Capital outlay on roads and renewables set to surge 35% to ₹13 lakh crore: Crisil

Capital outlay on roads and renewables set to surge 35% to ₹13 lakh crore: Crisil

New Delhi: India’s investment in road infrastructure and renewable energy is set to experience a remarkable growth of around 35% across the ongoing and upcoming fiscal years, reaching an estimated total of ₹13 lakh crore, as indicated in a report by Crisil, a prominent rating agency.

The surge in capital expenditure signifies a substantial commitment to bolstering the country’s road networks and advancing its renewable energy sector. This significant investment aims to enhance India’s infrastructure, contribute to economic growth, and further the nation’s efforts towards sustainable energy solutions.

The reported increase in investment underscores India’s commitment to advancing its core sectors, particularly road infrastructure and renewable energy, which have a direct impact on economic development, job creation, and environmental sustainability. As the nation pursues ambitious targets in these areas, the infusion of substantial capital signals a proactive approach towards achieving these goals and reinforcing India’s position as a key player in the global energy transition and infrastructure development.

The remarkable growth trajectory in India’s investment in road infrastructure and renewable energy can be primarily attributed to several key factors. These factors include a strong pace of execution, which has been facilitated by a favorable policy environment, sound financial leverage, and an increased level of interest from investors.

The favorable policy environment has provided a conducive framework for the development of road infrastructure and renewable energy projects. Policies that promote sustainable practices, innovation, and the use of clean energy sources have incentivized investments in these sectors. Additionally, efficient execution practices have played a crucial role in ensuring the timely completion of projects, contributing to the overall growth in capital expenditure.

Furthermore, the ability to leverage financial resources effectively has empowered the government and private sector players to fund ambitious projects in road infrastructure and renewable energy. This financial stability has been instrumental in attracting investor interest, leading to a surge in funding for projects in these sectors.

The heightened interest from investors reflects a growing recognition of the potential economic and environmental benefits associated with investing in road infrastructure and renewable energy. These sectors not only contribute to job creation and economic growth but also align with global sustainability goals and commitments.

The Crisil report brings attention to a notable projection of a 25% rise in road construction activities and a significant 33% expansion in renewable energy capacity over the current and upcoming fiscal periods.

This forecast has positive implications for the Indian economy, as both road development and the growth of renewable energy have far-reaching impacts. Road construction projects have a high multiplier effect on economic growth, creating employment opportunities, boosting demand for materials and services, and enhancing connectivity across regions.

Additionally, the expansion of renewable energy capacity aligns with India’s ambitious energy transition goals. As the nation aims to reduce its reliance on fossil fuels and mitigate environmental impacts, the growth of renewable energy sources like solar, wind, and hydroelectric power plays a critical role. Not only does this contribute to a more sustainable energy mix, but it also positions India as a global leader in combating climate change and promoting clean energy solutions.

The combination of increased road construction and renewable energy capacity expansion underlines the country’s commitment to comprehensive development and sustainable practices. These initiatives not only contribute to economic growth but also support India’s broader objectives of enhancing infrastructure, fostering environmental sustainability, and advancing its energy transition journey.

The report emphasizes that this projected growth is not expected to be a temporary trend but rather a sustained phenomenon that is likely to persist over the medium term. This enduring expansion is anchored by favorable policies, robust investor interest, and the financial well-being of companies within Crisil Ratings’ portfolio operating in the road infrastructure and renewable energy sectors.

Gurpreet Chhatwal, the Managing Director of Crisil Ratings, highlighted, “The pace of execution of renewable energy projects is poised to increase by 33% to approximately 20 GW per annum over the current and upcoming fiscal years, compared to 15 GW per annum in the past two fiscal years.

This growth is supported by a healthy pipeline of 50 GW of projects that are executable as of March 31, 2023. Similarly, road construction is set to accelerate by 25% to a range of 12,500-13,0002 km per year over the current and forthcoming fiscal years. This acceleration is attributed to the continuous healthy allocation of projects and an increase in execution by road construction entities.”

The growth prospects outlined by the report underscore the positive momentum these sectors have gained, backed by clear indicators of sustained progress. The healthy pipeline of projects, coupled with the commitment of various stakeholders, indicates a promising trajectory that aligns with India’s goals of economic development, job creation, and the transition towards clean and sustainable energy sources.

The report emphasizes the pivotal contribution of a conducive policy environment in driving this growth. Notably, initiatives such as the late payment surcharge have demonstrated effectiveness in reducing outstanding dues owed by distribution companies to renewable energy generators. In the domain of road construction, the adoption of the hybrid annuity model (HAM) has streamlined project implementation and garnered investments.

Furthermore, government-driven endeavors such as Atmanirbhar Bharat (Self-Reliant India), measures taken in response to the pandemic-induced challenges, and the rise of infrastructure investment trusts (InvITs) have collectively exerted a significant positive impact on both the road infrastructure and renewable energy sectors.

The late payment surcharge has acted as a deterrent, compelling distribution companies to clear their dues to renewable energy generators promptly. This approach has facilitated a more sustainable financial ecosystem within the renewable energy domain.

The adoption of the hybrid annuity model (HAM) in road construction projects has played a pivotal role in accelerating project completion timelines and attracting investments. This model has encouraged private sector participation and provided a structured framework for project execution.

Government initiatives, particularly Atmanirbhar Bharat, have catalyzed economic growth and job creation, offering substantial support to both sectors during challenging times. Additionally, pandemic-induced forbearance measures have provided crucial relief to ongoing projects, contributing to their resilience and continuity.

The emergence of infrastructure investment trusts (InvITs) has introduced new avenues for financing infrastructure projects, thereby enhancing the sector’s ability to secure funds for expansion and development.

Overall, the harmonious interaction of supportive policies and strategic initiatives has served as a catalyst for growth in both the road infrastructure and renewable energy sectors, underpinning India’s drive towards sustainable development and economic progress.

Manish Gupta, Senior Director and Deputy Chief Ratings Officer at Crisil, highlighted the enduring strength of investor interest in these sectors. He pointed out that approximately ₹75,000-80,000 crore was raised through equity and asset monetization in the last two fiscal years, indicating a consistent and strong inflow of investment.

Gupta emphasized that the sectors’ focus on asset monetization and equity mobilization, combined with healthy cash flows, contributes to maintaining a balanced capital structure. Despite the increased capital outlays, rated entities in the renewable energy and road infrastructure sectors are well-positioned to uphold a robust average debt service cushion, ranging from 1.2 to 1.3 times over the duration of their debt commitments. This financial stability further strengthens their credit profiles.

Gupta’s assessment underscores the financial resilience and attractiveness of these sectors for investors. The successful equity raising and asset monetization efforts highlight the confidence investors have in the growth potential and sustainable prospects of road infrastructure and renewable energy projects. This solid investor interest, along with prudent financial strategies, will likely bolster the sectors’ creditworthiness and ability to navigate future challenges while sustaining their developmental momentum.