India’s infrastructure sector is poised for strong growth

V Nagarajan

India’s infrastructure sector is poised for strong growth, with planned investments amounting to $1.4 trillion by 2025. The government’s ambitious National Infrastructure Pipeline (NIP) programme outlines the injection of massive capital into various sub-sectors, including energy, roads, railways, and urban development. This unprecedented push is expected to spawn associated industries, create jobs, and stimulate the economy.

Specific focus areas are the expansion of public digital infrastructure, clean and renewable energy projects, and establishing resilient urban infrastructure. This ambitious undertaking seeks to enhance India’s global competitiveness and improve the quality of life across its vast populace, according to Ernst &Young survey.

In a roundtable event hosted by EY and attended by some of the top C-suite representatives of Indian infrastructure space, the following are the key takeaways from the discussion.

The Indian government’s proposed capital expenditure has a heavy emphasis on the renewable energy and road sectors. This trend reflects in the bulk of transactions and investment activity happening currently, but highlights the importance of having a diversified focus across sectors. Investments in renewable energy and roads drive India’s infrastructure growth, paving the way for sustainable development. The balance of buyers and sellers varied significantly across sectors. The construction of new highways stimulates the economy through job creation, infrastructure development, and enhanced transit efficiency.

Given the crowded marketplace in sectors like renewable energy, differentiating businesses has become essential. Companies must endeavour to stand out in order to attract investment and buyers.

Projections for the future of the Indian economy showed promise. Different sectors could expect three to five times growth in the next few years. However, these projections varied greatly, with some estimates reaching 50 times growth. Companies in the infrastructure sector tended to stick to a certain capital structure, typically involving some combination of equity, shareholder loans, or senior debt. The panel encouraged companies to not be averse to playing with the capital structure to secure necessary funding or capitalise on opportunities.

The airport sector in India is growing twice as fast as GDP; therefore, investors are eyeing a direct play in the sector.

Energy transition: The extension of how energy is produced, transported and used across all industries will be integral to society’s progress toward sustainability.

External investors, notably those not currently present in India, often proved to be the best partners. These investors approach the market with a “clean slate” – free from previous biases or beleaguered by past experiences, which can lead to more favourable outcomes for both parties.

Indian infrastructure is drawing interest from a diverse range of investors, spanning both strategic and financial sectors. Deal structures encompass the entire spectrum from straight equity to structured capital and debt. Successful exits have been seen, and as the regulatory framework matures, deal sizes are also scaling up.

The discussion also examined the Gujarat International Finance Tech (Gift) City model as an attractive option for infrastructure financing outside of India. Embedding finance companies within the Gift City could provide a useful means of lending to Indian entities and could bring down overall project costs in the long run.

To attract more FDI, it is essential to establish certainty in the tax administration process. This enables companies to make confident investment decisions, ultimately lowering overall fundraising costs.

I sold my land in India and reinvested in a new unit. However, the new project may take another year for completion. Am I entitled for capital gains exemption due to delay in construction? Please clarify. Ashita Aju, Sharjah.

Assuming it is a long-term capital gain, if you invest within a period of one year before or two years after date of transfer of the property, purchased one residential house property in India or constructed one residential house property in India within three years from the transfer date, you will be exempt from tax under section 54 of the Income-tax Act. In your case, you have invested in an ongoing project due to be completed soon. Courts have held that instances like yours should be regarded as ‘construction’ and entitled for capital gains exemption.

I have inherited ancestral property in Mumbai. Can I gift it to my relative who is in India? Please clarify. Dilip Sanghavi, Dubai.

If it is ancestral property, heirs get the right by birth, depending on the religion they belong to in India. The property can be passed on by reorganisation, by way of family settlement or a division in case of a HUF (Hindu Undivided Family). If you want to gift your share from ancestral property, you can do it without any restrictions as it is like your self-earned property.