Infrastructure Sector: Driven By Government Initiatives And Tailwinds

The success of the infrastructure industry is regarded as an indicator of economic growth. Mandar Wagh explains how the government’s focus on infrastructure, increased capital expenditure, initiatives such as the National Infrastructure Pipeline and the PM Gati Shakti National Master Plan as well as developments including electric vehicles, will all contribute to growth
 

Infrastructure is a segment of the construction industry which also includes real estate and urban development. The primary building blocks of the infrastructure industry include roads, highways, railways, electricity, telecommunication systems, water supply, dams, airports, warehousing facilities and gas pipelines. While achieving social objectives such as ensuring that all citizens have access to basic services and amenities, infrastructure development also generates significant employment and boosts connected industries like real estate, telecommunication and power. The success of the infrastructure industry is regarded as an indicator of economic growth.

This is because it acts as the backbone of any economy. The financial year 2021-2022 marked the biggest ever yearly FDI inflow to India, totalling USD 83.57 billion. The Indian infrastructure industry is expected to grow at a CAGR of more than 8 per cent over the next five years. Around 70 per cent of India’s projected capital expenditure on infrastructure is expected to be invested in such sectors as energy, roads, urban development and railways. As a result, EPC companies will experience rapid growth in their overall business and revenue in the coming years. 

Being a part of the Larsen and Toubro Group, Larsen and Toubro Infrastructure Development Projects Ltd. is the most recognised infrastructure company in India. Since its inception in 1995, the company has completed landmark infrastructure projects across key sectors like roads, bridges, ports, airports, water supply, hydel energy and urban infrastructure. In addition to its project portfolio, it has installed wind energy generators with a capacity of 8.7 MW in some districts of Tamil Nadu. Some of the other leading players in the industry include Reliance Infrastructure, GMR Infrastructure, Jaiprakash Associates, IRB Infrastructure Developers and Nagarjuna Construction Company.
 

Infrastructure Stocks and Equity Markets 

The equity markets disappointed in 2023, and investor optimism is shattered as key benchmark indices have tumbled more than 5 per cent year-to-date. BSE Power and BSE Utilities performed the worst due to the bloodbath caused by allegations made by the Hindenburg Research report against the Adani Group while BSE Realty emerged as one of the losing sectors with losses of more than 17 per cent over the past year. In such a gloomy scenario, there are some infrastructure stocks that significantly outperformed the markets and drew investors in with their strong uptrends. 

When the performance of selected infrastructure stocks was compared over a one-year period, Gensol Engineering, a Small-Cap stock, led the list with outstanding returns of more than 265 per cent in just one year! Gensol Engineering is in the solar consulting and EPC business and the company’s offerings include solar advisory, solar EPC, solar operation and maintenance, and solar monitoring and analysis. Power Mech Projects and Rail Vikas Nigam Ltd. also stunned investors with gains of more than 100 per cent. The majority shares of infrastructure and EPC companies climbed as a result of the government placing high priority on infrastructure development in the budget.

Challenges

The infrastructure sector, along with the overall construction industry, bore the brunt of the damage caused by the pandemic as it was already facing a liquidity crunch when the global crisis hit. Many projects remained in unfinished stages and the pandemic disrupted the entire value chain system at all points and scales. Construction material availability and price inflation became major issues. The lack of timely execution contributed to cost overruns, significant delays and even the cancellation of projects. However, the industry has recovered and is now contributing significantly to the economic growth of the country. Still, the infrastructure industry continues to face difficulties with land acquisition, environment-related clearances, a lack of coordination between agencies, time and cost overruns, banks’ cautious lending approach and the absence of a single window for all approvals.

Government Initiatives and Outlook

Given the significance of the industry, the government has given infrastructure development a much greater priority and in the budget for 2023-24 it raised the outlay for capital expenditure on infrastructure by 33 per cent to ₹ 10 lakh crore. The National Infrastructure Pipeline (NIP) is a programme that will construct top-notch infrastructure across the country in order to raise everyone’s standard of living. India needs to invest about USD 1.4 trillion in infrastructure over the next few years in order to reach a GDP of USD 5 trillion by 2024-25. The government has already declared that it would spend ₹ 100 lakh crore on infrastructure initiatives, including social and economic infrastructure projects.

Roadways

The PM Gati Shakti National Master Plan for multimodal access to economic zones has received a lot of attention since it was announced as everything will be integrated into the plan – from roads to trains, from agriculture to aviation, as well as a number of distinct ministries. Under PM Gati Shakti NMP, it is expected that 2 lakh kilometres of national roads will be finished by 2024- 2025, as well as an addition of 25,000 kilometres to the national highways network. A network of multi-modal logistics parks and freight cargo terminals is being created for enhancing the country’s storage ecosystem in order to maximise the potential of planned infrastructure. 

The FASTag system encourages increased roadway commercialisation, resulting in more revenue for the National Highways Authority of India (NHAI) and more than 6,000 kilometres of roads are expected to be commercialised by 2024. The Bharatmala Pariyojana proposal envisions the construction of approximately 26,000 kilometres of economic corridors, which, along with the golden quadrilateral (GQ) and North- South and East-West (NS-EW) corridors, are anticipated to carry the majority of freight traffic on roads. The Eastern Peripheral Expressway, the Delhi-Meerut Expressway and the Narmada Bridge are also major Bharatmala Pariyojana projects. 

Railways

In the Union Budget, Finance Minister Nirmala Sitharaman announced the highest-ever capital outlay for railways to the tune of ₹ 2.4 lakh crore, which is nine times the amount of FY14. The railways will prioritise speeding the pace of construction in addition to a variety of projects, which include setting up new lines and doubling the existing tracks. The Vande Bharat semi-high-speed train was launched as part of the ‘Make in India’ initiative and 400 new Vande Bharat trains will have been manufactured by 2025. In accordance with a deal the Indian Railways has with the company, Tata Steel has been given the responsibility of manufacturing the trains for the country’s fastest and most feature-rich Vande Bharat Express.

Airways

The UDAN (Ude Desh ka Aam Nagrik) programme was launched by the government to reduce the expense of air travel for the general public and enhance air connectivity from the country’s unserved airports. Since 2017, 73 unserved airports, including nine helIPOrts and two water aerodromes, have been operationalised through the UDAN programme. Also, the revival and development of 100 unserved and under-served airports, helipads and water aerodromes has received government approval under the Revival of Unserved and Under-Served Airports Scheme. As a result, the value of surrounding real estate may increase due to rising land prices.
 

Power and Distribution

Any developing country must have enough power generation, transmission and distribution systems, and given the size and population of India, this requires significant infrastructure development. Although the country has enough capacity to generate electricity, a sizable section of the population still lacks access to suitable transmission and distribution systems. The goal of the Pradhan Mantri Sahaj Bijli Har Ghar Yojana – Saubhagya is to accomplish universal household electrification in the country by supplying last-mile connectivity and electricity connections to all unconnected households in rural and urban regions. The government’s mission Pradhan Mantri Awas Yojana (Urban) launched in June 2015 aims to provide housing for all in urban areas. 

The government’s Smart City Project with a plan to build 100 smart cities is a prime opportunity for real estate as well as power companies. A favourable environment for the industry is being enabled by tailwinds like the government’s emphasis on infrastructure, the real estate sector’s revival and healthy demand across end-user industries. Indian manufacturers are stepping up their game in terms of facility capabilities for manufacturing, testing and product design. Some of the leading companies in this industry include NTPC, Power Grid Corporation of India, Adani Transmission, Adani Power and Tata Power. 

More Money, More Development Considering the significance of the sector, the government has raised the outlay for capital expenditure on infrastructure by 33 per cent to ₹ 10 lakh crore in the Union Budget for 2023-24.

Electric Vehicles and Other Developments

‘Net Zero’ simply refers to reducing greenhouse gas emissions to as close to zero as possible, with any residual emissions being reabsorbed from the atmosphere. To achieve this status, the government has urged sugar producers to shift excess sugarcane stock into the production of ethanol, which can be combined with petrol and used as fuel in vehicles. India has started the ethanol blended petrol (EBP) initiative to mix this bio fuel with petrol to cut back on the consumption of fossil fuels as part of its commitment to reduce carbon emissions. In addition, the government has launched numerous initiatives to encourage the production and use of electric vehicles in the country. 

Surat, Pune, Ahmedabad, Bengaluru, Hyderabad, Delhi, Kolkata, Mumbai and Chennai are among the first megacities on which the government has focused more intensely. Once the electric vehicle (EV) infrastructure in these megacities is fully developed, the government plans to gradually extend its coverage to other cities. The National Highways Authority of India (NHAI) is building EV charging stations and other wayside amenities along highways and expressways. The infrastructure industry will soon benefit significantly from these enhancements to the infrastructure.