
Transport Infrastructure to continue as a key focus area for new Government with massive capital outlay of up to ₹30 trillion expected over next five years. Construction companies are likely to be the major beneficiaries and will witness strong order inflows estimated between ₹15-18 trillion.
The transport infrastructure is set to continue as key focus area for the new Government with a massive capital outlay of up to ₹30 trillion expected over the next five years. The Government is likely to maintain the continuity on the major programmes launched during its last tenure viz. Bharatmala Pariyojana (Highways), Sagarmala (Ports), railway station redevelopment programme, inland waterways development, Namami Gange, Swachh Bharat Mission, UDAN (Airports), AMRUT and Smart Cities (Urban Infra). The last five-year period (FY2014-FY2019) had witnessed huge spending by the Government on segments like roads (increased by ~353% between FY2015 to FY2019), railways (increased by ~146% times between FY2015 to FY2019), metro rail, etc, which is likely to increase further over the next five years.
As per the current government manifesto, the next five years will see massive infrastructure build-up in India. The capital investment in the infra sector has been proposed at ₹100 trillion over the next five years - which is a huge increase from the current level of capital investment in the sector. Amongst the key segments, transport infrastructure is expected to see a major jump with an estimated ₹25-30 trillion of capital outlay over the next five years. Such an investment will provide tremendous long-term benefits for the Indian economy. Construction companies are likely to be the major beneficiaries and will witness strong order inflows, estimated between ₹15-18 trillion on the basis of these infrastructure capex plans.
In the road sector, the manifesto mentions constructing 60,000 km of National Highways over the next five years – at an average rate of 12,000 km per year. Given that the highway construction pace had grown significantly over the last four to five years (pace of highway construction increased from 4,410 km in FY2015, to 9,829 km in FY2018, and ~10,855 km in FY2019), and sizeable number of under-implementation projects, the target seems achievable.
Sector | Major capex plans | Expected capital outlay over five years |
Railways | DFC, railways capex, Bullet Train, station modernisation | Rs. 10-12 trillion |
Roads and Highways | 60,000 km over next 5 years | Rs. 7-9 trillion |
Urban Infra | AMRUT, smart cities, metro/MRTS | Rs. ~3 trillion |
Ports | Sagarmala | Rs. 2-3 trillion |
Airport | ~100 new airports | Rs. ~2 trillion |
Inland Waterways | Development of national waterways, other related capex | Rs. ~1 trillion |
For the railways, the manifesto has proposed a conversion of all viable rail tracks to broad gauge, electrification of all railway tracks, and completion of the two dedicated freight corridor projects (EDFC, and WDFC) by 2022. Further, a large investment is also envisaged towards railway station modernisation across the country.
Significant investment is also expected in metros, airports, ports and inland waterways. The metro rail infrastructure is aimed to be brought to 50 cities from around 20 cities where the metro rail project has been approved so far. As regards to airport infrastructure, the target is to double the number of functional airports from around 101, currently. Similarly, port capacity is aimed to be doubled over the next five years and the Sagarmala project is to be fast-tracked. Development of inland waterways is another potential area.
The Government had implemented various de-bottlenecking measures which helped ramp up execution in the last five years. Nevertheless, the proposed push to infrastructure investment is certainly very ambitious and challenging. Further, large increase in capital investments in the infrastructure sector will require significant Government push in the form of policy reforms, including providing a conducive environment for public private partnership (PPP) and promoting alternate avenues of fund raising like Infrastructure Investment Trusts, NIIF, etc., as well as a major increase in public sector spending, which, given the fiscal constraints, can be achieved by way of asset monetisation or asset recycling.
Redevelopment of Railway stations

The redevelopment program for railway stations has picked up speed and opened up opportunities for building construction companies. These companies are eyeing significant opportunities from the railway station redevelopment projects over the medium term. As per ICRA report, the overall size of the station redevelopment programme is quite large, involving over 500 stations with an estimated cost of ₹1.1 lakh crore, which is likely to be spread over a longer time horizon (more than five years). Over the medium term (1-3 years), about 50 stations are likely to be taken up for redevelopment with an estimated cost of ₹10,000 to ₹20,000 crores, depending on the extent of commercial development around these stations.
So far, contracts for five station redevelopment projects have been awarded by the Indian Railway Stations Development Corporation Limited (IRSDC), and NBCC India Ltd. These include Habibganj (Bhopal), Gandhinagar (Gujarat), Gomti Nagar (Lucknow), Charbagh (Lucknow), and Puducherry. While Habibganj has been awarded under the PPP mode, the other four stations have been awarded on the engineering procurement construction (EPC) mode. The first two stations awarded - Habibganj and Gandhinagar - are in advanced stages of implementation. The remaining three stations (two in Lucknow and one in Puducherry) have been awarded in FY2019. The awarded contract values have varied between ₹100 crore to ₹540 crore and have been taken up by construction players focussed on the building segment. The total value of the four contracts (excluding the PPP project) is ₹1,149 crores. However, the competitive intensity in bidding for these projects has been low with average awards at 5% premium to the base cost.
Besides, ICRA notes that IRSDC, the nodal agency for the railway station development programme, has recently allocated planning and feasibility work for 39 stations to five CPSEs (NPCC, Engineering Projects, MECON, RITES, Bridges & Roof Co.). This is likely to pave the way for fast-tracking their development. This apart, NBCC was earlier entrusted with 10 railway stations of which it has already awarded EPC work for three stations and is likely to take up the remaining stations depending on their financial viability.
After a slow start, the station development programme has gained traction in the last one year and is expected to gather momentum with multiple station redevelopment projects in the pipeline. Nevertheless, challenges remain, which can impact the programme.
The private sector investment in these projects has been weak and is likely to remain muted due to significant market risk associated with the real estate development. Hence, a majority of these projects are likely to be awarded on an EPC mode for the station redevelopment part, while the commercial development is to be taken up separately. With the relaxation of procedures and increase of the lease period for commercial areas to 99 years, the viability of these projects has increased. Nevertheless, the funding for these projects will need to be arranged by sponsors like IRSDC and NBCC till the time the commercial development around these stations is monetised. Thus, the pace of the project awards would also be dependent on the viability of the stations and the funds available with the implementing agencies.
ICRA has maintained a stable outlook for the construction sector with the expected healthy order inflows and pace of execution, primarily supported by the increased investments in infrastructure. The construction GVA growth has improved to 8.9% in FY2019 as per advance estimates. The banking credit to the construction and infrastructure sectors has also witnessed an uptick in FY2019, after muted growth in the previous year, supported by roads and other infrastructure segments. Though the order inflows are likely to be muted in H1-FY2020 due to the Lok Sabha election, it is likely to pick up pace in the second half of the financial year. With adequate orders in hand, companies with healthy balance sheets are expected to demonstrate stable performance.
Road Infrastructure

State level spending on roads to increase at a CAGR of 22% from current levels of ₹96,000 crore in FY2019 to ₹1.43 lakh crore by FY2021. The state led road sector capex is expected to witness robust growth over the next three years supported by several expressway projects launched/announced by the states of Maharashtra and Uttar Pradesh. In Maharashtra, the estimated spend in case of Nagpur-Mumbai expressway alone is ₹35,000 crores over the next three years in addition to the proposed road improvement programme through hybrid annuity model (HAM). Similarly, in UP, for Purvanchal and Ganga expressways together, the estimated spend over the next three years is around ₹20,000 crore1. ICRA estimates the state level spend on roads to increase at a CAGR of 22% from the current levels of ₹96,000 crore in FY2019 to ₹1.43 lakh crore by FY2021.
Total cost of Ganga Expressway is estimated at ₹25,200 crore; however, it is currently in nascent stages and land acquisition is yet to complete. Hence, assumed to commence from FY2022 onwards.

This had witnessed a trend reversal in FY2018 when the GoI approved the new highway development programme (including Bharatmala Pariyojana Phase-I) in October 2017, which involves national highway development of around 83,000 km by FY2022. After National Highways Development Project (NHDP), Bharatmala Pariyojana is the largest road development programme to be undertaken by GoI. The estimated fund requirement for development of NHs under the new programme is about Rs. 6,92,324 crores, up to FY2022. Consequently, this led to increased outlay by centre from FY2018 onwards.

In terms of capital allocation for the road sector by the states, the top five states are Uttar Pradesh, Tamil Nadu, Maharashtra, Karnataka and Odisha, which together accounted for 53% of the aggregate spend in the sector, across all the states. On an average, these states have deployed around 27% of the development capital outlay towards roads and bridges. Among non-special category states, Chhattisgarh and Jharkhand are the two top states in terms of proportion of development outlay (around 35%) deployed towards road asset creation, while Telangana and Andhra Pradesh are the laggards with less than 10% of development capital allocation.

State highways (SH) along with the major district roads (MDR) constitute the secondary system of road transportation in the country, and are developed and financed by state governments. SHs provide links with NHs, district headquarters of states and important towns, tourist centres and minor ports. The total length of SHs at present is about 166,000 km accounting for about 4% of the total road network and carry 25% to 30% of the total road traffic.

However, states have a lot of catching up to do; about 65% of these have less than the minimum desired two-lane carriageways, which indicates the egregious status of this network. SHs and MDRs were majorly neglected in the past. A transport network is only as strong as its weakest link. Consequently, these roads that connect with newly expanded NHs create bottlenecks with congestion repercussions across the wider network. Many states have realised this and started taking development/ improvement of SHs and MDRs on priority. Road construction activity has deep linkages with the rest of the economy of the state with a strong multiplier effect and significant positive externalities underscoring the significance of the sector.