With about Rs 42 lakh crore infrastructure spends lined up till fiscal 2021 amid sharpening government focus on roads, railways, irrigation, and urban infrastructure. The four segments of roads, railways, irrigation, and urban infrastructure are expected to account for over 68 percent of infrastructure investments over the next five years.
Roads: CRISIL Research expects investments in road projects to double to Rs 9.8 trillion over the next five years, driven by recovery in national highways and faster completion of the rural roads programme. A number of government initiatives over the past two years have aided the pick-up in the awarding of contracts by the National Highways Authority of India, that is expected to grow at 18 percent this fiscal over the robust 43 percent growth of fiscal 2016.
Railways: Railways has been another area of government focus, evident from a 21 percent higher allocation in Union Budget 2016-17. We expect investment in railways to double over the next five years until fiscal 2021 to Rs 7.2 trillion. A large portion is towards completion of projects such as the Domestic Freight Corridor.
Irrigation: Investment in irrigation is expected to rise almost two times over the next five years to Rs 5.9 trillion. Six major states account for over 60 percent of the investments, with Gujarat, Karnataka and Maharashtra being the top three spenders. The government’s bottom-up approach, well-defined systems and processes for approvals, monitoring of actual progress and fast-tracking of close to 75 projects will drive spends.
Urban infrastructure: The government’s thrust on urban infrastructure development is clear with the launch of various schemes such as Smart City, AMRUT, and Swachch Bharat and emphasis on quicker execution of metro rail. Investments of Rs 5.9 trillion over fiscals 2017 to 2021 will be more than twice than in the previous five years. Power: Conventional power segment investments (as in thermal power) are set to decline while investment in renewables and transmission and distribution will rise given the government’s focus on renewable energy. Given stressed financials of private sector generation companies and lack of fresh power purchase agreements expected from distribution companies, conventional power-based capacity additions will slow down to ~47 GW over fiscals 2017 to 2021, led by central and state PSUs.
On the other hand, capacity addition in the renewable space (wind and solar) are driven by strong government support, falling capital costs, and improvement in the execution ecosystem. Airport and ports: Investment in airport infrastructure and ports will remain muted over the next few years. While airport infrastructure would incur spends worth Rs 250-275 billion, port investments will be pegged at Rs 325-375 billion. The contribution of greenfield airports will increase to 75-80 percent by fiscal 2021 compared with 40-45 percent in fiscal 2016. ` Slower pick-up in Tier II and Tier III city airports will lead to the slow momentum. In ports, a 2-4 percent expected rise in port traffic until fiscal 2021 would be led by improvement in the petroleum, oil and lubricants (POL), iron ore, and container segments. With these planned investments, the overall capacity would grow at 3-5 percent compound annual growth rate to reach 2,008 million tonnes by fiscal 2021.