INFRASTRUCTURE OUTLOOK 2022

India is at an inflexion point of greater economic prosperity. India's journey on the path of economic reforms has transformed it to one of the world's fastest growing major economies where infrastructure has played a key part in overall development and growth over the past decade. All infrastructure sectors in India provide excellent opportunities for Public Private Partnerships (PPP) with models curated for implementation and funding of projects in the country.

 The country has an evolved outlook towards infrastructure development in the country, wherein it has moved from need-based planning to an integrated long-term development strategy. In the realisation of this goal, the Hon'ble Prime Minister launched the PM Gati Shakti National Masterplan for Multi-Modal Connectivity. The Gati Shakti scheme aims to create a digital platform for integrated planning and project execution by 16 infrastructure and allied ministries. This would entail each ministry/department being able to access information about the ongoing and upcoming projects for a coordinated approach. It will bring together holistic development across infrastructure sectors such as railways, roads and highways, telecom, and many more.

Tracking the growth

Over the last decade, India has invested over US$1.1 trillion in building infrastructure, aimed at easing the movement of goods, reducing cost of logistics, enhance energy generation to ensure uninterrupted power supply, and improve physical and virtual connectivity for 1.4 billion people through roads, railways, mobile connections, and high-speed internet. This has been achieved through a coordinated effort between public funding and private investments, aimed at high economic and social returns.

The next phase of India's infrastructure growth focuses on 'Ease of Living' for the country's population. The ambitious National Infrastructure Pipeline (NIP) has set forth in motion India's target to achieve US$5 trillion GDP by 2025 by investing over US$ 1.4 trillion in infrastructure sub-sectors. These investments will be targeting for 100 per cent coverage for safe drinking water, access to clean and affordable energy, healthcare for all, modern railway stations, airports, bus terminals and world-class educational institutes.

Roads & Highway - Leading the way

The Roads and Highways sector of India has been at the forefront of establishing public private partnerships in the country. With a plan to double national highways in India to 200,000 km, the 'Bharatmala Pariyojana' was launched for developing 66,100 km of additional road network including expressways, economic corridors, international and border roads. Innovative financing models such as recycling of existing and operational roads, through Toll-Operate-Transfer, are being implemented to generate funding for greenfield road construction.  Over the last two years, we have witnessed that despite the pandemic affecting multiple sectors, infrastructure construction has continued to grow. For example, despite the challenges put forth by the pandemic, India has been constructing 37 km of roads per day.

Airports - Taking off 

During the pre-COVID period, India was clocking consistent double-digit growth with domestic aviation market on path to make the third largest aviation market in the world by 2027. To meet the huge demand, 100 new airports are being built and 400 existing airports upgraded.  

Railways - New growth tracks

The Railways sector in India has also opened to 100 per cent FDI in the infrastructure segment and is inviting private participation across railway stations, private train operations etc. To augment freight traffic, six dedicated freight corridors are being built to minimise movement time. Further, seven High Speed Railways (HSRs) are also being constructed with the first one between Mumbai and Ahmedabad already under implementation.

Energy - A renewed approach

India is at the global forefront to adopt renewable sources of energy to meet its requirements. The country is targeting 450GW of energy to come from renewable energy sources by 2030, which will require a multi-fold growth in the sector from the existing installed capacity of 101 GW.

NIP - bringing back momentum

The US$1.4 trillion National Infrastructure Pipeline is projected to attract 22% investment from the private sector, which translates into over US$300 billion. Over the last few years, the country has been working in a dedicated manner for rationalised risk sharing mechanisms to attract private capital into infrastructure. In this regard, India has built a strong PPP framework over last two decades including development of Model Concession Agreements and bid documents, high-quality viability gap funding schemes, strong banking, and financing institutions and most importantly, capacities in the private sector for delivering the quantum of infrastructure that are required for bridging the infrastructure gap.

Investment pipeline

Institutional investors, including Sovereign Wealth Funds, Pension Funds and Private Equity, have become active players in the Indian infrastructure sector.   The aggregate value of global infrastructure investments reached its highest level in 2016, with US$413 billion invested. Investor appetite for infrastructure has grown steadily since the global financial crisis and consequently, long-term patient capital owners are increasingly adding infrastructure to their asset allocation.

To give impetus to private investments, the government has laid emphasis on recycling of revenue generating operational infrastructure assets. The Toll Operate Transfer (TOT) project under this model has been recycling operational roads of the National Highways Authority of India (NHAI). In the first bundle, NHAI identified and bundled nine of its operational tolling roads to give away the right to toll them for thirty years along with responsibility to operate and maintain the roads, to a private party. Australian fund manager, Macquarie won the bid for these assets at a quote price of US$1.5 billion as against the base price set at US$1 billion by NHAI. Since then, three more bundles have been bid out to domestic and international investors. Various other asset classes are now emerging in the country under asset recycling including the six of country's airports which were privatised in 2019 and another 30 which are in pipeline until 2025.

To create a strong secondary market for infrastructure assets, attract institutional investments and plug shortage of equity for infrastructure projects, the National Infrastructure and Investment Fund (NIIF) has been set up by Government of India. The NIIF has attracted global funds like Australian Super, OMERS, ADIA, CPPIB, and Temasek to deploy capital in Indian infrastructure assets. The introduction of Infrastructure Investment Trusts (InvITs) has further added impetus for global funds to invest into infrastructure as well as allowing retail investors to participate in the country's growth story.

To further encourage private participation and augment the available resources, the government has rolled out the National Monetization Pipeline to recycle operational revenue-generating public assets and generate resources for financing greenfield infrastructure development. The pipeline has identified assets worth US$ 81 billion to be monetised during FY22 to FY25, across roads (27% of total), railways (25%), power (15%), telecom (6%), and warehousing (5%), among other sectors. The Central Government is also encouraging states to identify similar assets under their domain, which can be monetised. Financial year 2021-22 has already witnessed the rollout of InvITs by the NHAI and the PowerGrid Corporation of India.

To brace for the increased requirement of debt funding and introduction of innovative lending practices in the country, the government has launched the National Bank for Financing Infrastructure and Development as the principal development financial institution for infrastructure financing. NaBFID will provide long-term finance where the risks involved are beyond the acceptable limits of commercial banks and other financial institutions. NaBFID's role includes extending loans for infrastructure projects, attracting private and institutional investment for infrastructure projects, and facilitating negotiations with government stakeholders for dispute resolution in infrastructure financing. NaBFID targets to have a lending portfolio of US$70 billion in a short period of three years and will provide crucial support to overall funding of the National Infrastructure Pipeline.

On a steady progress

The most tangible evidence of a nation's progress is its infrastructure development. With the robust foundation laid through the institutional framework in the country, India is now poised to make steady progress in infrastructure growth and development in 2022.

– Rahul Agarwal

Vice President, Invest India

– Prerna Soni

Vice President, Invest India

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