scorecardresearchInfra sector: The keystone to India's 5 trillion-dollar economy goal

Infra sector: The keystone to India's 5 trillion-dollar economy goal

Updated: 24 Nov 2022, 11:51 AM IST
TL;DR.
The infrastructure sector allows the country to have access to basic yet important services including clean water, electricity and transportation while generating jobs and promoting overall business efficiencies.
The health and growth of infrastructure are crucial to any country’s development.

The health and growth of infrastructure are crucial to any country’s development.

The government has ambitious targets for the Indian economy: a 5 trillion-dollar economy by 2030 and the third largest in the world.

Getting there, however, is a lofty goal indeed. The country needs to build a robust infrastructure to support this desire given that Infrastructure is the backbone of any economy. Without it, this ambition may well get strangled along with the dreams of a nation.

The infrastructure sector allows the country to have access to basic yet important services including clean water, electricity and transportation while generating jobs and promoting overall business efficiencies.

The health and growth of infrastructure are crucial to any country’s development.

As a sector, infrastructure is vast and covers a range of sub-sectors including private and public construction works of bridges, roads, railways, aviation, electrical grids, ports, houses and buildings, sewers, water supply, tunnels, etc.

So where do we stand? During the pre-Covid period (2019), the government announced the National Infrastructure Pipeline (NIP) initiative with a budget of approximately $1.5 trillion dollars.

Over the next five years, for infrastructure, this is a huge amount. Almost half our current GDP.

Even if this is discounted, there is no mistaking the signal that the government means business. It followed that up by launching the 100 lakh crore Gati Shakti plan last October (approximately $1.2 trillion).

With NIP, the government has sanctioned a host of social and economic infrastructure projects that amount to 102 lakh crore.

Energy, roads, railways and urban projects make up the bulk of this plan. To meet these lofty targets, the Finance Ministry developed the National Monetisation Pipeline (NMP) in consultation with infrastructure line ministries.

Under this scheme, an estimated 6 lakh crore over a four-year period, from FY22 to FY25 will be generated to fund the NIP projects.

The government’s next aim is to increase the length of the national highway network to 2,00,000 km and build around 200 airports, water aerodromes, and heliports and double the gas pipeline network to 35,000 km by 2024-25.

It also plans to set up two new defence corridors along with 11 industrial corridors along with tackling energy demand by increasing the power capacity to 225 GW from 87.7 GW.

So, what could this mean for infra companies? The previous decade was seen to be a poor period for many of them due to policy flip-flops and limited initiatives.

This led to a number of infra players falling by the effective wayside, leaving a leaner pack with less competition to help build India.

With these massive budgets in place, we are hopeful that not only their revenues will increase, but also their margins and slowly this is getting reflected as many of them are relatively sizeable order books.

Alongside this, there may well be a re-rating of the sector as perception gets shifted, but of course, as always we reserve the right to be wrong.

With all these moves on the anvil, the future sure is promising. However, we will still need proper implementation of policies in the infrastructure sector and an alignment of interests between the public and private sectors.

If these are effectively executed, then we are hopeful that they will help us compete effectively on a global scale as we hopefully move into our golden decade.

(The author of this article is the Co-Founder of First Water Capital Fund)

Disclaimer: The views and recommendations given in this article are those of the author. These do not represent the views of MintGenie.

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First Published: 24 Nov 2022, 11:51 AM IST