We would like to thank all respondents for their strong participation in the survey that MGC Global Risk Advisory LLP (‘MGC Global’ or ‘our Firm’) had conducted on the significant drivers of the infrastructure Industry in India.  

The results of our poll show that 45% of the respondents have chosen the robustness of demand to be the most important factor for the growth of this sector, followed by policy support (29%), FDI & local investments (24%), while 3% felt that bilateral arrangements were contributing most significantly to provide impetus to infrastructural development in India. 

This thought leadership provides an executive overview of the significant growth factors and risk mitigators, which are imperative for the ongoing growth of the infrastructure sector in India. The release of this paper is timely as the same coincides with the completion of a detailed review of nine key infrastructure projects by our Hon’ble Prime Minister on February 22, 2023, while chairing the meeting of the 41st edition of PRAGATI (the ICT-based multi-modal platform for Pro-Active Governance and Timely Implementation, involving the centre and state governments). These nine projects are spread across 13 states (Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Tamil Nadu and Uttar Pradesh) and with a cumulative cost of more than ₹ 41,500 crore, they are set to be executed under the aegis of different ministries such as Railways, Power, Coal and Health & family welfare. 

The key insights set forth in the ensuing sections provide an executive overview of the results of the survey. 

Robust demand

With every sixth urban person globally being an Indian, the infrastructure sector holds significant opportunity for both global and domestic companies engaged across the value chain. According to research reports, India needs to construct over 50,000 houses every day for a designated span to achieve its vision of ‘Housing for All’. Hundreds of new cities have been planned for development in this decade and these developments have set India on the course towards providing the third largest construction market across the globe. Alongside rapid growth of the private businesses across sectors in India, the development of quality infrastructure is an imperative and such market dynamics are expected to propel demand for ongoing infrastructure development in India.

The main risks in this context relate to supply chain interruptions, with the direct consequence of shortages or delayed deployment of parts/equipment and precipitating cancellations resulting in extension of project timelines. In this context, inventory management (entailing measures such as integration with vendor systems, back-up for critical materials, reassessment of reorder levels) and usage of technology (which is analytic driven and considers simulations with alternative construction sequencing) for monitoring the execution of projects should be viewed as priority mitigators. 

Bilateral cooperation

In consonance with the age-old adage, ‘Vasudhaiva kutumbakam’, which translates to “the world is one family”, India’s focus on bilateral cooperation continues to strengthen its ties with countries to support and facilitate mutual plans for infrastructural development. For instance, November of 2021 witnessed the establishment of a new quadrilateral economic forum between India, the US, Israel and the UAE to focus on infrastructure development projects that will benefit each of the member countries as well as other countries connected with the channeling partners. With the presidency of the G20, India is in a strong position to leverage on this prestigious global leadership to set up an infrastructure agenda for itself and world.

The sector has a multiplicity of stakeholders, ranging from the state to local communities to the eventual user. Effective coordination between central government ministries and state governments will align the principal stakeholders through the journey of infrastructure projects. In this context the PRAGATI platform is a strong initiative to overcome differences, as India continues in its collaborative efforts with regional partners (such as as Japan to achieve its “Act East” strategy) for incentive-based push for infrastructure development. 

Policy support

The Indian government recently announced its budget for the fresh financial year 2023 giving the infrastructure sector the necessary push that it deserves to further strengthen the economy’s backbone. The budget’s allocations are expected to accelerate inclusive growth, improve connectivity, create employment whilst cushioning the economy against global headwinds – such inputs will contribute towards India’s ambition of becoming a USD$ 5 trillion economy by 2025. A 3x jump from 2019, this year’s budget has allocated INR 10 lakh crore (~3.3% of the GDP) for infrastructure. The Ministry of Road Transport and Highways saw a 36% increase in its budget amounting to a budget of INR 2.7 lakh crore for their planned projects.

In order to further boost productivity in the sector, the government is developing PPP models to finance, design and execute projects in the pipeline. Moreover, establishment of accountability for various stakeholders through an impact assessment on margins, cash flows and loan repayments will maintain levels of indemnity, recovery costs and other monetary implications. The industry on its part should enhance its documentation with the maintenance of complete and accurate sets of records for management of claims.

FDI & local investments

FDI inflows open channels not just for market access and technology transfer but also give way to healthy competition that facilitates maximized productivity and bridging of the gap between requirements and availability of capital resources. In financial year 2021-2022, the sector saw an inflow of ~ USD$ 8 billion (an increase from USD$ 2.87 billion in the previous year) in the form of foreign direct investment equity, its highest ever receival. Relaxing FDI norms across sectors and India’s footing in global supply chains have given momentum to FDI inflows over the past few years. Huge investments in infrastructure and targeted governmental schemes such as PM Awas Yojana will not only provide rural workers housing, but also create employment and simultaneously nation-wide growth opportunities.

However, the industry is largely dependent on the efforts of labour, is equipment intensive and faces the risks of the variability of these costs converting into fixed expenditure. Close monitoring of labour productivity and output from equipment with its obsolescence being kept at bay with regular interventions, are some key risk mitigation imperatives. Natural disasters and pandemics and other similar events can stall projects and have an adverse impact on the initial set of assumptions for project completion and monetization. While insurance can cover for some losses, it certainly cannot redo or completely reverse the ill effects. Though foreseeing such events accurately is relatively theoretic, contingency planning is imperative with robust processes that trigger early warning signs to relevant stakeholders. 

We trust that you have found our analysis to be informative. Should you have any questions or require assistance, please do not hesitate to reach out to contactus@mgcglobal.co.in.

With best wishes,

Markets team

MGC Global Risk Advisory

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