Understanding India’s Infrastructure Sector

The Indian economy runs on the collective contributions of various sectors, such as information technology, Financial services, energy, automobiles, etc. However, one of the most important sectors of the Indian economy is infrastructure, as it allows supplementary activities and operations to other sectors and ensures overall efficiency. The Indian government also focuses heavily on developing the Indian infrastructure sector and has increased the infrastructure budget by over 75% after the COVID-19 pandemic. The heavy increase in the infrastructure budget, along with various flagship infrastructure policies and incentives, depicts the importance of the infrastructure sector in India.

For investors, the rise of the Indian infrastructure sector makes for ideal investing and trading opportunities. Infrastructure stocks are on the rise, and investors can analyse and invest in them to ensure higher portfolio returns. However, it is important to first understand the Indian infrastructure sector.

The Indian government has set its infrastructure target at US$5 trillion (Rs. 59.72 lakh crore) by 2025 and is focusing on achieving the goal. Hence, it has enhanced the infrastructure budget to US $16 billion (Rs. 1.32 lakh crore). Here are the drivers contributing to the growth of the Indian infrastructure sector:

• Government initiatives: The Indian government has been promoting the Indian infrastructure sector significantly by launching various initiatives. Some of the infrastructure-based government initiatives are the Bharatmala Project (road development), AMRUT (urban infrastructure), PM Gati Shakti (multi-modal logistics development), Sagarmala Project (port-led development), Pradhan Mantri Awas Yojana (housing for all) and Smart Cities Mission.
• Private sector investment: The Indian infrastructure sector has long been considered a sector for the government, not for private players, as projects take up extended time. However, the Indian government has created an improved environment for private investors to invest in the sector through a credit guarantee facility, which facilitates a better public-private infrastructure relationship. The credit facility helps the private sector attain long-term infrastructure loans at an affordable rate.

The Indian infrastructure sector is also gaining momentum among investors. In the last four years, Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) have witnessed an investment of US$15.60 billion (Rs. 1.3 lakh crore).

• Foreign direct investment: The Indian government has increased the foreign direct investment (FDI) limit in some infrastructure segments, such as highways, education, residential and commercial properties, etc., to 100%. This means that foreign investors can invest in these segments without any threshold limit, increasing their overall output. Furthermore, the Indian government is also considering allowing Limited Liability Partnerships (LLPs) to finance highways, hotels, hospitals, etc. This move by the Indian government can further attract foreign investors to invest in the Indian infrastructure sector.

The Indian government has set its infrastructure target at US$5 trillion (Rs. 59.72 lakh crore) by 2025 and is focusing on achieving the goal. Hence, it has enhanced the infrastructure budget to US $16 billion (Rs. 1.32 lakh crore). Here are the drivers contributing to the growth of the Indian infrastructure sector:

• Government initiatives: The Indian government has been promoting the Indian infrastructure sector significantly by launching various initiatives. Some of the infrastructure-based government initiatives are the Bharatmala Project (road development), AMRUT (urban infrastructure), PM Gati Shakti (multi-modal logistics development), Sagarmala Project (port-led development), Pradhan Mantri Awas Yojana (housing for all) and Smart Cities Mission.
• Private sector investment: The Indian infrastructure sector has long been considered a sector for the government, not for private players, as projects take up extended time. However, the Indian government has created an improved environment for private investors to invest in the sector through a credit guarantee facility, which facilitates a better public-private infrastructure relationship. The credit facility helps the private sector attain long-term infrastructure loans at an affordable rate.

The Indian infrastructure sector is also gaining momentum among investors. In the last four years, Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) have witnessed an investment of US$15.60 billion (Rs. 1.3 lakh crore).

• Foreign direct investment: The Indian government has increased the foreign direct investment (FDI) limit in some infrastructure segments, such as highways, education, residential and commercial properties, etc., to 100%. This means that foreign investors can invest in these segments without any threshold limit, increasing their overall output. Furthermore, the Indian government is also considering allowing Limited Liability Partnerships (LLPs) to finance highways, hotels, hospitals, etc. This move by the Indian government can further attract foreign investors to invest in the Indian infrastructure sector.

There are numerous segments that contribute to infrastructure development in India. Here are the key components of the infrastructural development:

Roads:

Road infrastructure involves the construction and maintenance of highways, state roads, and rural roads. The Indian government has set an aim to construct over 65,000 kms of national highways at an estimated cost of US $64.17 billion (Rs. 5.35 lakh crore). Furthermore, the National Highways Authority of India (NHAI) also launched the InvIT Round-3 for the national highway to raise Rs. 16,000 crore for stretches of 889 kilometres. It is the largest monetisation ever done by NHAI. As of January 2024, the total length of India’s national highways is 1,45,145 kilometres. Under its Baharatmala Pariyojana, the government also aims to upgrade or build 34,800 kms of roads, including expressways, national highways, and rural roads.

Railways:

Rail infrastructure includes the development of tracks, stations, and signalling systems. The Indian railways sector estimates its annual passenger count to be 12 billion in 2031 and its estimated annual freight demand to reach 8 MT in 2031. In 2024, the freight loading was 2024 MT, and the total revenue from freight traffic was US $17.2 billion. The Indian railways have a track length of 1,26,366 kms with 7,335 train stations in India. It is the fourth biggest railway system in the world and operates 9,146 freight and 13,523 passenger trains daily. The recently inaugurated Vande Bharat train system has also significantly boosted the revenue for the Indian railways.

Read more: SGX Nifty

Airports:

Airport infrastructure includes terminals, runways, and air traffic control systems. The Indian government has privatised numerous airports in India in its bid to ensure better operations, connectivity, and revenue. In FY23, the air traffic movement of the Indian airports stood at 327.28 million compared to 188.89 million in FY22. It is expected that the maintenance, repair, and overhaul (MRO) industry will grow to reach US $2.4 billion from the value of US $800 million in 2018. The sector is also improving based on the government’s Ude Desh Ka Aam Nagrik (UDAN) initiative.

Ports:

Port infrastructure includes cargo handling facilities, docks, and storage areas. The Indian government is highly focused on ports to enable effective import and export of goods. For this, the government launched the Sagarmala project to ensure effective funding for projects aimed at modernising existing Indian ports, developing new ports, and improving India’s connectivity with other ports and countries.

Read more: What is SEBI

Conclusion

The Indian infrastructure sector is the backbone of the Income economy and ensures that the Income economy can effectively back other sectors through its activities and support. Government initiatives, private sector investment and foreign direct investment have played a key role in driving its growth to the current levels. Furthermore, its key components such as roads, railways, airports and ports significantly contribute to the Indian GDP. For investors, the sector’s stock can provide ideal investment opportunities based on extensive research.