New Implementation Models Opening up Investment Avenues in Infrastructure Sector

Smart cities are gaining momentum on account of push from central and state investments

The infrastructure sector holds immense importance in propelling the growth of the country, and therefore, garners governmental attention. Indian infrastructure’s output growth during fiscal year ending March 2018 stood at 4.2 percent (Ministry of Commerce and Industry).

The Economic Survey estimates of USD 4.5 trillion (investments required by 2040) translate into a large chunk of this amount to be raised through private capital. While the challenges of long-term financing, land-related issues, and delivery models persist, new approaches are opening up opportunities for different classes of infrastructure players and service providers across the spectrum.

Sectors, such as power, roads and highways, airports, ports etc. are abuzz with activities. Other sectors too have a fair bit of action for an investor with the right risk profile.

The Indian government has undertaken a slew of initiatives to drive infrastructure growth. Changing market dynamics in the wake of industry 4.0 and advent of exponential technologies — blockchain, artificial intelligence, robotics and cognitive automation, and 3D printing, among others— is also expanding the infrastructure space, offering an opportunity to a new class of service providers to accelerate their adoption.

In the roads and highways sector, the emerging focus is to enhance safety, reduce congestion, improve regional connectivity, and highway expansion. With the objective of providing last-mile connectivity, the government is also looking at connecting major ports to railway and road network. Programmes such as Bharatmala and Sagarmala envisage the development of economic corridors, feeder routes, border and international connectivity, and port connectivity.

The government is also taking initiatives to address challenges faced in PPP (Public Private Partnership), besides adopting an alternate approach backed with public funding, such as hybrid annuity, and Toll operate Transfer (ToT) directed towards a different set of investors comfortable with EPC (Engineering Procurement Construction) route.

Electronic tolling is another opportune area with diverse requirements such as CCTV surveillance, signaling systems, automatic vehicle counters, and likes. Port development presents opportunities in setting up of logistics hubs, ship repair facilities, development and maintenance of terminal and cargo handling facilities, and designing technological tools to aid routine processes.

The aviation sector, too, is abuzz. India is poised to become the third largest aviation market in the world by 2022, with the development of new airports, growth in domestic traffic, and rise in cargo volumes. Moreover, plans have been put in place to increase non-aeronautical revenues through food and beverages business, duty-free shops, leasing of terminal space, and running car rental/parking services, etc.

The private sector may tap opportunities arising from the massive airport expansion plan, O&M of airstrips, runway extensions, cargo handling, and upgrading of passenger amenities. Massive investments are also being carried out in railways for electrification, capacity creation, passenger safety, doubling of lines, and station redevelopment, as also in large programs such as bullet trains, metro projects, and freight corridors.

In sectors other than transport, renewable energy (RE) projects are gaining traction. Having established some PPP models in solar rooftop, integration of RE with the grid is now on the agenda. To achieve its target of 175 GW of RE capacity by 2022, the Indian government is also making the sector attractive for private players through 100 percent FDI under the automatic route for generation and distribution projects, and tax incentives.

Additionally, as per the Renewable Purchase Obligations (RPO), distribution companies (DISCOMs) and large industries are required to meet a percentage of power requirements from renewables, thus opening a large market.

Smart cities are gaining momentum on account of push from central and state investments.

Given the technology play for smart solutions besides core infrastructure augmentation, service providers could gain from a series of projects in areas of IT connectivity, intelligent traffic management, air and water quality monitoring, energy efficient street lighting, among others. As massive migration ensues from rural areas to urban centers, affordable housing is also emerging as an area for significant investments.

Under the National Mission for Clean Ganga, the government is considering doubling the capacity of sewerage treatment in 10 major cities to curb river pollution, and is also evincing international participation.

With changing market dynamics, the past economic slowdown, financing issues surrounding non-performing assets (NPA) in the banking sector, especially NPAs in infrastructure assets, challenges in pure play PPPs on account of procurement and technical issues, the government has also shifted its approach.

Short- to medium-term measures, including new models of PPP (viz. Hybrid Annuity, ToTs,), creation of funds such as NIIF (National Investment and Infrastructure Fund), have been devised to evince higher participation from private sector. This changing approach is also opening up opportunities for EPC/O&M players, investment funds, and service providers, to expand their roles and explore new avenues.

-- Vishwas Udgirkar, Partner, Deloitte India.

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