Knight Frank, India’s report cited that an estimated investment of USD 2.2 trillion (tn) into infrastructure development is imperative to support India’s GDP size to expand to USD 7 tn by 2030. To achieve an economic size of USD 7tn by 2030, India’s economy is required to grow at a CAGR of 10.1% between 2024-2030.
The central and state governments' heavy reliance on infrastructure investments could strain fiscal deficit targets. Private participation in infrastructure development in India has decreased significantly, from USD 160 bn (46.4% of total investments) between 2009-13 to USD 39.2 bn (7.2%) between 2019-23. This shift has led to a larger share of government-led investments, potentially widening the fiscal deficit. Maintaining a controlled fiscal deficit is crucial for long-term economic stability and effective debt management. The central government aims to reduce its gross fiscal deficit to below 4.5% by 2025. Increasing private sector participation in infrastructure development would help balance fiscal deficit targets. By increasing the private participation in infrastructure development, the government can redirect the expenditure towards other key segments of economic growth such as – public healthcare, strengthening human capital, debt payments, etc which will support long term growth of the economy.
The investment opportunity for private participation in infrastructure development in India ranges between USD 103.2 bn to USD 324 bn.
On a sector-wise analysis, renewable energy, data centres, roads and highways, warehousing and logistics have significant potential to attract private investments. However, supported by a rapid urbanisation and shifting demographics, sectors such as – urban mass transit, airports, power distribution etc hold massive investment opportunities.
Currently, India is witnessing one of the fastest paces of urbanisation. Between 2013-23, urban population in India grew by 14% compared to 8.4% globally. India's urban population grew by 14% between 2013-23, compared to 8.4% globally, leading to congestion and pollution. This growth necessitates expanding mass transport infrastructure like metro rails, high-speed rails, and electric buses.
A robust public transport network with last-mile connectivity can reduce carbon emissions and help achieve India's net zero target by 2070. Currently, the top 8 cities have 848 km of operational metro, but the proportion of metro rail to metropolitan area is 0.03, below the Asia average of 0.25. While Delhi has metro connectivity on par with global standards, other cities like Gurgaon, Bengaluru, and Hyderabad etc need similar development.
Currently, the private sector participation in infrastructure development in India is inadequate. Between 2009-13, the PPP models elevated the interest of private participants in infrastructure development in India. However, post that period, the private players have been facing some key challenges which has resulted in their tepid participation. Challenges such as project delays, cost overruns and clearance issues deter private investment, increasing reliance on government budgets and potentially leading to fiscal stress.
Delays in project execution, leading to significant cost overruns, have emerged as a major obstacle to private sector participation, particularly in the road infrastructure sector. Such delays escalate project costs and diminish the expected returns on investment for private developers and investors. Notably, the infrastructure sector bears the brunt of these delays, accounting for a staggering 95% of all project delays across industries.
Revenue risk and the underperformance of the project has been cited as another key issue. Some of the factors. This is specific in projects which involves traffic such as – roads, urban transport, airports etc. Revenue underperformance of Indian metros (except Delhi and Mumbai) in comparison to their DPRs underscores this issue.
Infrastructure projects require long-term financing, typically provided by banks and NBFCs. However, due to long gestation periods, high risks, and stringent lending norms, banks have limited appetite for such credit. The complexity of these projects, coupled with risks like delays, cost overruns, and regulatory changes, increases the likelihood of non-performing assets (NPAs) and creates an asset-liability mismatch for banks. As a result, despite an aggressive push for infrastructure, lending growth from commercial banks and NBFCs has remained low, with a CAGR of just 2.9% between FY 2019-23.
Funding for infrastructure in India relies on FDI, private equity, ECBs and emerging mechanisms like InvITs. Despite allowing 100% FDI in key sectors, FDI inflows have been low, totalling USD 84 billion from FY 2014-2024, far behind China's USD 164 billion in 2023. The absence of adequate foreign investment driven by long project timelines and delayed returns has led the government to explore asset monetization and disinvestment. Meanwhile private equity, debt funding and ECBs remain subdued and InvITs, though growing, have yet to gain significant traction.
