In 2020, the Indian government continued to promote infrastructure construction as a key driving force for economic growth and development. Despite the challenges of COVID-19, India still witnessed steady infrastructure investment growth and rising foreign capital inflows into the infrastructure sector. The government announced ambitious infrastructure plans and introduced reforms to improve business environment. Key measures included simplifying regulations, upgrading transport networks, expanding energy infrastructure, and incentivizing private sector participation. Robust infrastructure development has strengthened India’s investment outlook and supported the country’s aim of becoming a US$5 trillion economy. Further opening up infrastructure to foreign investors will be crucial for India to maintain growth momentum and build world-class infrastructure.
Government’s infrastructure push boosted construction sector growth
In 2020, India’s construction sector grew by 6.2%, higher than the GDP growth rate. This was driven by the government’s sustained focus on building robust physical infrastructure. Major projects initiated included developing 82,500 km of new highways, expanding the railway network by 25,000 km, upgrading 4,000 km of pipelines for gas transportation, and building 100 new airports. The government also approved around 1,800 building construction projects worth Rs 1.6 lakh crore. Additionally, National Infrastructure Pipeline was launched with projected infrastructure investment of Rs 111 lakh crore during FY 2020-25. These measures provided a fillip to the struggling construction industry amidst the pandemic.
Foreign investment into India’s infrastructure jumped despite global headwinds
Despite the global economic downturn, foreign direct investment into India’s infrastructure sector witnessed strong growth in 2020. During April-September, FDI inflows into construction sector rose 81% year-on-year to $2.1 billion. Key deals included Brookfield acquiring toll roads operator Reliance Infrastructure for $3.66 billion and CDPQ acquiring 49% stake in renewable energy firm CLP India for $550 million. The government also took steps to attract offshore capital by relaxing FDI norms in sectors like defense manufacturing. 100% FDI under automatic route was permitted in coal mining and contract manufacturing. Such reforms helped reinforce India’s image as an attractive infrastructure investment destination.
Focus on sustainable and inclusive development through infrastructure boost
Along with augmenting infrastructure capacity, the government emphasized on building sustainable and inclusive infrastructure. Projects were aligned with Sustainable Development Goals to ensure environmental safeguards and community benefits. Thrust areas included renewable energy expansion, mass urban transport, rural road connectivity, and digital infrastructure. Priority was given to labor-intensive sectors to create livelihood opportunities. Initiatives like Affordable Rental Housing Complex scheme promoted social infrastructure growth. The Production Linked Incentive scheme aimed to build a globally competitive manufacturing ecosystem through infrastructure upgrades.
Public-private partnerships and innovative financing critical for funding infrastructure plans
To fund its ambitious infrastructure goals, India will need to tap into private capital by strengthening the Public-Private Partnership (PPP) framework and promoting innovative financing models. Initiatives like Infrastructure Investment Trusts and Real Estate Investment Trusts have gained traction. Access to low-cost, long-term debt from institutions like National Infrastructure & Investment Fund can be expanded. Monetization of existing public assets through listing and stake sales offers another avenue for raising resources. Streamlining land acquisition, speedy project approvals and balanced risk sharing mechanisms are key to attract private investment at scale.
In 2020, India made significant strides in infrastructure development which will lay the foundation for sustained long-term growth. Further accelerating the infrastructure investment momentum through policy reforms, transparent governance and partnerships with global institutional investors will be crucial as India charts its path to becoming a $5 trillion economy by 2025.