Reassessing India’s Infrastructure Needs & Demand

Elias George, Partner and National Head - Infrastructure, Government and Healthcare, KPMG in India
Clearing the clutter in the infrastructure space, clarity in policy by the government, and a more efficient legal system to expedite dispute resolution are the key elements for a vibrant infrastructure sector of the future.

Elias George, Partner and National Head - Infrastructure, Government and Healthcare, KPMG in India

Infrastructure is the backbone of any economy as the extent and quality are amongst the most crucial characteristics defining the productive capacity of a nation. In fact, quality physical and digital infrastructure have a major impact on productivity and inclusivity within an economy. One of the major differences witnessed between the developed and developing world is the stark difference in infrastructure capacity, which inhibits the productivity of all its people further leading to loss of economic opportunities.

Infrastructure Creation: Quality & Sustainability
Countries with strong physical infrastructure can sustain dense populations in comfort and can ensure a lower cost of transaction for people as they exchange goods and information. This, as a central theme and thought, is not lost on the Indian planners’ mind and hence, there will continue to be a sustained focus on creation of quality infrastructure. Research suggests that the world is on the path to face a USD 15 trillion deficit in infrastructure by 2040 and India is part of the group that faces major shortages in infrastructure provision.

The domestic economy, which is now in midst of an unprecedented shock, with economic growth anticipated to fall at a fast clip during the year, can witness a number of scenarios playing out in the coming times all dependent on the effects of the fiscal and monetary stimulus. This too will have a major impact on how infrastructure creation takes place. However, one aspect is clear, we need to live more lightly on the planet and infrastructure creation also needs to be looked at with fresh eyes.

We will need to find new ways of ensuring the greatest good of the greatest number and focus much more on preserving that ever-diminishing thin layer of soil and sea and sky which sustains life on the planet. The central idea has to be about building infrastructural assets that are robust, resilient and intelligent while also being more sustainable by virtue of being better integrated with local environments, including the communities around which they are located.

Evolution of fourth generation technologies
Infrastructure in the coming time will inherently have digital qualities and also be compatible with other emerging technologies, in fact, it would imbibe some of the key advantages that we derive from newer technologies. The evolution of fourth generation technologies like Artificial Intelligence, Internet of Things (IOT) and Big Data have already shown the benefits in the form of more efficient infrastructure. For instance, the embedding of cheap IoT devices has opened possibilities of creating lighter infrastructure which can be better maintained as IoT devices are able to dynamically send data regarding the health of the structure or system. Analyses of traffic patterns via big data has enabled more efficient creation of physical infrastructure such as bridges and housing assets across cities resulting in positive social outcomes.

Shared models of consuming services are increasingly becoming popular thanks to internet connectivity and a new mindset of the younger generations, some of whom prefer experiences rather than ownership. Cab aggregation services in urban public transport and online community marketplaces connecting people looking to rent homes, and options to rent empty homes for vacations could lead to reduced demands on infrastructure that needs to be freshly created in these domains.

Shift towards greener, sustainable, resilient infrastructure
There is also likely to be a shift towards green infrastructure, at least in the cities that have become a hotbed for virus transmission. Some of the best examples of green infrastructure are permeable surfaces, green roofs and walls. These have a number of benefits such as reduced energy demand, improved storm water management and are more eco-friendly by being carbon efficient.

The pandemic is just the latest in the long list of disasters that have affected the economy over the past few years. Given the situation on climate change, we are likely to see increasing incidences of natural disasters, which increases the need for resilient infrastructure creation. According to the UN’s 2019 Asia-Pacific Disaster Report, 28 per cent of energy, 30 per cent of transport, and 34 per cent of ICT infrastructure are exposed to multiple hazards. With increasing and potentially overlapping risks, governments have no choice but to create more resilient development rather than just cover the deficits in infrastructure.

Infrastructure creation is likely to be more risk informed and in consonance with the contours of a particular region. A combination of looking at previous climate related events along with an estimation of future challenges is likely to result in the creation of more sustainable and resilient infrastructure.

Opportunities for Bridging India’s Infrastructure Gap
In the near term, we are only likely to see construction of infrastructure that is deemed necessary or critical for the functioning of the society. As we move out of the lockdown and come back to normalcy there is a possibility that people reconsider their economic demands, which may result in a reassessment of infrastructure needs and tone down the overall demand.

That said, the dual shock to demand and supply in the economy, dealt by the pandemic, will mean lesser credit demand overall from the system and the continuance of lower interest rates for an extended period of time in the Indian economy. Further, global investors would be looking towards countries such as India to create assets that support growth while also provide investment avenues for savers. With the government looking at ways to effectively mobilise savings into productive usage, this could potentially be a golden opportunity for the domestic infrastructure sector. As such, despite the negative effects of current crisis, the current global and domestic scenario offers India a fresh start towards bridging its infrastructure gap.

The Central Bank has already expanded liquidity in the system to ensure that firms do not starve for want of liquidity and money flows smoothly into sectors where there is actual need. However, one must be cautious as there also needs to be prudence in lending especially as the banking system is still dealing with a huge load of NPAs from previous excesses.

The Indian economy can benefit immensely in a world of collapsing fixed income returns as the economy can be one of the first large economies to recover from the ongoing crisis. Clearing the clutter in the infrastructure space, clarity in policy by the government and a more efficient legal system to expedite dispute resolution are the key elements for a vibrant infrastructure sector of the future.

NBM&CW July 2020

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