India’s growing road infrastructure offers lucrative options (s) to indigenous as well as international PE players. Roads are one of the major modes of transport in India constituting around 75% of the overall freight transport and 90% of passenger traffic. In a country where logistics constitute ~ 5% of the total GDP and give employment to 220 million individuals, road constitutes a major portion of the market. Other important categories include railways, ports, aviation, etc. alongside emerging modes such as inland waterways and pipelines.
India’s road infrastructure can be split into multiple categories such as – national highways, state highways, local urban roads & municipality roads, rural roads, feeder lines, etc.
As per the government data revealed, during April- Nov of the last fiscal, Maharashtra witnessed new highway construction of around 600 km. This was followed by Rajasthan, where around 417 km of new highways have been constructed. In total, 5000 km of national highways have been built all over India in India. This is much higher than the compared to 5 years when the total lengths of highways built in a fiscal in India mostly ranged b/w 3500-4400 km.
There is tremendous potential in India’s road infrastructure with an elevated yield of around 15-20%. There are primarily two ways under which investors can enter the segment. Firstly, they can participate in constructing roads through the PPP model. Namely, Hybrid Annuity Model (HAM), the government will invest 40% of the cost, while the remaining has to be borne by the investors. Generally, in a low-traffic area, this is a suitable approach. Moreover, since a sizable portion of the payments are already done by the government, the overall burden on the investor lowers.
In the times to come, major PE players alongside banks, funding institutions, and lending agencies will continue to invest in India’s road infrastructure either through the HAM or the TOT model. As per the data revealed by the Indian government, during FY 18-21, the annual PE investments in Indian road infrastructure amounted to USD 2.7 billion. It has currently risen by 150-200% presently and is slated to reach USD 14 billion by 2030.