INFRASTRUCTURE SECTOR IN INDIA: AN ANALYSIS

• Overview of Infrastructure sector in India
• Current state and performance
• Outlook

Overview

Infrastructure sector is the cornerstone of the Indian economy and plays an important role in accelerating the growth of India’s overall development. The sector covers wide range of sub-groups namely power, roads, ports, railways, telecommunication amongst others. To implement an infrastructure program of large scale, the Government of India has launched National Infrastructure Pipeline (NIP) in 2019, wherein it has planned to invest about INR 102 lakh crores on infrastructure projects by 2024-25. Of the total, INR 102 lakh crore worth projects in NIP, 42% are under implementation, 19% are under development stage and about 31% are in the conceptual stage currently. As per the NIP, the Central and State Government are expected to have equal share of 39% in funding of the projects, whereas Private Sector will have 22% share. Infrastructure is one of the core sectors that also attracts high foreign direct investments. Between 2000 and 2019, about US$ 25.6 Bn of inflows were recorded in verticals such as townships, construction development projects and housing (Source: IBEF).  Asian Development Bank has also announced a US$ 100 Mn funding for the Indian infrastructure sector through the government promoted NIIF.

Current State & Performance

Road transport is the most dominant mode of transportation in terms of traffic share in infrastructure sector. In 2019, 10,855 km of highways were constructed in India, increasing at a CAGR of 20.57% from 2014-2019 (Source: IBEF). It is estimated that National Highways Authority of India will generate about Rs1 lakh crore in revenue from toll and wayside amenities during 2019-2023.

Indian Railways is the 3^rd largest network in the world under single management with over 68,000 route kms. The Government of India is making large investments in modernization and upgradation of railway stations. Under Adarsh Station Scheme, about 1,253 stations have been identified and are planned to be developed by 2019-20. Telecommunication sector is also booming in India. Total telephone connections grew by 18.8% from 996.1 Mn in 2014-15 to 1,183.4 Mn in 2018-19 (Source: Economic Survey 2019-20). As of 2019, the wireless telephone and landline telephone constitutes 98.27% and 1.73% of all total connections, respectively.

Power sector is an important component of infrastructure sector. Growing population with industrialization has increased the demand of electricity. As on April 2020, total installed capacity of power stations stood at 370.34 GW.  Under the Saubhagya Scheme, 26.02 Mn households have had electricity connections as on 31^st March’19 (Source: JM Financial)

Amidst the huge growth opportunity in terms of expansion and investment, the sector requires large amount of capital which is guided through various banks in the country. The sector holds the largest share of the total Gross bank credit, standing at 11.4% as of March’20. This also represent 36.3%  share in Gross bank credit given to all Industries. Gross bank credit towards the sector increased by 18.5% from 2018 to 2019 but stood largely stable between 2019 and 2020. Within infrastructure sector, telecommunications and roads witnessed 24.4% and 2.0% increase from 2019 to 2020 respectively, whereas power sector declined by 1.6% for the same period.

However, on one side, while the sector holds high opportunity for banks to grant credit, inherent issues in terms of getting timely approvals from central and state government, like environment clearances, acquisition of land, availability of adequate and skilled manpower (as the sector is both labour and capital intensive) and proper and timely availability of raw materials, many a times leads to delay in project implementation or completion. This is also reflective into the high % of Gross NPA as compared to total advanced of banks. The sector had a Gross NPA of 13.1% of total advances as of Mar’ 20, positively declining from peak of 22.6% in March’18 (during last five financial years), though remains very high. The issues in terms of delays on different works stand very high and may see further increase at least in the near-term as the sector also got hit by the Coronavirus pandemic. Power, infrastructure, and steel sectors together constitute about half of INR 4.1 lakh crore worth stressed assets. Power sector accounts for the largest proportion of the bad loans wherein RBI’s revised stressed asset framework is expected to benefit the stressed power sector assets that were operational and on the verge of being referred to insolvency proceedings under IBC (estimated at INR 1 lakh crore as on March 31, 2019).

Outlook

With the economy trying to come back to normalcy after the Covid-19 shocker, focus for the players in the industry would be on fast-tracking the under-construction projects and to start new work. The governments extended focus on the sector is likely to bode well wherein the Government of India plans to spend about US$ 1.4 tn worth of investment across infrastructure to achieve GDP of US$ 5 tn by 2024-25. In 2021, INR 1,950,397 crores will be invested through NIP. Huge investments across all sectors of infrastructure, will create opportunities for stake holders. It is forecasted that infrastructure sector in India will grow at a CAGR of approximately 7% from 2020 to 2025 (Source: Mordor Intelligence).  In 2020, the Government of India has set a target of INR 15 lakh crore investment in constructing roads in the next 2 years. India is expected to become the world’s 3^rd largest construction market by 2022. The government’s efforts on improving the country’s energy infrastructure will provide an investment opportunity worth INR 21 Lakh crores in the next 10 years. About US$ 750 Bn of investment is suggested by the Government of India for railways infrastructure between 2018-2030. Initiatives like “Housing for All” and “Smart City Mission” is an effort by the Government of India to reduce bottlenecks in the infrastructure sector. The projected growth rate and investments may be hampered in short term due to Covid-19 pandemic, but we believe that industry will pick its pace in the second half of FY 20-21 and the growth will be sustainable for the projected year.