetisation can be looked at as one in TOT, second in infrastructure investment trust,third interms of land moetisation, and the fourth could be the portfolio sale of infra assets to strategic investors, This could be a way of getting the money in."
And Abheek Barua, Chief Economist and executive Vice President, HDFC Bank, says,"For the construction sector, a lot of the funding is done off-Budget. For instance, NHAI issues bonds in the market and uses the money raised for highway projects. These are often referred to as off-balance sheet exposures of the government. But in an illustrative sense, the fiscal problem we have does not affect this. So these large entities, which are called public-sector entities, will be doing most of the heavy lifting in infrastructureand other construction for a while."

Easy room for infra
The availability of project funding has suffered since mid-2018.Kotecha agrees, saying, “There is a dire need to address the liquidity crunch, else project completion will be delayed and economic growth affected.” 
Gupta believes the construction sector will benefit significantly if long-pending claims are settled as that will provide immediate liquidity support.
It is believed that the focus on roads, urban infrastructure, railways and airports will continue. Among road projects, Dhawade believes the focus will be on rural roads in the next two years. “Further, the government’s drive on asset monetisation of road projects is likely to continue, which will enable implementation of new road projects.”
Meanwhile, Sabnavis sees housing as an area that could merit some attention in forthcoming Budgets where households are given bigger tax breaks to invest in dwellings. 

Five-year opportunity
Infrastructure is expected to remain the focus of the government.“Infrastructure is a chronic deficit area,” says Barua. “One area builders can look at broadly in construction is the renewed emphasis on water and water availability, which would mean pipelines, river connectivity and small and large dam buildings to reduce monsoon dependency.”The speed of road construction had become the benchmark for India’s infrastructure creation. Hence, Dhawade says, “If the government is able to support this with appropriate policy and necessary clearances, cost overruns and delays can be reduced substantially.”
For his part, Sabnavis says the primary requirement is “acceleration in economic growth” as this spurs demand in the infra space. 
“The resolution of pending IBC cases will be paramount as a lot of interest in infra has been dissipated owing to these.” 
All considered, the construction sector derives its orders from three key sectors: Infrastructure, real estate, and industrial. The infrastructure sector has been highly dependent on public-sector spending in the past few years as private-sector participation has been limited to a few segments such as roads.
However, public spending has increased over the years, which has supported infrastructure development, particularly in transport and urban infrastructure, according to Gupta. “The government or public-sector capex in these segments is likely to grow further over the next five years as infrastructure creation and upgradation remain a key focus area.” Overall, he sees the key infrastructure segments contributing to Rs.15-18 trillion of orders to the construction sector over the next five years. Plus, construction players focused on affordable housing will see healthy order inflows.

Top priority segments
In these five years, the government needs to focus on getting private-sector participation on board. As Padmanabhan says, “It is about time we get the private sector’s active participation. And obviously, the other elephant in the room is bank credit and how to get it channelled to the private sector.”
The government is likely to focus on the programmes initiated during its earlier term like Bharatmala, Sagarmala, smart cities, AMRUT and Namami Gange. The roads sector is expected to be the most crucial, followed by affordable housing. Smart cities have not quite taken off as they require funding from states and municipalities but have the potential to forge strong backward linkages with the rest of the economy. While irrigation will see limited contribution from the Centre (though will remain high priority at the state level), water-related projects like inland waterways, river cleaning and water supply are expected to be other key focus areas.
Additionally, in the ICRA report, Jain mentions the opportunities that construction companies can look forward to in the next five years:  

  • For roads, the manifesto mentions constructing 60,000 km of National Highways over the next five years, at an average rate of 12,000 km per year. Given that the pace of highway construction has grown significantly over the past four to five years (increasing from 4,410 km in FY2015 to 9,829 km in FY2018 and ~10,855 km in FY2019), 
  • with sizeable under-implementation projects, the target seems achievable.
  • For railways, the manifesto proposes a conversion of all viable rail tracks to broad gauge, electrification of all railway tracks, and completion of the two dedicated freight corridor projects (EDFC and WDFC) by 2022. Further, large investment is also envisaged towards railway station modernisation across the country.
  • The aim is to increase metro-rail infrastructure to 50 cities from around 20 cities where the project has been approved so far. 
  • With regard to airport infrastructure, the target is to double the number of functional airports from around 
  • 101 currently. 
  • Similarly, port capacity is aimed to be doubled over the next five years and the Sagarmala project is to be fast-tracked.