CRISIL Ratings anticipates that India's pivotal infrastructure sectors-real estate, renewable energy, and roads-will draw investments totaling INR 15 trillion over the next two years. This substantial inflow underscores India's strategic emphasis on sustainable infrastructure development, the integration of green energy, the expansion of road networks, and the fulfilment of escalating demands in real estate. The report underscores the role of policy interventions in augmenting investor interest and strengthening the credit profiles of private entities. However, challenges persist, particularly in sectors such as renewable energy and roads, where the effective execution of projects and industry acceptance of new models remain pivotal concerns.
India's essential infrastructure sectors-real estate, renewable energy, and roads-will attract investments totaling INR 15 trillion over the forthcoming two fiscal years, according to a report released by CRISIL Ratings earlier this month. This projected investment surge signifies a 38 percent increase compared to the past two years. CRISIL Ratings attributes this growth to India's imperative to advance sustainable infrastructure development. This development involves integrating more green energy into the power grid, enhancing physical connectivity with a more extensive road network, and addressing the escalating demand for residential and commercial real estate.
Krishnan Sitaraman, senior director and chief ratings officer at CRISIL Ratings, emphasised the strong underlying demand drivers in these sectors. He noted that consistent policy interventions amplify investor interest, which improves the credit risk profiles of private entities and reinforces their execution and funding capabilities. In the realm of renewable energy, the timely commissioning of storage and storage-linked capacities poses a key challenge due to their higher tariffs compared to standard renewable capacities. These storage-linked projects have struggled to find buyers, with nearly 7 GW of the 9 GW planned projects still lacking off-takers.
In the roads sector, as government budgetary allocations have moderated, amendments to the build-operate-transfer (BOT) toll model concession agreement aim to boost private investment. CRISIL noted that the accuracy of traffic estimates and the willingness of lenders to finance BOT toll projects will be crucial factors to monitor. Earlier this year, the government unveiled a pipeline of 53 projects worth INR 2.2 trillion, intended for bidding under the BOT model. This initiative, along with increased private sector participation, aims to help the government meet its highway awarding targets. Last fiscal year, the ministry missed its target due to bureaucratic delays in the Bharatmala program. The BOT model has been unpopular in recent years, primarily due to a non-performing asset (NPA) crisis from previously awarded projects.
The government's revisions to the model concession agreement aimed at addressing these issues leave uncertainty about whether the sector will positively perceive these changes. Mohit Makhija, senior director at CRISIL, warned that if lenders or developers maintain caution regarding the new BOT projects and the sector's response proves tepid, highway awards could stagnate, resulting in minimal growth of two to three percent in highway capital expenditure. He further noted that the potential underperformance of these projects could impact developers' order books. Nevertheless, Makhija expressed confidence that developers' robust balance sheets would mitigate adverse effects, even in the event of partial project success.
Thus, while India's infrastructure sectors are poised for substantial growth, the successful realisation of these investments will depend on effectively managing the inherent risks and uncertainties, particularly in project execution and financing. The next few years will be critical in determining how these sectors navigate the challenges and capitalise on the opportunities presented by this significant inflow of capital.
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