Infrastructure Industry in India – Business Opportunities & Advantages

The Indian government has taken significant steps to attract private sector investment in key areas such as transportation infrastructure, industrial zones, and education. In 2022, Private Equity and Venture Capital firms injected a substantial USD 46 billion into Indian enterprises, reflecting a growing interest in the country's investment opportunities. Furthermore, the 2023-24 budget has allocated a remarkable 33% increase in capital investment for infrastructure, amounting to INR 10 lakh crore (approximately USD 122 billion), equivalent to 3.3% of the GDP. The establishment of the Infrastructure Finance Secretariat is poised to foster an environment conducive to increased private investment, benefiting both public and private stakeholders. The logistics industry in India is experiencing substantial growth, with a projected value of USD 556.97 billion by 2027, showcasing a CAGR of 6.28%. This industry, contributing 5% to India's GDP and providing livelihoods to millions, is a crucial driver of economic development. Moreover, foreign direct investment (FDI) has played a significant role in the infrastructure sector's growth. Between April 2000 and September 2022, the construction development sector received USD 26.23 billion in FDI, while the broader construction sector, encompassing infrastructure activities, attracted USD 28.95 billion during the same period. These trends highlight the increasing attractiveness of India's infrastructure landscape to international investors.

Market Insight

In March 2023, several key industries in India, including coal, electricity, steel, cement, fertilizers, refinery products, and natural gas, demonstrated growth, contributing to a 3.6% provisional increase in the Combined Index of Eight Core Industries (ICI). The cumulative growth rate for the entire fiscal year 2023 reached 7.6%, reflecting the sustained strength of these core sectors. Additionally, India is actively exploring carbon capture and utilization solutions, exemplified by a critical assessment of CO2 geological storage potential. Furthermore, the inauguration of India's first second-generation ethanol project in August 2022 by the Indian Oil Corporation Ltd. (IOCL) underscores the nation's commitment to diversify energy sources and promote sustainability in the energy sector, representing a significant milestone in India's renewable energy efforts.

Growth in Infrastructure Related Activities

India is taking significant steps to promote sustainability in its transportation sector through the 'Green Energy Project,' aiming to make Indian Railways more eco-friendly by focusing on renewable energy sources. Additionally, railway expansion projects in Maharashtra and an 11% increase in cement production in FY23 support infrastructure development. Progress across various ministries includes significant achievements in road networks, optical fibre cable expansion, gas pipelines, and transmission networks. Furthermore, over 121 MW of solar rooftop capacity has been installed at 1094 railway stations, demonstrating a commitment to harnessing solar energy for sustainable railway operations.

Robust Revenue Expansion in Indian Railways

Indian Railways is experiencing remarkable growth and investment in the 2022-23 fiscal year and beyond. It is projected to achieve a total revenue of INR 2,40,000 crore by the end of the current fiscal year, with an extraordinary nine-fold increase in capital outlay compared to 2013-14. For the fiscal year 2023-24, Indian Railways anticipates substantial revenue milestones, including significant growth in traffic, freight, and passenger revenues. The vision for 2024 aims to achieve a freight loading capacity of 2024 million tonnes. The railway is actively pursuing renewable energy initiatives, with plans to install solar and wind power plants. Electrification efforts have made significant progress, covering 83% of the broad-gauge railway network, and coach production has increased, enhancing mobility solutions. These developments reflect a robust and forward-looking approach to the future of Indian Railways.

Vigorous Progress in the Expansion of Road Networks

India possesses an extensive road network, ranking as the second-largest globally, covering approximately 63.73 lakh km. This vast network is integral to India's economic and social advancement, facilitating efficient transportation of goods and people and improving market accessibility. Over the past eight years, the Ministry of Road Transport and Highways has undertaken initiatives to enhance the capacity of India's National Highway infrastructure, with a significant 36% increase in allocation for road development in the 2023-24 Union Budget, reaching INR 2.7 lakh crore. The National Highway network has grown significantly, reaching 1,44,634 km as of November 2022, with an accelerated construction pace of 42.03 km per day in FY23. Several infrastructure inaugurations and multimodal logistics parks in the Bharatmala Pariyojana further reflect the government's commitment to improving infrastructure. The government's goal of creating a national highway network spanning 2 lakh km by 2025 demonstrates its dedication to strengthening the country's transportation infrastructure.

Significant Growth in Power Generation Capacity

As of February 2023, India's total installed electricity generation capacity stands at an impressive 412.21 GW. The country has made significant progress in renewable energy, with capacity increasing by 396% over the past 8.5 years, now accounting for 42.5% of total capacity. Solar capacity has grown 24.4 times in the last 9 years, reaching 63.3 GW. The power sector has attracted $16.43 billion in FDI equity inflow from April 2000 to September 2022, constituting 2.67% of total FDI. The Ministry of Power received a substantial budget allocation of INR 1,96,035 crore for fiscal year 2023-24. Power consumption in India has surged by 13.31% in September 2022 and 11.65% in H1 FY23. The thermal power plant load factor is expected to improve to 63% in FY24, driven by strong demand and limited capacity additions. The Ministry of Power introduced a scheme in October 2022 to procure 4500 MW of power over five years through competitive means, supporting states with power shortages and expanding power generation capacity.

Why Invest in India?

• Promising Infrastructure Investments: Notable infrastructure projects, including national highways in Bihar and a collaboration with Dubai for development in Jammu and Kashmir, indicate significant opportunities for enhancing transportation and commerce.
• Growing Infrastructure Demand: India's ambitious goal of achieving a USD 5 trillion economy by 2025 has intensified the focus on infrastructure development, driven by population growth and economic expansion, particularly in sectors like transportation and logistics.
• Supportive Policies: The 2023-24 budget extends a 50-year interest-free loan provision to state governments, boosting infrastructure investments and encouraging complementary policy initiatives, with an allocation of INR 1.3 lakh crore.
• National Infrastructure Pipeline (NIP): The NIP comprises a vast portfolio of projects worth INR 108 trillion, progressing through various implementation stages, underpinning the nation's infrastructure expansion.
• National Investment and Infrastructure Fund (NIIF): The newly established NIIF serves as a collaborative investment platform involving the Government of India, global investors, development banks, and domestic financial institutions. It aims to support diverse sector investments, including through initiatives like the India Japan Fund.
• Increased Investment: The 2023-24 budget allocates a substantial 33% increase in capital investment for infrastructure, amounting to INR 10 lakh crore, equivalent to 3.3% of GDP. This marks a significant expansion from previous years and includes the establishment of the Infrastructure Finance Secretariat to foster increased private investment in various infrastructure sectors, benefiting all stakeholders.

Government Initiatives and Support

The 2023-24 Union Budget highlights a significant boost in infrastructure investments across multiple sectors in India. Notably, there is a substantial 36% increase in funding for road development, with an allocation of INR 2.7 lakh crore, aiming to improve connectivity. The budget also focuses on revitalizing airports to enhance regional air connectivity. In construction, INR 79,000 crore is directed towards the Pradhan Mantri Awas Yojana, with significant progress seen in urban development through the Smart Cities Mission. India is actively pursuing sustainability efforts, allocating INR 97,579.05 crore to the telecom sector and advancing renewable ocean energy with an Ocean Thermal Energy Conversion project. The railways receive a monumental capital outlay of INR 2.6 lakh crore, marking a significant increase, while the establishment of the Urban Infrastructure Development Fund will address urban development needs in Tier 2 and Tier 3 cities. These investments underscore India's commitment to bolstering its infrastructure across various sectors, driving economic growth and development.

Increased Investments in Indian Infrastructure

India has undertaken a series of significant infrastructure initiatives and projects, reflecting a commitment to enhancing the quality of life and economic development. The National Infrastructure Pipeline (NIP) for 2019-2025 is a comprehensive government initiative aimed at delivering high-quality infrastructure to citizens. Foreign Direct Investment (FDI) in construction and development sectors has been substantial, with USD 26.23 billion and USD 28.95 billion, respectively, from April 2000 to September 2022. Key projects include Larsen & Toubro's contracts for a 112.5 MW Solar Power Plant in West Bengal and a 600-bed super-specialty hospital in Mumbai in January 2023. In December 2022, BHEL formed a consortium bidding for a significant contract to manufacture Vande Bharat trains. Minister Nitin Gadkari inaugurated several National Highway projects, and the Prime Minister laid foundations for road projects in November 2022. In October 2022, the NHAI InvIT successfully raised funds for road project acquisitions. Additionally, 52 critical infrastructure projects connecting maritime ports and Inland Waterway Terminals are part of the PM Gati Shakti National Master Plan, further emphasizing India's infrastructure development efforts.

Warehousing and Logistics

India's logistics industry, valued at USD 410.75 billion in 2022, is on a robust growth trajectory, with projections indicating it will reach USD 556.97 billion by 2027, driven by a strong CAGR of 6.28%. India has set ambitious goals to improve its logistics performance index ranking and reduce logistics costs significantly within the next five years. The sector has attracted substantial investments in 2022, totalling INR 8,257 crore, highlighting strong investor interest. One of the key drivers of this growth is the expansion of third-party logistics (3PL), which has increased the demand for warehouse space. India's warehousing market is projected to reach INR 2243.79 billion by 2026, with a remarkable CAGR of 10.90%. Real estate private equity (PE) investments have surged, up 28% in Q1 FY23, driven by improved market sentiments and policy changes. Government initiatives like the Bharatmala project, with a focus on multimodal logistics parks, are poised to bolster logistics and warehousing operations. Favourable policy changes have also attracted foreign investors keen on expanding their presence in India's warehousing and logistics sectors. In 2021, the 3PL sector secured the largest share of warehousing space, with continued growth expected, driven by increasing foreign direct investments and relaxed policy reforms in agriculture and manufacturing.

Investments in Airport Infrastructure

• Metro Airports - The Airports Authority of India (AAI) and Airport Developers have outlined an ambitious INR 98,000 crore (USD 11.8 billion) capital investment plan over the next five years for airport modernization. Major airports like Delhi, Bangalore, Hyderabad, Lucknow, Mangaluru, Guwahati, and Ahmedabad have dedicated capital expenditures ranging from INR 376 crore to INR 13,552 crore for various infrastructure improvements.
• Non Metro Airports - The Union Civil Aviation Ministry has allocated INR 3,113.36 crore (USD 375.7 million) in the 2023-24 budget, with plans to revitalize 50 additional airports, heliports, water aerodromes, and advanced landing grounds to enhance regional air connectivity. The 'Vision 2040' report envisions 190-200 airports in India by 2040, including three international airports in Delhi and Mumbai, and two operational airports in the top 31 cities. The UDAN scheme has made substantial progress, connecting 141 airports and aims to complete 220 destinations by 2026 to expand air connectivity to underserved regions.

Metro and Monorail Infrastructure Investment

• Metro -India has the world's fifth-largest metro network with 810 km serving 20 cities, and it's expanding to 980 km with Regional Rapid Transit Systems (RRTS) in 27 cities. BEML partnered with DMRC for the Bahrain Metro Rail Project, and Kolkata Metro Line-6's underground airport tunnel construction started in February 2023. Kochi introduced the Water Metro Project in 2021, connecting 10 islands across 78 km.
• Monorail - Mumbai's monorail network spans nearly 20 km, ranking third globally after China and Japan. MMRDA oversees its operations, and Japan International Cooperation Agency (JICA) provides technical support for urban monorail projects and transit-oriented development, aiding in master plans and project reports for various urban infrastructure initiatives.

Infrastructural Development in North-East India

Budget 2023-24 underscores a strong commitment to the development of India's Northeastern Region (NER), allocating INR 5892 crore (USD 711 million) for the Ministry of Development of Northeastern Region. This budget also includes INR 2,200 crore (USD 265.5 million) for the Prime Minister's Development Initiative for North-East (PMDevINE) Scheme and INR 2491 crore (USD 300.6 million) for the North East Special Infrastructure Development Scheme (NESIDS). Additionally, a substantial investment of INR 1,34,200 crore (USD 16.2 billion) in connectivity projects for the NER, including roads, railways, air connectivity, and national waterways development, is set to enhance regional connectivity and foster economic growth. Efforts are also underway to leverage riverine systems like the Brahmaputra for cost-effective transportation and develop critical energy infrastructure through the North Eastern Region Power System Improvement Project (NERPSIP).

Highlights of the Union Budget 2023-24

The 2023-24 budget for India emphasizes significant investments in infrastructure and economic development. It allocates a record-breaking INR 2.6 lakh crore (USD 31.61 billion) for the Railways and establishes an Infrastructure Finance Secretariat to encourage private investment in various infrastructure sectors. The government continues its support for infrastructure through the 50-year interest-free loan program to state governments, with an increased outlay of INR 1.3 lakh crore (USD 16 billion), and identifies 100 critical transport projects. Regional air connectivity, urban infrastructure development, innovation in Artificial Intelligence, and digital transformation are also priorities, alongside initiatives such as nursing colleges, digital libraries, skill development centres, and housing schemes, reflecting the government's commitment to fostering economic growth and development.

Key Opportunities

The Indian government has undertaken various initiatives to boost infrastructure development and economic growth, including the establishment of the National Investment and Infrastructure Fund (NIIF) and significant investments in national highway projects in Bihar, Rajasthan, and Haryana. Additionally, a strategic partnership with the Dubai government aims to drive infrastructure development in Jammu and Kashmir. The urban real estate sector in India is experiencing growth, especially in Tier II and III cities, driven by decentralization of operations by organizations. The residential real estate market is also witnessing robust sales, particularly in the top-7 cities. The National Infrastructure Pipeline (NIP) has expanded significantly, comprising over 9,000 projects across various sectors, with transportation, especially roads and bridges, receiving substantial focus, reflecting the government's commitment to infrastructure enhancement.

Public Private Partnerships

Public-Private Partnerships (PPPs) are collaborative arrangements between the government and private sector organizations, aimed at providing public assets or services. These partnerships, gaining global traction, enhance resource availability and infrastructure service efficiency. India has embraced PPPs, with over 1,000 initiatives, mainly in transportation, yet there's potential for expansion into sectors like power, water, railways, healthcare, and education. Notable Indian PPP projects include airport development, power projects, container terminals, and highway projects, highlighting their vital role in infrastructure and economic advancement.

Foreign Direct Investment

India's Public Private Partnership Appraisal Committee (PPPAC), led by the Secretary of the Department of Economic Affairs, aims to simplify the evaluation and approval process for PPP projects, with the Planning Commission assessing project proposals. A McKinsey report emphasizes India's need for USD 1.7 trillion in infrastructure investment by 2030, as inadequate infrastructure is hindering economic growth, particularly in the secondary sector. The PPP model is essential, but alone, it can't meet these demands. India has invited Foreign Institutional Investors (FIIs) into its financial market, with stock exchanges already attracting international investors. This opens the door to more foreign direct investment (FDI) in infrastructure. FDI in India has grown significantly, from USD 4 billion in 2000-01 to USD 44 billion in 2015-16, aided by FDI Regulations governed by the Reserve Bank of India (RBI), which classify sectors into Automatic Route, Prior Approval, and Prohibited categories.

Key Players

• IRB Infrastructure Limited
• Ashoka Buildcon Limited
• Hindustan Construction Company
• Nagarjuna Construction Company Limited
• Larsen and Tourbo
• GMR
• Adani Ports and Special Economic Zone Limited

Regulatory Framework

The regulatory framework for the Indian infrastructure industry is a comprehensive system of rules, regulations, and guidelines that govern the planning, development, operation, and maintenance of infrastructure projects across various sectors. This framework is crucial for ensuring transparency, accountability, and adherence to standards in the infrastructure sector. Here are key elements and aspects of the regulatory framework for the Indian infrastructure industry:

• Government Agencies
• Regulatory Authorities
• Public-Private Partnership (PPP) Guidelines
• Environmental and Social Regulations
• Land Acquisition Laws
• Financial Regulations
• Licensing and Approvals
• Dispute Resolution Mechanisms

Conclusion

India's infrastructure sector is on the cusp of substantial growth, underpinned by government commitment, private sector involvement through PPPs, and a focus on sustainability. Challenges like land acquisition and funding gaps offer opportunities for innovative and inclusive solutions. Technological integration, regional connectivity, and balanced development are shaping India's infrastructure landscape, positioning it as a global leader. With a robust regulatory framework and a commitment to sustainability, India's infrastructure industry is set to create a more connected and prosperous future.


To know more about the Infrastructure Industry in India, request a Free Detailed Report by submitting a query below.