Magnitude of India’s infrastructure needs collaborative efforts between public and private sectors: CareEdge Ratings

New Delhi : As a part of its 30th-anniversary celebrations, CareEdge Ratings, came out with a knowledge report covering the dynamics of various infrastructure sub-sectors.

Mr. Nitin Gadkari, Minister of Road Transport and Highways, Government of India, in the presence of Mr. Rajiv Bansal, IAS Secretary, Ministry of Civil Aviation of India, unveiled the report on ‘Infrastructure – Key Driver of India’s Amrit Kaal March’.

“To support infrastructure-led growth, mere budgetary provisions will be insufficient and private participation is extremely crucial. There are four key pillars which will be regarded as the biggest capital in this century- Honesty, Credibility, Quality and Goodwill. Credit rating plays an important role at every step of infrastructure development. Be it for achieving financial closure, or at the time of bidding projects or at the time of seeking refinancing etc. The credit rating assessment is expected to incorporate performance evaluation of the contractors giving a lot of emphasis on quality parameters, transparency, technical innovation in works execution and also achieving cost efficiencies in a time-bound manner. This is the need of the hour,” said Nitin Gadkari, Minister of Road, Transport and Highways, Govt of India.

“We are impressed by the Government’s unwavering commitment, exemplified by multiple ambitious projects such as Smart Cities Mission, Bharatmala Pariyojana, Sagarmala, Gati Shakti, UDAN and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). These initiatives aim to enhance connectivity, upgrade urban infrastructure, develop transportation networks, promote sustainable practices, and bridge the rural-urban divide. Such endeavours lay a solid foundation for inclusive growth and contribute significantly to the nation’s overall progress,” said Mehul Pandya, MD & CEO, CareEdge Ratings.

As India embarks on its journey towards sustainable and inclusive growth in the era of Amrit Kaal, the importance of infrastructure development becomes even more pronounced. Investment in infrastructure yields substantial multiplier effects through diverse channels, such as job creation, enhanced global competitiveness, the attraction of foreign direct investment (FDI), seamless integration of the economy, and upliftment of living standards for the populace.

Infrastructure: Catalyst to High-economic Growth

Post-pandemic, the evolving geopolitical situation and diversification in the global value chain presents a valuable opportunity for India to emerge as a major force in the global arena. To fully capitalise on this opportunity, India needs to enhance domestic preparedness, improve competitiveness, and minimise logistic costs. India’s merchandise exports have a low share of 1.8% in global exports (FY22). As India embraces globalisation, there is a renewed focus on signing new trade agreements to increase India’s share in global exports.

Going forward, India’s infrastructure investment requirement is going to grow sharply. As per CareEdge Ratings estimate, India will require additional infrastructure investment of USD 18-20 trillion in the next 25 years as it becomes a USD 25-30 trillion economy by 2047. Currently, more than 70% of the financing for infrastructure projects comes from the General government and public sector.

Airport sector- Preparing for the next take-off

The Indian airport sector has witnessed remarkable growth, fuelled by robust economic expansion, escalating demand for air travel, and extensive infrastructure development.

Indian Roads Offer a Roadmap for Amrit Kaal Growth

Over the period of FY15 – FY23, the cumulative investment in the roads sector amounted to Rs.23.53 lakh crore. The Government of India’s commitment to implementing successive reforms, the focus on executing the ambitious Bharatmala Phase-I project under the National Infrastructure Pipeline (NIP) and the growth in state capital expenditure have all contributed to creating a favourable investment climate. CareEdge Ratings anticipates a healthy Compounded Annual Growth Rate (CAGR) of 19% in the capital outlay for roads, projecting an increase from Rs. 4.10 lakh crore in FY23 to Rs. 5.85 lakh crore in FY25. The introduction of the Hybrid Annuity Model (HAM), Toll-Operate-Transfer (TOT), and FasTag, along with the harmonious substitution of sponsors, stands out as major successful reforms implemented by the Government of India.

Renewable Energy: Sustained Growth Amidst Execution Challenges

India has achieved a significant milestone in its renewable energy (RE) sector, with an installed capacity of approximately 125 GW as of March 31, 2023. This remarkable achievement is driven by a solar capacity of 67 GW, followed by a wind capacity of 43 GW.

Thermal Power – Sheen to Remain Intact till FY30

The record thermal generation achieved in recent years was facilitated by high coal production and transportation activities throughout India. The proactive measures undertaken by the Government of India have played a significant role in supporting this achievement.

Infrastructure Financing Emerging Strong

India’s G20 presidency presents a golden opportunity for the country to shape its infrastructure agenda and lead the way in global infrastructure development. With the aim of achieving a $5 trillion economy by 2025, India recognizes the crucial role of infrastructure in sustaining its high growth trajectory. The Indian infrastructure financing landscape is maturing, with the availability of private equity, robust regulatory frameworks, competitive debt financing, and innovative financing structures like InvITs (Infrastructure Investment Trusts). However, addressing challenges and maintaining government focus on stakeholder needs will be vital for unlocking India’s growth potential in the coming decades.

ESG Integrated Infrastructure is the Way

While there is a positive trend in ESG disclosure among infrastructure companies, there is still ample scope to adopt ESG as part of a long-term strategy in business operations. Some of the key aspects of the transition to a low carbon economy are commitment to net zero and carbon neutrality-related targets. CareEdge’s study finds that in the year 2022, 18% of companies committed towards net zero targets in the long run. As the moment has begun towards integrating ESG practices, this is going to be a mainstream topic of consideration in most of the investment decisions in the sector.

Against the backdrop of growing economic and political uncertainty worldwide, the stability and resilience of infrastructure projects provide a ray of hope for patient capital, while contributing to climate targets and the development of more robust and inclusive infrastructure. As India embarks on the ‘Amrit Kaal’ era, a period of great significance, it is crucial for public and private partnerships to seize this golden opportunity by collaborating toward infrastructure-led economic growth.