Investing in infrastructure generates a robust multiplier impact through multiple avenues. As India takes giant strides towards sustainable and inclusive growth, the significance of investment in infrastructure development serving as a vital catalyst for fostering economic development is inevitable, writes Sandeep Upadhyay, MD - Infrastructure Advisory, Centrum Capital Ltd.Being the fifth largest economy in the world with a nominal GDP of $ 3.75 trillion, India is expected to touch $ 5 trillion GDP by FY27. With a booming stock market which recently touched its all-time high mark and robust inflow of capital from leading FIIs, the Government has been rightly prioritising its efforts to leverage this momentum across core sectors wherein the Infrastructure sector stands out as a key beneficiary. Investing in infrastructure generates a robust multiplier impact through multiple avenues. Credible research suggests that there is a gain of Rs 2.5 to Rs 3.5 in GDP for every rupee spent on infrastructure. Looking ahead, India’s demand for infrastructure investment is poised to surge. It is estimated to increase to approximately 7.5 per cent of GDP by FY31 and India would require an additional infrastructure investment of $ 18 to 20 trillion over the next 25 years as the nation aims to reach a GDP of $ 25-30 trillion by 2047.The commitment of the Government of India to enhance and modernise its infrastructure networks is demonstrated through various initiatives such as the Smart Cities Mission, Bharatmala Pariyojana, Sagarmala, Atal Mission for Rejuvenation and Urban Transformation (AMRUT). Some of these initiatives can be certainly termed as modern and progressive aligned to inclusive growth pegged around innovative project execution models.   Key government initiatives and policiesOver the past decade, the government has introduced numerous initiatives to bolster infrastructure development in the country. Key initiatives include the National Monetisation Pipeline (NMP), the National Infrastructure Pipeline (NIP), the PM Gati Shakti plan and the National Logistics Policy (NLP).Announced in 2021, the NMP is set to monetise the central government’s core assets by FY25 and generate potential funds of approximately $ 72.3 billion. The top five sectors under NMP are roads (27 per cent), railways (25 per cent), power (15 per cent), oil & gas pipelines (8 per cent), and telecom (6 per cent) which account for more than 80 per cent monetization pipeline.GOI is implementing sectoral reforms to revolutionise infrastructure development through NIP. The project count for NIP stands at 9,142 covering 34 sub-sectors. 2,476 projects worth $ 1.9 trillion are currently at different stages of implementation.While NIP aims to develop world-class infrastructure by inviting government and private investments, PM Gati Shakti’s master plan aims to coordinate the planning of all infrastructure connectivity projects outlined in the National Infrastructure Pipeline. National Logistics Policy is the next step, offering a comprehensive agenda for the holistic development of the logistics ecosystem, aligning with the PM Gati Shakti initiative. NLP aims to reduce logistics costs from about 14 per cent of GDP currently to about 8 per cent of GDP by FY30 in the pursuit of achieving efficiency matching global standards in the logistics industry. Given the massive scale of India’s infrastructure requirements, it is crucial to foster cooperation between the public and private sectors. The involvement of private players enables risk and reward sharing, innovation, and efficient operations. Innovative PPP models such as the Hybrid Annuity Model (HAM) reduce financial risks in road construction.Trends in investments in the infrastructure sectorLarge pension funds with greater risk appetite and longer investment horizons are one of the key sources of massive investment requirements in the infrastructure space. Recently during G20, it was deliberated that Canadian pension funds would continue to explore bigger investment opportunities in the Indian infrastructure arena and further consolidate their presence. CPP Investments Board (CPPIB) has expanded its portfolio in India by approximately 11 per cent to $ 16.7 billion in FY23, with a lion’s share in infrastructure space such as roads and renewables. Ontario Teachers’ Pension Plan has allocated more than $ 1.7 billion to the infrastructure sector in India as on this date. Key trends in the investments in roads and highways, renewable energy, urban infrastructure and the logistics sector are as below:Roads and highways: Out of $ 72.3 billion NMP, the Road sector accounts for the largest share constituting 27 per cent. Cumulative investment in the roads sector amounted to $ 283.5 billion between FY15 and FY23, while Capex planned under the National Infrastructure Pipeline for the road sector development from FY20 to FY25 is $ 245 bn, which is a significant increase. Bharatmala Phase-II is expected to encompass around 8,500 km of road length, with an estimated capital outlay of $ 42.2 billion. With a critical mass of constructed of revenue-earning projects, the road sector has become an attractive opportunity for global strategic and financial investors. As of April 2023, 101 road assets have already been transferred to 9 InvITs (Infrastructure Investment Trusts), amassing an impressive AUM of approximately $ 14.5 billion within a span of just five years. NHAI (National Highways Authority of India) has also raised about $ 1.2 billion by transferring road assets spanning 636 km to NHAI InvIT.Renewable energy: India is expected to grow its renewable energy capacity to 500 GW by FY30 from 173 GW in FY23 with a CAGR of about 30 per cent, which would require investment of $ 30 to 40 billion. Over the past two years, there has been a significant surge in M&A transactions within the renewable energy sector in India accounting for the transfer of ownership for more than 13 GW of renewable energy assets. The volume and scale of M&A transactions are poised to increase significantly, with projected energy investments of more than $ 725 billion over the next decade as India accelerates its transition towards cleaner energy sources. Under the National Hydrogen Mission, India targets green hydrogen of 5 million MT, which would require 125 GW of renewable capacity and it will require investments worth $ 70 billion over the next decade.Urban infrastructure: To boost urban infra spending, the government has announced $ 233.2 billion capital expenditure under NIP for urban infra projects. As per the World Bank, 600 million people (about 40 per cent of the total population) will reside in urban cities by 2036 in India. To effectively meet the need for fast-growing urban infrastructure, $ 840 billion investment would be required by 2036, translating to an annual average investment of $ 55 billion. India currently spends 0.6 per cent of GDP on urban infra development compared to about 2.8 per cent in China leaving genuine scope for scaling up investments in this sector further. About $ 450 billion investment is estimated to be required in basic municipal services such as water supply, sewerage, municipal solid waste management (SWM), stormwater drainage, urban roads and street lighting. Logistics: The value of the logistics industry is expected to reach $ 380 billion by 2025. Between 2018 and 2022, road transportation accounted for 43 per cent of transactions and marine transportation accounted for 37 per cent of transactions. Robust favourable conditions in e-commerce and the drive for optimising supply chains will result in increased deal activity within the warehousing and logistics sectors. The majority of the transactions involved financial investors acquiring ownership stakes in warehouse facilities.Robust fundamentals to drive long-term growth As India takes giant strides towards sustainable and inclusive growth, the significance of investment in infrastructure development serving as a vital catalyst for fostering economic development is inevitable. I believe the Indian infrastructure sector will continue to attract strong capital inflows from high-quality investors against the backdrop of sectoral reforms and sustained demand. These investments have the potential to create a true multiplier effect and the Indian economy is very well poised to latch on to a higher growth trajectory.While the growth prospects are evident, several challenges such as massive capital requirements, unforeseen delays in the project implementation, high land acquisition cost, infrastructure with robust quality and political interference might impede rapid growth. Globally, the infrastructure asset class has emerged as a resilient and viable investment avenue however the litmus test of its success amongst emerging economies like India is the participation of private sector investments in the sector. This is an area where to closely watch out for the think tank and the key stakeholders curating this ecosystem. About the author:Sandeep Upadhyay is the Managing Director - Infrastructure Advisory at Centrum Capital Ltd. In his current role as a senior coverage banker, he is responsible for sourcing and executing fund raising and corporate finance advisory deals across transportation, logistics, conventional and renewable energy sector. He has more than twenty years of industry experience.