India’s infrastructure is passing through a moment of fervent development. The government is investing a lot of resources in the sector, while private investors are becoming increasingly involved. For fiscal year 2017-2018, the government has increased funding for the National Highways Authority of India by 24% and 8.2% for the railway network.
This allocation of resources is the latest in a series of investments made in recent years to develop the transport sector. The aim is to improve the country’s logistical infrastructure and its trade with the outside world. The benefits have already started to show: India rose 19 notches to rank 35th in the World Bank’s Logistics Performance Index in 2016. They have also made its roads, railways and ports the subject of interest in the latest special report by Project Financial International (PFI), a specialized publication owned by Thomson Reuters.
Billions for Roads and Highways
India has the second largest road network in the world. It covers 5.23 million kilometres, 95% of which rural and local roads. The remainder is made up of federal and state highways. The network’s importance to the economy goes without saying: it handles 80% of passenger traffic and 65% of commercial traffic crisscrossing the country. Highways are the part of the network that has undergone tremendous expansion. In the past decade, their coverage has doubled to 100,000 kilometres, with 25-30% of new construction having occurred in the last three years. And the pace is set to increase. Although the rate at which highways are being built has risen to 27 kilometres a day from 11 kilometres in 2014, the transport minister wants it to quicken to a daily average of 40 kilometres. This means the network needs $87 billion of investment for the next three years. In order to raise this amount of financing, the role of the private sector will become decisive as banks become less able to provide any help. According to PFI, India’s banks are weighed down with non-performing assets like poor investments that are leading to losses and proving difficult to recover and generate a return.
Private Help in Rail Investment
With 8.1 billion passengers and 1.1 billion tonnes of goods transported every year, railways are a strategic asset for India, as shown by PFI. So much so that the government between 2016 and 2020 is looking to invest $1.34 billion in them, 60% of which will be used to reduce congestion along the lines, expand the network and improve safety. Some 30% of the budget has already been earmarked but the government is looking for new funds from sources like private investors who could participate through private public partnerships, or PPPs, which have yet to be used in railway development. Between 2003 and 2012, PPPs only supported 4% of total spending in railways. It is a delay that must be overcome quickly because public finances alone are not enough to breach the investment gap that the government is determined as it modernises the country’s railways.
Developing the country’s ports
The coastal areas contribute 60% of the Indian economy, a high number that confirms the importance of ports for a country with 7,500 kilometres of coast line. All of this notwithstanding, their infrastructure is not modern and definitely not at the same level as their international peers in China, Europe or the United States.
For this reason, the government has launched some development plans for the sector. The most recent being the Sagarmala programme in which 415 projects set for investments worth a total of $124 billion. In addition to modernising existing ports and creating a logistics hub, the programme has identified six locations for the construction of more ports that would have world class standing. The creation of this new infrastructure is a decisive step for many industries like importers and exporters. In manufacturing, for example, 48% of costs for companies are related to the cost of imports. This cost would likely drop dramatically with the opening of bigger and more efficient ports.
The government’s commitment on all these fronts, with the support of private investors, will have a tremendous influence on the development of the country. Analysts at BMI Research see the transport sector’s infrastructure growing 6.1% this year while the average annual growth will be 5.9% until 2021.