This is the bedrock on which India’s economy will double in size over the next decade.
Our estimates show infrastructure investments will nearly double by 2030, with spending estimated at ~Rs 66.7 lakh crore during fiscals 2017-2023 and ~Rs 142.9 lakh crore in fiscals 2024-2030.
While the lion's share will be by the government, the private sector is increasingly focussing on the energy and transportation sectors.
Of the total projected spend, ~Rs 36.6 lakh crore is seen as green, marking 5x growth over fiscals 2017-2023.
The biggest share in green investments, of ~Rs 30.3 lakh crore, will be in renewable energy (RE), followed by Rs 6.3 lakh crore in transportation.
The wherewithal question
Green financing should take off sooner than later, driven by market borrowings and non-bank sources.
On their part, Indian companies have primarily raised green bonds from abroad, and this trend is likely to continue with minor hiccups in the short term.
Between fiscals 2024 and 2030, we expect funding from green bonds and external borrowings by Indian companies to be 2.5x current level.
In capex terms, the central government continues to do the heavy lifting through gross budgetary support and (reduced) backing from extra budgetary resources.
Between fiscals 2019 and 2023, overall infrastructure investments logged a compound annual growth rate (CAGR) of 10%. They would continue to drive India’s capex story over the medium term.
Asset monetisation was patchy last fiscal, but will be a crucial flank given the humongous monies required. The roads and RE sectors offer massive monetisation potential as these together account for ~44% of the infrastructure capex.
The National Infrastructure Pipeline was introduced in fiscal 2019 with an original target of Rs 111 lakh crore comprising ~5,800 projects. This hasbeen revised to Rs 147 lakh crore now.
By next fiscal, the achievement is expected to be at 70% of the original target.
It is also essential to develop new instruments, deepen the secondary corporate bond market and tap into ESG funding.
Electricity
Power demand growth is pegged at ~6% until fiscal 2030, driven by the industrial segment as the government focuses on cranking up the manufacturing sector’s share by leveraging the global derisking away from China.
While the Panchamrit target is to achieve half of India’s power demand through RE by 2030, the country’s reliance on coal to generate electricity will continue until the RE’s intermittency issues are resolved. Here, we see floating solar and offshore wind projects coming into big play.
CRISIL MI&A Research foresees 51-53% of India’s power generation to be fuelled by thermal plants in fiscal 2030. Given that many of these plants are young, the potential to retire old ones is limited.
The share of RE in total capacity is estimated to grow 4x over fiscals 2023-2030. The share of non-fossil in the generation mix will increase from 25%in fiscal 2023 to 45% in fiscal 2030, with solar accounting for half of the incremental non-fossil generation.
Increasing adoption of RE and energy storage solutions will contribute to rising share of storage elements in meeting ever-enlarging peak demand.Battery energy storage systems and pumped storage plants will account for equal share in generation from energy storage plants by fiscal 2030,increasing their share to 11% of peak power supply.
The levelised cost of electricity of RE sources is 40-50% lower than thermal sources, which should support capacity addition.
The global offshore wind technology market continues to be driven by China and the United Kingdom. Given land congestion, one of the emerging technologies to watch out for is ‘floatovoltaics’.
Both floating solar and offshore wind projects require an ecosystem comprising manufacturing, logistics and underwater transmission network.
Bioenergy, an unutilised but a potential megasource, can kick in as well.
Given this, energy efficiency and RE integration will be crucial to ensuring both capacity growth and reliability.
The hydrogen call
For India, a shift away from fossil fuels is imperative to meet its ambitious clean energy targets (500 GW of non-fossil capacity and 50% RE share by 2030), while also reducing emissions by 45%.
Hydrogen assumes a pivotal role in this transition as it can address the intricate challenges of shifting certain sectors and industries from fossil fuels to RE.
Global hydrogen demand is seen at ~120 million tonne by 2030. India’s demand is expected to double in this period, with green hydrogen’s share at 15-20%.
The hydrogen sector is poised to attract substantial investments, estimated at ~Rs 1.5 lakh crore between fiscals 2024 and 2030, driven by government incentive schemes.
The possibility of mandates for green hydrogen use across sectors could further boost investments. Incentive schemes are particularly crucial to drive the transition to green hydrogen, especially considering the cost of production of green hydrogen is twice that of fossil-based hydrogen.
Electrified transport
Electric vehicles (EVs) represent the pivotal technology for reducing carbon emissions in the road transport sector, which contributes to more than 15% of global energy-related emissions. EVs will account for sizeable share in most developed countries by 2030.
India launched the FAME scheme to encourage the adoption of EVs and build the associated charging infrastructure. As a result, the share of EVs in overall automobile sales is likely to reach ~30% in India by 2030.
Two-wheeler EV sales are expected to outpace other segments up to 2028, while demand for EV buses will be driven by state transport undertakings.
Favourable total cost of ownership and total cost of acquisition, as well as model availability for two- and three-wheelers will support EV offtake in coming years. Around 30,000 EV charging stations are to be installed in India by fiscal 2032, led by states with higher urban population.
Urban development
Noticeable change in urban development will require reforms in user charge and its implementation, linking of property tax assessment to capital values, and increasing revenue collection efficiencies.
City governments require a revenue source linked to economic activity, which provides buoyancy to municipal revenues that can possibly allow them to incur capital expenditure at a significantly higher level in the long-term.
The sharing of Goods and Services Tax revenues with municipal governments is a possible way to enhance the capital expenditure capacity of city governments.
India's inclusion in a global bond index has paved the path for eventual flow of funds to municipal level as well. But it will need an ecosystem to be developed as well, to ensure investment worthiness.
Digital will continue to play an increasingly important role
Digital infrastructure, especially in the banking sector, will continue to drive innovation, improve payment systems and reduce leakages from government subsidy transfers. The use of digital platform for PM Gati Shakti, built on the geographic information system which integrates data from various ministries and states, is another example in how technology can directly impact infrastructure development. Technology is also being increasingly used for monitoring of assets and accurate maintenance and repairs.
CRISIL InfraInvex
InfraInvex, CRISIL's proprietary gauge, has been quantifying the directional changes in each infrastructure segment over the past few years. This year, we have incorporated environmental sustainability into its framework so that the barometer is future-ready.
You will notice in this yearbook that there has been a general upward movement in InfraInvex scores across sectors, aided by policy interventions and investment climate. Areas requiring action come out in stark relief as well.
This time, we have four sectors - roads and highways, power transmission, RE and ports - achieving an overall score of 7/10, a testimony to the reforms and developments seen over the past few years.
Conclusion
The opportunities India has to improve the capacity and quality of its infrastructure, and reduce carbon emissions are indeed generational.
Most of the action needs to be bold and drastic - and not exercises in incrementalism - in newer domains such as hydrogen, EV, solar and wind.
Put another way, that is an opportunity to avert a myriad legacy issues clogging the traditional segments from the get-go. A new dawn beckons, for sure.
