Indian infrastructure is likely to witness a massive increase in investment with a target of Rs.105 trillion to be spent over the next five years (FY2020-FY2025), according to ICRA. At a time when the overall economic growth is slowing, increasing investment in infrastructure can be a trigger to boost growth. Typically, infrastructure projects have a construction intensity of 60-80 per cent, which would result in order inflows of Rs.60 trillion to the construction sector over the next five years.
As per the recently unveiled National Infrastructure Pipeline (NIP), the majority of the Rs.105 trillion investment plan will be allocated to the transportation, energy, urban infrastructure and water sectors. The transportation sector can see a capital outlay of Rs.36 trillion with major investment in roads and highways, railways and ports over the next five years. While a large development plan is already underway for the national highways under the Bharatmala Pariyojana scheme, many states have also taken up large road development projects. Similarly, for the Railways, besides the regular capex of railway line upgradation, modernisation of railway stations and the bullet train project will necessitate a higher capital outlay over the next five years. In the ports sector, Sagarmala is expected to see investment of Rs.1 trillion and an increased implementation push over the next five years. Airports are also likely to see a large investment of Rs.1.4 trillion over the next five years with some greenfield and brownfield airport expansion plans in the pipeline.
Further, in the energy sector, oil and gas is likely to see a major capital outlay towards gas infrastructure. In power generation, large investments are expected in the renewable and hydropower segments. Transmission sector infrastructure will also need investment to match the growing power demand. In total, the energy sector can witness about Rs.24.5 trillion of investment over the next five years.
Growing urbanisation will see the need for upgraded urban infrastructure like public transport, water supply, sanitation, waste management, and urban roads. In total, about `16 trillion is planned for the urban infrastructure segment. According to ICRA’s expectations, metro-rail infrastructure itself is likely to require Rs.3 trillion over the next five years. Similarly, in the housing segment, the Housing for All scheme and affordable housing projects are likely to see major investments with incentives, including the PMAY scheme.
“The creation of the NIP in a short span of time is a positive step,” says Shubham Jain, Senior Vice President and Group-Head, Corporate Ratings, ICRA.“The distribution of infrastructure investment is in line with our expectations with major allocation going towards the transportation, energy and water segments. The front-loading of capex is also positive for the construction sector.”
To support infrastructure investment, the National Investment and Infrastructure Fund (NIIF) has been created with a capital of ~Rs.400 billion to invest in commercially viable infrastructure projects. Similarly, instruments like the InvITs have shown the potential of channelling long-term capital (like pension and insurance funds) into the infrastructure sector. These innovative funding instruments can attract private investment and bridge the infrastructure funding gap.