Modi 3.0: Can the new govt continue with its 10-year effort to boost India's infrastructure?

Industry players and rating agencies are relieved. The infrastructure sector had been the crown jewel of the Narendra Modi-led government’s last two terms—it had pressed the accelerator on a slew of road, rail, and aviation projects. And it’s clear that the government intends to pick up from where it left off before the General Elections were called.

World-class infrastructure development is a core component of the Modi government’s ‘Viksit Bharat 2047’ (Developed India) vision. And the next five years, it is believed, will get the ball rolling on decisions related to capex allotment, fine-tuning of the blueprint, and incorporating technology to modernise the road, rail, and aviation sectors.

Of course, there may be a reassessment here or a tweak there because of the compulsions of a coalition government.

But industry stakeholders feel there will be more continuity than departures. The reason: Nitin Gadkari and Ashwini Vaishnaw have retained the ministries they headed in the last term—road transport and railways, respectively. There is, of course, a change in the civil aviation ministry, which has been allocated to the 36-year-old Telugu Desam Party (TDP) Member of Parliament K. Rammohan Naidu, the youngest in the current Council of Ministers.

There could be further emphasis on multi-modal connectivity through PM Gati Shakti and the National Infrastructure Pipeline.

Ashish Modani, Senior Vice President and Co-Group Head-Corporate Ratings at ICRA Ltd, tells BT that continuity is the buzzword. “ICRA expects the new government to continue to maintain its thrust on the infrastructure sector, with continued strong outlay towards railways, roads, and water (drinking as well as sewage). There could be some re-prioritisation between various infra sub-segments to accommodate all the stakeholders.”

All eyes will be on the budgetary outlays and new announcements for these ministries in the Budget next month. Here is a look at the NDA’s agenda in three sectors.

Railways

Modernisation tops the list of priorities at the 170-year-old Indian Railways, with capacity augmentation of trains and tracks. To execute this, it has announced a capex of Rs 54 lakh crore by 2030. The Railways will focus on increasing earnings from freight, and will connect more destinations with the semi-high-speed Vande Bharat trains.

The plan is to increase Vande Bharat trains from the current 100 to 800 by 2030 and 4,500 by 2047. Plus, work is underway on rolling out Vande Bharat metro trains on suburban sections. That implies a huge investment, as the manufacturing cost of a 16-coach Vande Bharat train is roughly around Rs 100 crore, compared to `50 crore for a 22-coach German-designed Linke-Hofmann-Busch train, which is the more conventional model.

There will also be renewed focus on the non-AC component of the passenger segment. The Railways ferried around 58.5 billion passengers in FY23, and about 95% of earnings in the passenger segment come from the non-AC segment.

The government has announced the introduction of 50 superfast Amrit Bharat trains in FY25 to enhance passenger experience on non-Vande Bharat routes.

The Railways is also looking to revive attempts to partner with private players to redevelop stations, despite facing setbacks in these efforts in the past few years. The decongestion of high-density routes connecting metros with multiple tracks is also being worked out.

But perhaps the prestige initiative is the bullet train project. The Railways is preparing feasibility reports on six routes, and the first such train, between Mumbai and Ahmedabad, is expected to be launched by 2026.

In the freight segment, which is the revenue-making segment, the public transporter is banking on the Dedicated Freight Corridors (DFCs) to improve earnings once they are fully operational.

Sanjay Sinha, Founder & MD of construction firm Chaitanya Projects Consultancy, says, “A key transformative move is the allocation of Rs 2.5 lakh crore in the Interim Budget for the modernisation of Indian Railways under the Gati Shakti programme in FY25.”

Vaishnaw has to keep the focus on improving the Railways’ financial health, with the operating ratio—the amount spent to earn every Rs 100—remaining high.

Lalit Chandra Trivedi, a former General Manager with the Indian Railways and a sector expert, says there have been major infrastructure upgrades in the past 10 years, but without high dividends.

“The point is that despite major investment, [this] is not reflected in the elimination of waiting lists, targeted improvement in freight loading, or desired improvement in safety,” says Trivedi.

Highways

Coming to roads, Gadkari, in his third term in the ministry, plans to modernise Indian road infrastructure and is expected to focus on improving private investment and providing high-speed highways. The government plans to invest Rs 20 lakh crore on highways in the next 15 years.

Reducing accidental deaths on National Highways is an issue that is very close to Gadkari. A cashless treatment facility for accident victims is likely to be rolled out soon.

The vision is to have 50,000 km of high-speed access control highway corridors like those in developed countries by 2047. The government plans to award 3,000 km in the first 100 days.

Sorab Agarwal, Executive Director at ACE Action Construction Equipment Ltd, says the government will continue its profitable strategy of substantial infrastructure investment.

“With a stable and progressive government at the Centre, the prospects for growth in both the infrastructure and manufacturing sectors are promising. The strategic allocation of Rs 11,11,111 crore in the Interim Budget reaffirms the government’s commitment to positioning India’s infrastructure on the global stage,” says Agarwal.

The ministry is also waiting for the revised cost approval from the Cabinet for the flagship Bharatmala economic corridors project. As of December 2023, as much as 26,418 km (76% of the total 34,800 km) had been awarded for construction, and about 15,500 km had been completed. But the estimated cost of the project has doubled since 2017, from `5.3 lakh crore to `10.6 lakh crore.

Another task is improving the daily highway construction rate from 33.8 km in FY24 and taking it to 40 km per day.

But by far the biggest challenge for the BJP veteran is increasing private investment in the sector. As of now, most highway projects are awarded under engineering, procurement, and construction (EPC) with 100% funding from the government. Under EPC, a contractor is made responsible for the project from the initial survey to completion. Considerable efforts have been made to streamline policy-related issues to attract private players.

Reducing the National Highways Authority of India’s (NHAI) debt of Rs 3.4 lakh crore is another critical area for Gadkari.

Aviation

Meanwhile, Naidu of the TDP needs to pilot the Indian aviation sector amidst operational turbulence. The government has envisaged a capex of `4 lakh crore just for modernisation, technology upgrades, and providing world-class facilities.

According to aviation consultancy firm CAPA, Indian airlines are expected to post an industry-wide loss of between $400 million and $600 million in FY25 despite 6-8% domestic traffic growth.

Naidu takes charge amid demands that carriers like Qatar, Emirates, and Etihad Airways relax bilateral rights. At present, they operate 65,000 seats weekly to India, and Indian airlines operate 65,000 seats to Dubai every week. This agreement was last revised in 2015. The domestic aviation industry is split over relaxing these rights—while Air India has opposed increasing foreign airlines’ seats, IndiGo has called for wider consultation, but Akasa supports the move.

Another proposal is developing India as an international transit hub, since more than 50% of Indian passengers continue to use airports in Dubai and Singapore as transit hubs.

The airport modernisation plan is already in the pipeline, apart from putting smaller cities on India’s aviation map through the UDAN (Ude Desh ka Aam Nagrik) scheme. The government plans to add another 100 airports to the 148 that exist today.

Despite the rapid growth in the Indian aviation sector, big aircraft equipment manufacturers have shied away from setting up units in India. This has forced Indian firms to depend on foreign players for spare parts and ancillaries.

A pressing concern is the shortage of pilots and the working conditions of commercial pilots. The Directorate General of Civil Aviation, the regulator for the sector, issued a directive regulating pilots’ duty hours and reducing night-time flying. This was withdrawn later. With Indian airlines looking to induct 1,600 new aircraft over the next 10 years, the availability of trained pilots requires immediate attention.

It’s clear that there’s a lot that’s left to be done in setting up the Modi government’s ‘Vision 2047’. It’s time now to act, and fast.

@richajourno