Just when I moved to Bengaluru, Mumbai saw the opening of a part of the Coastal Road and, a little later, one phase of the much anticipated Mumbai Metro Line 3. I joked about how Mumbai upgraded its infrastructure while I moved closer to the infamous Bengaluru traffic.
On a more serious note, when we move beyond the buzz around inaugurations and the daily inconveniences, you start noticing the scale of infrastructure development taking place in India.
So, let’s cover the infrastructure sector in India, mega projects that are driving the infra boom and wealth creation opportunities that investors can capitalise on.
Let’s dive in!
Infrastructure and economic development – a country level perspective and the role of the government
There’s much more to infrastructure than what meets the eye.
In essence, infrastructure is composed of physical structures such as roads, railways, bridges, airports, public transit systems, water supply, sewers, electrical grids, and telecommunications, which are essential to improving the lives of people.
It is no secret that infrastructure is essential for the economic development of a country as it enables an increase in economic activities through trade, investment, and commerce.
But, on a closer look, the real impact of infrastructure is seen through the rise in income, consumption, investments, and, of course, wealth creation!
The government leads the responsibility of developing infrastructure at 3 levels – city, state and country. These projects vary in objectives, costs, benefits, timelines, and several other factors.
Over the past 10 years, the Indian government has unveiled many mega-infrastructural projects, such as the development of highways, modernising railways, waterways, ports, airports, and regional connectivity.
What’s more exciting for me is that while infrastructure development is largely driven by government investments, public-private partnership models and innovative financial instruments have also been explored for developing different projects with the view of increasing private and market-led investments in the infrastructure segment.
The commitment of the government towards infrastructure is evident in the amount of spending it plans and undertakes to achieve its objectives.
In the Interim Budget 2024-25, the capital investment outlay for infrastructure saw an impressive bump of 11.1%, reaching INR 11.11 lakh crore (USD 133.86 billion). That’s a whopping 3.4% of our GDP! This isn’t just a figure; it’s a clear signal of the government’s intent to drive growth through infrastructure.
In their 2023 infrastructure yearbook, CRISIL estimated that the infrastructure investments will nearly double by 2030 to ~INR 142.9 lakh crore (USD 1,727.05 billion) from FY 2024-2030 in comparison to the spending estimated at ~INR 66.7 lakh crore (USD 912.81 billion) from FY 2017-2023.
Be it the world’s longest high-speed rail network, extensive metro connectivity or smart cities – multiple projects are transforming India’s physical and economic landscape.
So, let’s have a look at a few of the key projects that are currently under development –
1. Bharatmala Pariyojana
- A highway infrastructure program aimed at enhancing freight and passenger movement by developing economic corridors, connectivity routes, and greenfield expressways.
- Phase I of 34,800 km of national highways will connect 80% or 550 out of 718 districts, expected to be completed by 2027-28.
- As of March 2024, 17,411 km of roads have been constructed under Phase I.
2. Sagarmala
- A flagship scheme by the Ministry of Ports, Shipping, and Waterways to drive port-led development by leveraging India’s 7,500 km coastline, 14,500 km of navigable waterways, and strategic maritime trade routes.
- A total of 839 projects worth INR 5.8 lakh crore are planned for implementation under the program by 2035.
- As of April 2024, 262 projects worth INR 1.4 lakh crore have been completed.
3. Mumbai-Ahmedabad Bullet Train
- An ambitious project to build India’s first high-speed rail line, with bullet trains reaching speeds of up to 320 km/h, aiming to significantly reduce travel time and boost connectivity between two major cities.
- Estimated to cost INR 1.08 lakh crore, with Japan International Cooperation Agency (JICA) contributing INR 88,000 crore, and expected completion by 2027-28.
- The first section in Gujarat is expected to open in 2026.
Over the years, the government has also implemented several infrastructure projects that have added considerable value to the economy at large.
An example of the same would be the indigenous development of Vande Bharat trains.
With the objective to provide comfortable travel in the shortest possible time with semi-high speed train service between major cities of the country. Fuelled by the Make in India initiative, the Integral Coach Factory developed the Vande Bharat trains.
- In December 2023, the government announced a target of 4,500 Vande Bharat trains by 2047.
- As of October 2024, there are 66 Vande Bharat trains in service, including 18 trains which have 16 cars, 3 trains with 20 cars, and 45 trains with 8 cars.
4. Mumbai Trans Harbour Link (MTHL)
At an estimated cost of INR 17,843 crore, MTHL is India’s longest sea bridge at 21.8 km, connecting Mumbai with Navi Mumbai, reducing travel time from 2 hours to 20 minutes.
Inaugurated in January 2024, the MTHL is expected to save about 10 million litres of fuel annually, translating to significant environmental and economic benefits. This bridge is a game changer, reducing travel time and boosting regional connectivity, which in turn facilitates trade and development.
Aside from the inherent benefits that we receive as citizens, infrastructure development by various stakeholders can play an integral role in wealth creation.
How does infrastructure development benefit investors?
Wealth creation in the infrastructure sector is supported by:
- Government commitment to infrastructure development
- Growing private sector participation
- Foreign Direct Investments
- Participation by investors
1. Government involvement
The government aims to support infrastructure and economic growth through strong fiscal backing, The Union Budget 2024-25 allocated INR 1.1 lakh crore for capital expenditure and also provided state governments with interest free loans of INR 1.3 lakh crore to boost state-level infrastructure investments.
2. Private sector participation
The Government has also involved private companies to participate in the infrastructure growth of India. Public-Private Partnerships (PPPs) are key to financing India’s ambitious National Infrastructure Pipeline (NIP). By combining public and private resources, these partnerships enhance efficiency and innovation. Over 1,800 active projects span across roads, airports, and the energy sector.
3. Foreign Direct Investments (FDI)
Friendly policies have attracted global investors, delivering INR 11.2 trillion in FDI inflows in 2023-24, a 72% jump from the previous year.
Between April 2000 and December 2023, FDI in construction development, including townships, housing, and built-up infrastructure, reached USD 26.54 billion. Meanwhile, FDI in infrastructure construction activity totalled USD 33.52 billion, reflecting strong international interest in India’s urban and infrastructure growth.
A few examples –
- Japan International Cooperation Agency (JICA) has funded INR 21,280 crore for Mumbai Metro Line 3 and has also expressed interest in funding the INR 76,220 crore Vadhavan port.
- Asian Infrastructure Investment Bank (AIIB) invested INR 4.86 billion in India’s largest renewable energy InvIT – Sustainable Energy Infra Trust or SEIT.
4. Investor participation
Usually, when it comes to infrastructure bets, investors tend to directly invest in stocks of steel and cement companies that are involved in the execution of projects.
However, one needs a deeper understanding of the impact of infrastructure projects. Subsequent to the development of infrastructure projects, the improved connectivity tends to result in a growth in –
- Movement of goods and people between regions
- Economic activities
- Logistics
- Fuel and energy consumption
- Sale of automotive units and auto components
Such developments offer investors both direct and allied opportunities for investment. Direct opportunities are in those segments which will witness direct growth in the top line and bottom line due to development in trade, including automotive, auto-component, logistics, and fuel. The allied segments include – manufacturing companies, consumer segments, energy companies, etc.
Further, investors can also participate in the infra-growth story through –
1. Infrastructure Investment Trusts (InvITs)
InvITs offer investors a structured way to participate in infrastructure growth. These trusts pool investor capital for projects like highways and energy assets.
They offer:
- Predictable cash flows through regular distributions
- Professional management of assets
- Lower investment thresholds compared to direct investments in projects
- Liquidity and ease of entry as they are traded on the stock exchange
Recognising the potential of InVITs, at Dezerv, we offer exposure to InvITs to our clients through the Dezerv Dynamic Debt Plus strategy.
2. Real Estate Investment Trusts (REITs)
As infrastructure development drives urban growth, REITs offer exposure to the resulting real estate opportunities:
- Access to premium commercial properties at a lower capital commitment
- Regular income through rent distributions
- Professional portfolio management
With INR 18,840 crore raised in the past five years, REITs are becoming an increasingly popular investment vehicle. Here’s a brief explainer on REITs.
In summary
The true impact of this infrastructure boom lies in its multiplier effect. Each project, whether the High-Speed Rail or Smart Cities, catalyses growth across multiple sectors. It’s creating a domino effect of opportunities – from logistics and real estate to technology and finance.
But here’s the key insight – the real winners won’t just be those directly involved in these projects. The most significant opportunities may lie in identifying and investing in the second and third-order effects of this infrastructure revolution.
As wealth creators, our challenge and opportunity – is to look beyond the obvious to anticipate how these changes will reshape industries, consumer behaviour, and the investment landscape in the years to come.
Disclaimer: The information contained herein is for informational purposes and should not be interpreted as soliciting, advertising, or providing any advice. Securities investments are subject to market risks, and there is no assurance or guarantee that the objectives will be achieved.