It’s no secret that emerging economies poised for rapid growth require robust infrastructure. With India having the second largest road network in the world (3 million miles and growing) and elaborate expansion programs underway, things are looking good for one of the world’s fastest growing major economies. With a new, pro-growth government coming to power in May 2014, India’s notoriously stagnant infrastructure sector is set to become an area of focus and investment. At the moment, the transport sector makes up 6% of India’s GDP, with the roads sector contributing an impressive 70% of that share. By 2017, the value of roadway and bridge infrastructure projects is expected to reach $19.2 billion, an impressive jump from $6.9 billion in 2009. In addition, the length of the country’s national highway system is forecast to grow from 58,031 miles in 2013 to 62,500 miles by the end of 2017. 1, 2
Major Increases to Infrastructure Spending
From 2009 to 2014, spending on road transport and highways increased at a CAGR of 19.4%, and this growth rate seems to be increasing. For example, the planned outlay for 2015-16 has risen to $6.6 billion from $4 billion in 2014, a massive 63.5% increase. While the government will continue to be a major source of funding going forward, it is also incentivizing and encouraging private sector participation by offering projects through various models such as Build Operate and Transfer (BOT), Hybrid Annuity or Public-Private Partnerships. 2
Figure 1: Increasing Budgetary Allocation to Roads and Highway Sector ($ mn)
Source: Business Standard, Feb’15
Huge Growth in New Roads
India is currently adding 11.25 miles of roads daily, a substantial increase from just 1.25 miles per day in early 2014, and this number is expected increase to 18.75 miles per day by 2016. To improve this rate even more, the government is also looking to streamline land acquisition and overhaul statutory clearance mechanisms. For example, the clearance for railway over-bridges is now online, and environmental clearance has now become much faster and efficient. As a result, the newly elected Government has been able to approve 78 projects since it came into power in mid-2014. 3, 4, 5
Figure 2: Road Projects Awarded (in miles)
Source: Ministry of Road Transport and Highways, India, 2015
Accessing the Indian Infrastructure Opportunity
India is on the cusp of a long term infrastructure development boom, similar to what occurred in China over the last 30 years. This will have multiple benefits, as a modern economy is dependent on reliable roads, rails, power, and telecommunications. As a result, the expected huge growth in India’s infrastructure sector will result in massive benefits to a number of industries throughout the country.
The Indxx India Infrastructure Index (Bloomberg: IINXX) which offers concentrated exposure to the 30 largest companies in the Indian infrastructure sector will effectively capture growth in this sector going forward. Investors can currently access this index’s exposure through an ETF tracking the index, the EG Shares India Infrastructure ETF (NYSE Arca: INXX). This fund provides a comprehensive exposure to construction companies such as Larsen and Tourbo Ltd. (NSE: LT) and Reliance Infrastructure Ltd. (NSE: RELI), and cement companies such as Ambuja Cements Ltd. (NSE: ACEM), Ultratech Cements Ltd. (NSE: UTCEM) and Shree Cements Ltd. (NSE: SRCM), which collectively represent around 20% of the fund’s assets, and are expected to receive significant boost from the upcoming advancements in India’s road infrastructure sector.
2: India Brand Equity Foundation, 2015 (http://www.ibef.org/industry/roads-presentation)
3: Money Control, Oct’15 (http://www.moneycontrol.com/news/economy/building-18-km-road-daily-delhi-bypass2-years-gadkari_3603881.html)
6: Figure 2: Road Projects Awarded (in miles) of India, 2015 (http://morth.nic.in/)