Indian Infrastructure Sector as an Engine of Growth

The infrastructure sector, comprising of connectivity, communication and essential facilities, forms an economy’s foundation and is an important determinant of economic growth. The sector is a key growth driver for the Indian economy and plays a significant role in the economy’s overall development process.

The infrastructure sector witnessed significant growth and increased investments over the last 10 years, with infrastructure investment as a share of India’s total expenditure rising from 23% to 32.5% in 2015. The Union Budget 2016-17 laid considerable emphasis on infrastructure spend as essential in achieving double digit growth.

In 2016, India jumped 19 points to achieve a rank of 35 (Figure 1) in World Bank’s Logistics Performance Index (LPI) among 160 countries, up from its previous rank of 54 in 2014. The LPI is a weighted average of six indicators including parameters such as trade infrastructure, competence of logistics services and timeliness of shipments among others, and the Indian economy improved substantially on all accounts in 2016.

Figure 1: India’s LPI Performance over the Years

Note: Lower rank indicates better performance. The Logistics Performance Index is the weighted average of country scores on six dimensions – efficiency of the clearance process by border control agencies including customs, quality of trade and transport related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments, timeliness of shipments in reaching destination within the scheduled or expected delivery time.
Source: The World Bank

In 2016, India also became the top performing economy among its lower middle income counterparts.

Recognizing the immense potential of the sector, the Government allocated US$ 61.92 billion in the Union Budget 2017-18. The sector witnessed 33 deals worth US$ 3.49 billion in FY2016-17 as compared to US$2.98 billion raised from 31 deals in FY2015-16.

Recent Government Initiatives

The National Investment and Infrastructure Fund (NIIF) was formed in 2016, jointly owned by the Government of India and investors from India and abroad, with the objective of drawing more investments in the infrastructure sector. The NIIF aims to create long-term value for domestic and international investors seeking investments in various Indian infrastructure related sectors such as energy, transportation, housing, water, waste management etc.

To further increase the appeal of the sector to potential global and domestic investors, the Government is reviewing ways to push Public Private Partnership (PPP) in infrastructure. The Government recently approved the new Metro Rail Policy in August 2017, which makes the PPP component mandatory for availing financial assistance for all metro projects. The policy opens a big window for private investments across a range of metro operations.

The Government has also introduced a number of new and innovative models in different infrastructure sectors to boost growth. These include models such as Hybrid Annuity Model (HAM) and Toll Operate Transfer (TOT) in the roads sector, which create an enabling role for the private players unlike the earlier models such as Build Operate Transfer (BOT). These resulted in improved road management and better financial mechanisms.

With a view to promote better air connectivity, schemes such as The Regional Connectivity Scheme (TRCS) and Open Sky Policy in the aviation sector have increased attractiveness of the sector among foreign airlines and institutional waterways.

Introduction of the Real Estate Regulatory Act, initiation of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), along with the adoption of affordable housing will give a fillip to the reality and construction sector, attract more investments and help create demand and growth.

Other important initiatives by the Government such as greater infusion of capital to improve the Capital Adequacy Ratio of banks, improving the regulatory environment for faster project clearances, introduction of long-term infrastructure bonds to raise more funds etc. provide the necessary support for enhancing the role of the sector in propelling the economic growth of the country.

The Confederation of Indian Industry (CII) is committed to promoting the Indian Infrastructure sector and has been supporting the Government in its initiatives effectively in driving the growth of the sector. To facilitate the development of the sector, CII acts as a consensus-building platform between the Government and India Inc. to initiate a powerful platform for exchange of ideas and shape the regulatory environment.

The initiatives undertaken by the Government in the last few years have imparted significant boost to the infrastructure sector. With appropriate policies in place and their correct implementation, Industry is confident that the Indian Infrastructure sector will propel the growth of the Indian economy further and become an engine of growth for the Indian economy.

For more details on this fast-moving sector, see CII Policy Watch on Infrastructure, September 2017, Volume 6, Issue 3

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