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Despite challenges and delays, India is expected to see significant investment and growth in various infrastructure segments, with a strong focus on green initiatives and private sector participation, writes Manish Pant.A day after Marshall Island flagged ship San Fernando was welcomed with much fanfare at Vizhinjam International Seaport in Kerala on July 11, Karan Adani, Managing Director of Adani Ports & SEZ, called it a milestone in India’s maritime history. “It (San Fernando) is a messenger that will tell the world that India's first transshipment terminal and the largest deepwater port has begun commercial operations,â€� Adani told a crowded press conference in Thiruvananthapuram, the capital of the country’s southernmost state. In the state media, the ruling Left Democratic Front (LDF) and the opposition United Democratic Front (UDF) tried to outdo each other to claim credit for the project’s execution. Therefore, one might ask why the project wasn’t built much earlier. However, first ideated in pre-Independent India, it almost got scrapped for reasons ranging from lack of funds to environmental clearances.The story of Vizhinjam is a commentary on the state of the Indian infrastructure sector, where key projects often materialise long after demand creation. In the past, this has been contrasted with China, where it’s the opposite. However, this emerging demand for megaprojects is creating huge investment opportunities. “The pandemic and the subsequent challenges to the supply chain led to India’s focus on ‘Make in Indiaâ€� and self-reliance. In light of the disruptions within the logistics sector, India resolved to expand and modernise its manufacturing capabilities. This shift in focus fuelled the country’s goal to focus on infrastructure development,â€� Rajiv Khanna, Partner, and Aara Tomar, Associate at British-American business law firm, Norton Rose Fulbright observed in a recent note.The central government has said the country is well on the path to becoming a fully developed $35 trillion economy by 2047, which will commemorate the 100th year of the end of British colonial rule. It is already looking at becoming a $5 trillion economy by 2027. The infrastructure sector is poised to play an important role in achieving these targets. Government data tells us that capex on infrastructure adds 2.45x in the year of expenditure, and then another 3.14x in the following year to the GDP. Nearly 10,000 projects worth more than $184 trillion related to various social and economic infrastructure subsectors are under various stages of implementation in the five-year National Infrastructure Pipeline (NIP). In the Interim Budget presented ahead of the 2024 General Elections, Finance Minister Nirmala Sitharaman increased the capex outlay for the sector by 11.1 per cent to Rs.11.11 trillion, which equals 3.4 per cent of the GDP. Several experts and organisations, including the World Bank and the Asian Development Bank, recommend the country spend at least 6 per cent of its GDP on infrastructure for sustained economic growth. The resulting Rs.20 trillion spending would significantly help upgrade transportation networks and connectivity, enhance economic competitiveness, increase access to essential services like water, sanitation and energy, and ensure greater prosperity for citizens. The country’s spending as a percentage of GDP is currently lower than that of many other countries, including China, which is estimated to spend around 9 per cent of its GDP on infrastructure development.Bigger infra, better infraAs India’s economy grows, people’s expectations and aspirations will also increase, leading to a surge in demand for better and more extensive infrastructure facilities. Per a 2022 World Bank report, India needs to invest $840 billion in urban infrastructure over the next 15 years, averaging $55 billion annually, to cater to its rapidly growing urban population. The report emphasises the need to attract more private and commercial investments to bridge the emerging financial gaps. By 2036, India’s urban population is expected to reach 600 million, accounting for 40 per cent of the country’s population, putting additional pressure on the already strained urban infrastructure and services. The central and state governments currently fund over 75 per cent of city infrastructure, while urban local bodies (ULB) contribute 15 per cent of their revenues. Only 5 per cent of the infrastructure needs are met through private sources. Given the government’s limited annual investment of $16 billion (as of 2018), private financing is essential to fill the gap. The same expansion will likely be seen in other segments such as transportation, energy, communications, and agriculture.According to estimates from the ratings firm CRISIL, infrastructure investment in India is expected to double to Rs.142.9 trillion by 2030. While the government will bear a major portion of the cost, the private sector is increasingly investing in energy and transportation. Out of the total projected spend, around `36.6 trillion is expected to be allocated towards green initiatives, a five-fold growth compared to the previous period. The largest share of green investments, approximately `30.3 trillion, will go towards renewable energy, followed by Rs.6.3 trillion in transportation. “While it’s commendable that both central and state governments have ramped up their capital contributions for infrastructure projects, maintaining steady growth necessitates a quicker uptake of these initiatives by the private sector. There’s a noticeable trend of interest in brownfield assets. Still, this enthusiasm isn’t mirrored in greenfield infrastructure development,â€� states Jagannarayan Padmanabhan, Senior Director & Global Head of Transport, Mobility and Logistics Consulting at CRISIL Market Intelligence & Analytics.Vizhinjam port’s example shows how the entry of a strong private sector partner helps fast-track a strategically important megaproject. Adani Ports and Logistics â€� managing the Public-Private Partnership (PPP) project through a special purpose vehicle (SPV) â€� would be investing `200 billion to complete the second and third phases of the project by 2028, a full 17 years ahead of the scheduled 2045. “To sustain growth and realise the vision of a developed India, or Viksit Bharat, we need the private sector to step up and participate more actively, particularly in greenfield projects and innovative areas such as decarbonisation and construction of climate resilient infrastructure,â€� surmises Padmanabhan.Globally, there is a movement to shift from bank financing of infrastructure, which poses asset-liability mismatch issues, to institutional financing through pension, insurance, and sovereign wealth funds. “It is estimated India will require investments from domestic and foreign players of over $4.5 trillion by 2040 for infrastructure development. This will result in new innovative financing instruments drawing from a mixture of central, state, international, public and private funding,â€� says Salil Arora, Founding Partner at the New Delhi-based law firm AviLeague Partners. Padmanabhan Raja Jaishankar, MD of the government-owned Indian Infrastructure Finance Co. Ltd (IIFCL) feels the time is ripe to roll out relay financing. “We hope to see a process where one set of institutions can relay financing to other institutions to establish a chain, with each participant lending according to capacity, owned assets, and liability profile. The infrastructure sector will gain by moving from one set of institutions to another.â€� Safeguarding investor trustAs foreign investors increasingly show interest in India, the country needs to create a favourable business environment and establish a robust regulatory framework that removes barriers, safeguards investor interest and fosters trust. “An adequate regulatory regime, transparent governance and an efficient and streamlined licensing process are needed to cover all stages of infrastructure projects,â€� affirm Norton Rose Fulbright’s Khanna and Tomar. For instance, launching a major infrastructure project in India can involve obtaining numerous approvals and permits under more than 20 laws!At the same time, Indian laws need to be aligned with international regulations. “To ensure the smooth implementation of infrastructure projects, the government will need to amalgamate myriad infrastructure laws and harmonise them with international standards,â€� explains Arora. This will facilitate greater collaboration and investment from foreign entities, promoting global best practices and efficiency.Another major challenge while initiating a major infrastructure project is the right-of-way or the process of acquiring land. Take the road sector for instance. Land acquisition delays and cost hikes are major hurdles in implementing highway projects in India. The national roads agency, National Highways Authority of India (NHAI), spent `1.67 trillion on land acquisition from FY2019-24, up from `810 billion in the previous three years, reveals data from the rating agency ICRA. And where the cost of land acquisition may not be an issue, local politics plays a spoiler. The country’s first bullet train project, connecting Mumbai and Ahmedabad, has been delayed from its initial completion date of 2023 to 2028, with the change in government in Maharashtra from 2019-22 significantly hindering its progress. Yet, post-independence India has leapfrogged several stages to become a global leader in sectors like pharma and IT. The same script may well be playing out in infrastructure.