India’s infrastructure outlook over the next decade presents a bright picture. It is lined with attractive government schemes and a pipeline of major projects - supported by significant funding and financing. For construction equipment manufacturers and developers, India is a major market with a growing need for more sophisticated equipment, and a focus on developing more sustainable structures using greener materials and technologies.
Infrastructure development has been a major focus area for the government so much so that it is slated to be instrumental in meeting the government’s aim to become a $5 trillion economy by 2025. According to the Department of Economic Affairs, GoI, the country needs to inject $4.5 trillion in infrastructure development through 2030 to realise its $5 trillion economy plan by 2025, and to continue growing at a fast pace.
Saeeduddin Faridi, Research Analyst.
Schemes Driving Infra Development
In the past few years, several schemes have been announced to drive the sector’s growth. These include the National Infrastructure Pipeline (NIP), the National Monetisation Plan (NMP), Gati Shakti, and the National Single Window System (NSWS).
NIP is an aggregation of social and economic infrastructure projects, both greenfield and brownfield. It gathers information from the stakeholders and creates a harmonised list of projects - proposed, conceptualised, or under construction. This is aimed at enhancing investor confidence by ensuring better access to financing resources, and better management of projects, which will lead to lower rates of failure in project delivery.
However, some concerns remain. The NIP projects a total investment of 111 trillion rupees over 5 years, but in a post-pandemic market, the state and central government (designated to cover half of this cost) may find it difficult to follow through the funding schedule.
The NMP transfers the operation of brownfield assets in sectors like railways, roadways, airports, energy etc from the government to private players. The initiative aims to unlock the value of public sector assets by leasing them and bringing in private sector money and efficiency. This practice of asset recycling is not uncommon for governments to raise money to undertake further construction. While the scheme has been successful in raising billions of dollars, it has also led to rise in the price of the delivery of infrastructure in some cases.
While NIP and NMP look at projects individually, there is also the requirement for coordinated planning for seamless infra development - a need that is being fulfilled by Gati Shakti - India’s masterplan for multi-modal connectivity. Gati Shakti brings together 16 ministries to coordinate infrastructure development to ensure last mile connectivity and network between the various modes of transportation.
Gati Shakti aims to address issues that have prevailed in Indian governance for a long time: disjointed planning and asynchronized implementation. This has given an impetus to move towards a logistics policy for ensuring efficient movement and minimum disruption. Large-scale programs like Bharatmala and Sagaramala, sea ports, dry ports, Special Economic Zones etc will now be planned in sync with each other for maximum utilisation.
The NSWS is another strategic policy for implementation of NIP and NMP. NSWS serves as an online platform where investors can apply for clearances. It addresses issues of delays in getting approvals and provides information on all the required clearances. The portal is likely to come online this year. Gati Shakti and NSWS together provide a framework for the implementation of NIP and NMP. However, the jury is still out on their degree of success.
Challenges & Opportunities
In 2012, the share of Public Private Partnership (PPP) projects in India’s national highways was 85 percent; today it stands at 2 percent. The Government needs to engage the private sector more proactively in infrastructure development, while agreeing to shoulder some of the financial burden and risk.
Another challenge is the counter party risk. State and Central governments sometimes renege on contracts or scrap projects for political reasons; this can deter potential investors.
At the same time, reforms being made in certain policies are encouraging for investors. For instance, the change in the public procurement policy now mandates timely payments with 75% of running bills to be paid within one working day. The L1 rule, which mandated awarding tenders to the lowest bidder has been dismantled; 30 percentage weightage is now being given to bidders who score on their technical capabilities. This marks a significant departure from previous policies.
Roads & Highways
The Road and Highway sector has traditionally received the most significant attention among other transport infrastructure in India. Construction of roads and highways is even breaking records with faster paced construction (38 km per day and laying of a 2.5 km road in just 24 hours). There are now plans of constructing 50 km in a single day in 2022-23. The length of national highways too has increased significantly from 91,287 kms in 2014 to 1,41,000 kms in 2021.
The government’s ambitious plans under the Bharatmala program entail construction of 22 greenfield expressways, including the Delhi-Mumbai Expressway, 23 tunnels and bridges, and 35 multi-modal logistics parks.
These plans are however not devoid of issues that have been plaguing the sector for several decades. For instance, the problems in land acquisition have repeatedly led to project delays and cost overruns, with the Ministry of Road Transport and Highway reporting delays in 219 projects. The cost of land acquisition has also increased, with the average rate going from ~Rs. 0.92 crore per hectare in 2013-14 to ~Rs. 3.13 crore per hectare in 2019-20. This astronomical rise is also reflected in NHAI’s expenditure report, which stated that in 2017-18 it spent 41% of its funds on acquiring land for projects.
PPP & HAM Models
The government recognises that budgetary support to roads and highway projects will not be sustainable if private participation keeps receding. This was noted by the Standing Committee on Transport in 2016, 2018, and 2020, and recommended that the government should find ways to mobilise private funds. Private investment’s share in the road sector was down from 37 percent in 2014-15 to a mere 7 percent in 2020-21.
Though the PPP model was a way to mobilise funds, however, due to issues related to land acquisition and environmental clearances, several PPP projects came under stress during 2010 to 2014, leading to increase in projected costs and shortening of the toll collection period.
Demand also fell in response to a global economic slowdown and the private sector exit from PPP projects led the government to take on the debt. Private participation has inclined away from Build-Operate-Transfer (BOT) projects under the PPP scheme due to the high-risk exposure to the concessionaire. While BOT (Annuity) evolved in response to this risk exposure, it increased the cost of projects.
The government, keen to show its willingness to share the financial risks with the private players, announced the Hybrid Annity Model (HAM) model in 2016. HAM has attracted several private developers as it reduces their financial risk since it mandates that the government has to bear 40 percent of a project’s construction cost.
Other reforms include the revision of revenue potential every 5 years in the BOT toll projects; reworking of the concession period accordingly; and awarding projects only after 90 percent of land acquisition work has been undertaken. Such measures have been successful in garnering private interest and even participation.
India is home to the world’s fourth largest railway network. In 2020-21, over 13,452 passenger trains and 9,141 freight trains carried 1.25 billion passengers and 1.23 billion tons of freight, respectively. The freight network is a major source of revenue for the railways; in 2021-22, freight accounted for 75.8% of its total revenue.
The railway sector is likely to see a higher level of capital expenditure over the next decade. In FY 2023, the capex includes 1.4 lakh crore budgetary allocation to the Railways. The government also aims to increase the Railways’ freight movement to 45 percent from the current level of 26-27 percent and electrify the Railways completely by 2023. In fact, electrification of the network has been going on at a fast pace with 2020-21 logging electrification of over 6,105 kms.
The Indian Railways, however, is saddled with an ageing infrastructure; its upgradation will require significant investment and long-term planning. The government has laid out a National Rail Plan Vision to address the challenges and create a future-ready railway system. New routes for freight and high-speed corridors have been identified, there is multi-tracking of busy routes, the average speed of Delhi-Howrah and Delhi-Mumbai routes have been increased to 180 kmph, and the Golden Quadrilateral to 160 kmph, with elimination of level crossings.
Plans include redevelopment of 400 railway stations. The infrastructure deficit is evident in the decaying and over-utilised systems. The Railway Station Redevelopment Program aims to deploy 1 lakh crore through PPP to transform the stations and improve passenger amenities.
In 2022-23, the government plans to award projects for 40 railway stations. Work is currently underway in Ayodhya, Bijwasan, Safdarjung, and Gomtinagar. There are also plans to reduce the number of level crossings along railway lines and construct road over bridges and rail over bridges.
The future of Indian Railways requires digital technologies, electrification, and automation, in order to make predictive corrections, and deploy green technologies to reduce carbon footprint, and thereby enhance the overall passenger experience.
India’s expansive coastline provides the country with maritime networks in the East and West with 12 major ports and 200 non-major ports. The ports’ infrastructure has been witnessing expansion over the last few years with the capacity of major ports expanding from 870 million tons per annum (MTPA) in 2014 to ~1550 MTPA in 2021. The need to develop a more efficient infrastructure is underlined by the volume of trade conducted by ports, which is a huge 90 percent.
However, factors such as a deficient physical and soft infrastructure, lack of seamless connectivity, congestions leading to delays and increase in costs, and lengthy bureaucratic processes, are issues that require immediate policy interventions.
Ports in India also need to mobilise funds for construction of infrastructure like shallow drafts at berths in the terminals, acquire mobile harbour cranes to handle cargo, and improve transport linkages between dry ports, inland containers, and terminals. Improvements in soft infrastructure will lead to better delivery of services and simplification of bureaucratic processes. Incorporation of new technologies to create ‘smart ports’ will streamline logistics with predictable performance, real time tracking, and improved standardisation.
The impact of Covid-19 was particularly hard on the shipping industry as ports remained congested globally with higher turnaround times, backlogs, and lack of containers and trucks. The increasing delays in shipments and the skyrocketing rates of shipping from $800 pre-pandemic to $2250 post pandemic for a 20-ft dry container revealed the unpredictable nature of global supply chains.
With cargo traffic expected to reach 2,500 MTPA in 2025, the current capacity is falling short. In 2021, the Indian government announced plans to upgrade port infrastructure and an investment of $82 billion in port projects. It has identified 92 non-major ports for capacity expansion which will add 712 MTPA to the existing capacity. Two new major greenfield ports are planned at Vadhavan in Maharashtra and at Paradip Outer Harbour in Odhisha.
To enable and unlock the potential of ports, connectivity to the hinterland, dry ports, inland waterways, and multi-modal transport hubs is needed. The government’s 6.5 lakh crore Sagarmala program will address this need by undertaking projects such as national waterways, last mile road and rail connectivity, construction of multi-modal logistics parks, and connecting ports to freight corridors. There is also a focus on inland waterways; these will use the network of rivers, canals, backwaters, and creeks for cargo movement. As India looks to upgrade its port infrastructure and modernise its multi-modal transport networks, we will see significant growth in the logistics sector.
India is expected to become the world’s third largest aviation market in terms of passenger traffic. With a growing middle-class, demand for air travel has surged and despite the major disruption caused by the Covid-19 pandemic, India’s passenger air traffic is back to the 93 percent pre-Covid level in June 2022.
Airports in India face challenges in terms of their capacity, which is unable to meet the growing passenger traffic and demand for quality service delivery, which are aggravated by the increasing congestion. The government plans to increase the total number of airports from 140 in 2022 to 220 by 2024-24 and will include helipads and water aerodromes. Rapid expansion is needed considering that passenger traffic is estimated to grow to 520 million by 2037, which will require an additional 1,100 aircrafts and the requisite infrastructure.
In January 2022, the government approved construction of 21 greenfield airport projects, including the Jewar airport near Delhi. The government also plans to build airports in Tier 2&3 cities which will be managed by the Airport Authority of India under the Asset Monetisation Scheme. The government has leased 6 airports for 50 years to private players like the Adani Group which will also invest in their upgradation.
There is growing global interest in India’s infrastructure sector, though we still have a long way to go. According to the Global Competitiveness Index, India currently ranks 70 out of 140 countries for infrastructure quality. Lack of public utilities in cities, insufficient modes of public transport, and inadequate on-road connectivity are issues that require immediate attention.
The scope for development across all key infra sectors is humungous given the significant number of ongoing and proposed projects. The current scenario, therefore, presents a competitive landscape for construction equipment companies to buckle up and take the emerging opportunities to grow their business.
Going forward, the government is incorporating newer and greener technologies in infra construction. The Green National Highway Corridor Project is one such initiative which uses cleaner technologies with less environmental impact during construction. Digitisation is also being deployed by the government to transform construction activities. Construction equipment which is loaded with advanced technologies like automation and IoT for data monitoring and predictive maintenance has gained a wider space, encouraged by the ‘Digital India’ initiative.
Sources: (PIB releases, Government reports, websites, and policy documents).