Indian Infrastructure – A Nation-wide Transformation underway
Recently, an exercise has been initiated by ADB to assess required infrastructure needs and main industry clusters for meeting the demand for movement of higher volumes of goods, and help India’s exports touch $1 trillion by 2030 (Ministry of Commerce and Industry). This focused initiation has been done with the expectation that India could build infrastructure at a large scale, which will accentuate our manufacturing capabilities. According to CMIE, for FY2024, the cost of investment of projects under implementation stands at ₹156.5 lakh crore, with projects worth ~₹28 lakh crore announced in FY2024. This rising public and private capital expenditure is aiding the development of infrastructure, which is expected to make India Atmanirbhar in the long run and boost its economic growth.
The Government’s focus on building infrastructure of the future has been evident on the following fronts:
The Government has been stepping up its Capital Expenditure (capex) over the past few years to support the growth of India’s infrastructure. Out of this Revised Estimate for capex of ₹9.5 lakh crore – announced by the Finance Minister during the Interim Union Budget 2024-25 – the Government had already spent 80% till early February 2024. In order to double down on this focus, the Budgeted Estimate for capex for FY2025 was increased by 11.1% from the FY2024BE to ₹11.1 lakh crore.
Launched in 2021, PM Gati Shakti National Master Plan for multimodal connectivity is a digital platform to bring the 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of Infrastructure connectivity Projects. As of February 2024, under this initiative, the length of expressways partially completed or under implementation is nearly 2,489 km signalling to significant advancements being made in India’s transportation infrastructure. (Source: PIB)
Launched in 2021, the National Monetization Pipeline (NMP) aims to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital, which can thereafter be leveraged for further public investments. The estimated aggregate monetisation potential under NMP is ₹6 lakh crore through core assets of the Central Government, over a four-year period, from FY2022-25. As per the last update by PIB in January 2023, a monetization of ₹0.97 lakh crore was achieved under roads, power, coal and mines, which is higher than the target of ₹0.9 lakh crore in FY2022 under the NMP.
National Highway Projects are awarded on various modes such as EPC (Engineering, Procurement and Construction), HAM (Hybrid Annuity Model) and BOT (Build, Operate, Transfer). Recently, there has been a shift from BOT to EPC or HAM. This is happening because of 2 reasons: (a) Since this mode requires the private players to fully arrange for its finances through debt or equity, banks are wary of lending to these projects, causing the private players steering away from such investments. (b) If the compensation structure did not involve a fixed compensation (such as annuity), developers had to take on the entire risk of low traffic.
With Infrastructure forming the backbone of a country’s competitiveness, it is positive to witness an improvement in infrastructure in the following segments:
Railways: As per the Central Organization of Railway Electrification, the electrification of every section of 100 route kilometres results in a saving of annual consumption of more than 4 million litres of diesel oil, which in turn saves nearly ₹2,500 crores worth foreign exchange annually. Over the last 10 years, the electrification of railway lines has risen 2.5 times – from 33% to 85%. With initiatives like Dedicated Freight Corridors (DFC), network capacity expansion, and infrastructure upgrades, the Minister of Railways emphasized leveraging these initiatives to increase the share of freight traffic by rail from current ~28% to 45% by 2030 through the National Railway Plan.
Roads: 90% of India’s total passenger traffic uses the country’s road network for travel, and this network transports 64.5% of all goods and commodities. As expansion of road infrastructure would result in a multiplier impact on India’s development, it is worth noting that the road network has doubled over the last 10 years, with 1.5 lakh km highway network constructed over this period. With such an expansion in network and improvement in road quality, the average km covered by a truck per day has increased from 190 km in FY15 to 250 km in FY23.
An investment in infrastructure reduces cost, improves efficiency and brings greater scale. As India enters Amrit Kaal with the objective of becoming a global economic powerhouse, the Government is constantly developing the nation’s multi-modal infrastructure to reduce logistics costs for companies, which is resulting in bigger companies to set up large-scale manufacturing facilities in India. Such developments are expected to bring further improvements in industrial infrastructure, which will promote export competitiveness and support India’s economic growth.