Infrastructure is set to surge after pandemic recedes: KPMG India

V Rishi Kumar Hyderabad | Updated on September 09, 2020

The Covid-19 induced slowdown has thrown up new challenges for India, but the country’s inherent resilience and capabilities will help it transform itself and get back onto an accelerated growth path, with infrastructure set to play a pivotal role.

Elias George, Partner and Head, Infrastructure, Government and Healthcare (IGH), KPMG in India, said: “Given the sheer size of our national market and consumer demand, the pace of creation of resilient and sustainable infrastructure is expected to surge again after the headwinds caused by the pandemic recede.” While the growth is set to pick up in second half, the IMF expects FY22 to be better, he said.

“India’s energy transition to renewable energy, the creation of modern urban infrastructure, farm-to-market and transport logistics, domestic aviation, are all key sectors that will likely lead this rebound,” he told BusinessLine.

Infrastructure projects are characterised by high capital intensity and long gestation periods, often leading to a funding gap. Strengthening the bond market and public investment is key to filling this gap, and the government needs to catalyse private investments, he explained.

Sharing his perspectives after a recent report, ‘Catalysing the National Infrastructure Pipeline — Project India’, which highlights how India can achieve the National Infrastructure Pipeline task force’s investment target, he said “India has the unique ability for frugal innovation and jugad, which will help tide over the current pandemic-induced crisis.”

Revising investment strategies

“The disruptions caused by Covid-19 have highlighted the criticality of fundamentally rethinking many aspects of human endeavour. Investments in infrastructure have a multi-layered spill-over impact on the economy, affecting overall growth as well as the prospects of businesses and individuals. The country’s infrastructure needs, driven by rapid urbanisation, and the impact of Covid-19 on India’s Infrastructure Vision 2025 and its goals will have to be backed up by several policy initiatives,” he said.

“The crisis has necessitated creative solutions to bridge the investment gaps in infrastructure. We need to revise its project priorities under the NIP and focus on ensuring effective domestic resource utilisation, gaining outcome-focussed financing support from international financial institutions and harnessing capital from private stakeholders.”

Of the $100-billion investment pipeline, 40 per cent of the projects are under implementation and the rest are at various stages. “We need to work out strategies to ensure timely implementation of these projects,” he said.

Identifying areas such as the renewable energy sector, healthcare, urban infrastructure — including in Smart Cities — transportation and logistics including roads, among others, will be critical for growth as India sets out to achieve the goal of becoming a $5-trillion economy.

Transport infrastructure

He further stated that investment and technological adoption in transportation and logistics infrastructure would lead to higher convenience, affordability, last-mile connectivity and better urban space design for pedestrians and vehicles. Covid has burred the office and work from home needs and also lays special importance to transportation.

Among some key policy changes, George felt that there is a need to boost private sector investments by encouraging the PPP model through incentives — enhanced tax exemptions and grant portions, and enabling of other revenue sources such as advertising. There is a need for providing viability gap funding or grants for PPPs and undertaking asset monetisation.

While the domestic aviation sector had been doing very well in the past few years, indicating the potential for further growth, it may take almost 18-24 months for it to return to pre-Covid levels, and demand may increase in a phased manner.

The government is focussed on driving the renewable energy adoption, and with the grid parity expected soon, there is immense scope for growth of the sector with potential to attract huge investments. The enactment of the Electricity Amendment Bill 2020 and the National Renewable Energy Policy will be crucial apart from leveraging IoT for increased efficiency, George said.

Published on September 09, 2020

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