Investments in India's infrastructure sectors—renewable energy, roads, and real estate—are projected to rise by 38 percent to Rs 15 lakh crore by 2025-26, rating agency CRISIL said on June 18.
"The growth in investment in India's infrastructure segment will mainly be through supportive policy interventions by the new government and improved credit profile of companies in the sector," the rating agency said.
The surge, per the report, will be driven by the country's push for sustainable infrastructure, improved physical connectivity, and rising demand for residential and commercial properties.
“The underlying demand drivers in these three sectors remain strong, with regular policy interventions fuelling investor interest,” Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL Ratings, said while speaking at its annual Infrastructure Summit 2024 held virtually.
Road Infrastructure
CRISIL said that India's roads sector is expected to see an 11 percent growth in highway construction driven by robust awarding and strong order books.
The rating agency estimated that 12,500 km of national highways will be constructed in 2024-25 and 2025-26, which is just slightly higher than the 12,349 km of national highways constructed in 2023-24.
However, CRISIL pointed out that private sector confidence in roads has been boosted by models such as the hybrid annuity model (HAM) and improved concession agreements, which share risks more equitably between developers and concessionaires.
Similarly, the moderation in government budgetary allocation to the roads sector could be a risk.
“Amendments in the build-operate-transfer (BOT) toll model concession agreement have been made to increase private participation. However, improvement in traffic estimation accuracy and increase in willingness of lenders to fund BOT toll projects will bear watching,” the rating agency cautioned.
Renewable Infrastructure
The research firm noted that for renewables, the key growth driver is demand for sustainable energy transition.
In renewable energy, the government aims to achieve 450 gigawatt of installed solar and wind capacity by 2030. Auctions in fiscal 2024 totalled 35 GW, the highest in a single year, with a pipeline of 75 GW and plans to implement 50 GW over the next two fiscal years.
“For renewables, higher import duties have enabled a domestic ecosystem for module production. This has not only resulted in lower import dependence and price volatilities but also facilitated better control on supply-chain,” the rating agency said.
However, it pointed out that around 7 GW of storage-linked capacities are yet to secure buyers out of nearly 9 GW commissioned.
Real Estate
In real estate, commercial office space demand is set to grow by 8-10 percent in the current and upcoming fiscal years, while residential real estate demand will sustain at 8-12 percent, according to Crisil.
The primary drivers of the same will be global capability centres eyeing India’s large talent pool and competitive rentals, as well as healthy demand from domestic sectors.
Recent amendments allowing demarcation of SEZ areas into non-SEZ areas are expected to spur growth in commercial real estate by attracting a wider base of tenants.
"Regular policy interventions in these sectors have also increased investor interest, thus providing opportunities to developers to unlock equity capital. Cumulatively ~Rs 2 lakh crore of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation," Manish Gupta, Senior Director and Deputy Chief Ratings Officer said.
He added that the emergence of vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) has been a key enabler.
"The capital inflows from investors have helped improve credit profiles of private players, thus strengthening their ability to fund future growth," Gupta said.
The Real Estate (Regulation and Development) Act, 2016, has improved transparency and facilitated timely project completion, enhancing stakeholder confidence in the residential real estate sector.
Discipline in new launches and managing inventory levels remain crucial for real estate stability going forward.
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