Union Budget: Indian highway infrastructure sector set to continue stable growth

The Government of India has identified Road and highways as the ‘go to sector’ for spurring infrastructure investment in India. It is believed that investments in infrastructure yield a direct multiplier of over 2.5x on the economy, and roads sector in India has presented itself as a priority recipient of these investments. Over the last decade, there has been more than 50 per cent increase in the total length of highways in the country (Source: Invest India, October 2023). The government’s budget support for road infrastructure has also rapidly increased, leading to a budget of approximately $31.5 billion for FY .
Regulatory interventions
A number of revolutionary steps have been introduced to boost investment and quality of assets in the highways sector. Policy interventions covering aspects like expeditious land acquisition, solving operational issues, revival of languishing projects and timebound resolution of disputes have gone a long way in enabling an environment for investment and growth. The emergence of FASTag to provide transparency in toll collection is believed to have provided much needed comfort for global infrastructure investors and pension funds. While it was originally introduced in 2014, FASTag transactions really took off during COVID, and now electronic toll transactions accounts for more than 95% of all user fee collected on National Highways.
Alternate financing models
Ministry of Road Transport and Highways (MoRTH) has been a pioneer in Asset Recycling, which enables it to generate further revenue from its already matured assets and provide fiscal leeway to fund future projects. MoRTH has successfully completed ten Toll-Operate-Transfer (TOT) transactions till date, generating more than $5 billion in the process. They have also introduced a Government sponsored Infrastructure Investment Trust (InvIT) and have managed to generate more than $1.5 billion from the same in the last three years. It is believed that Asset Recycling is a sustainable and fiscally prudent exercise by the government, and it may continue over the next decade in a structured manner.
Changing market ecosystem
The above policy changes appear to have led to substantial improvement in market sentiment. One of the key developments is the emergence of new investor classes, like institutional investors, specialised O&M contractors, specialised tolling agencies etc. in the roads sector, leading to a diversified investor base. Traditional road construction agencies and EPC contractors have shifted their focus on their core competencies.
In the past half a decade, deal activity in the sector has been on the rise, growing at a CAGR of nearly 16 per cent. Platforms and strategic investors have acquired a majority of the road assets, closely followed by financial investors like pension funds, insurance companies etc.. More than half of the InvITs registered with SEBI focus on the roads sector, and most of them have global investors as anchor investors, which shows the comfort level of FIIs with the sector. We believe this positive sentiment in the sector could continue.
Holistic approach towards infrastructure development
Looking ahead, highways sector in India could grow at rapid pace in the next half a decade with many marque projects achieving their completion in the coming years. Some of these projects include Delhi Mumbai Expressway, Maharashtra Samruddhi Mahamarg etc. As a result, the focus of the government is expected to shift from asset creation to asset management. The government is aligning its focus with international standards for road design, construction, operations, and toll collection. This includes adopting best practices from leading global highway systems to enhance the quality and safety of Indian highways.
In recent times the focus of the government has shifted from efficient award and construction of roads to a holistic vision of smooth movement of passenger and freight. This has been the guiding principle behind Bharatmala Pariyojana and the recently announced Vision 2047.
The PM Gatishakti master plan was planned for introducing efficiency in movement of freight and passengers across different transportation modes. As a result, focus on development of Multi-Model Logistics Parks (MMLPs) could increase in the coming years. Intermodal stations for transport could be considered at select locations in order to provide enhanced user experiences.
Road safety has emerged as one of the focus areas of the government and is expected to garner more attention in the coming decade. Active steps have already been taken to address the issues of black spots and reducing the response time to accidents.
Finally, emerging transport technologies aimed at sustainability could make a breakthrough in the next decade. The government has been promoting investment in adoption of EVs by the public through monetary incentives and while the same are expected to reduce over a period of time, improvement in battery charging infrastructure might help sustain the push towards further adoption of EV technologies.
In conclusion, the Indian roads sector has witnessed exponential growth over the last decade, and the sector is now reaching a level of maturity. As a result, we expect greater focus on user experience in the coming years.
Kushal Kumar Singh ia Partner, Deloitte India and Raghav Madan is Director, Deloitte India. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.
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