Perspectives
22 December 2020
India’s growing population and transforming economy continue to present long-term infrastructure opportunities for foreign investors despite the impact of COVID-19 on the local economy.
Abhishek Poddar, Managing Director at Macquarie Infrastructure and Real Assets (MIRA), believes that the effects of the coronavirus will be short-lived when compared with the momentum of India’s economic rise.
“While the economy has slowed down in the short-term, COVID-19 has actually accelerated many of the trends that are changing India and its economy,” he says. “Given its sheer size India will continue to generate a lot of opportunities off the back of these economic trends.”
With 1.37 billion people, India is the world’s second largest country and is set to become the most populous by 2027.1 By 2030, 40 per cent of the Indian population is expected to live in urban areas, compared to just 28 per cent in 2005.
As India’s cities expand, so does its urban middle class as the country looks to add 140 million middle income and 21 million high income households between 2018 and 2030.2
By 2030, domestic private consumption, which accounts for 60 per cent of India’s GDP, could develop into a $US6 trillion growth opportunity, making the country the third largest consumer market behind the United States and China.3
Deep Gupta
Managing Director, Macquarie Infrastructure and Real Assets (MIRA)
If India is to keep pace with its growing population, burgeoning middle class and transforming economy, an estimated $US4.5 trillion of infrastructure investment will be needed by 2040.4
While there is capacity within India to raise around $US3.9 trillion of this money, the government recognises that the remainder must come from overseas and it is prioritising regulatory reforms that it hopes will attract greater foreign investment. This includes a pledge to build 35 multimodal logistics parks that will be funded through special purpose vehicles formed by state and central governments and the private sector.5
Deep Gupta, Managing Director, Macquarie Infrastructure and Real Assets (MIRA) says the scale of the opportunity could be even greater as this figure does not capture the significant opportunities in sectors such as telecommunications and energy.
“We are already the second highest data consuming market in the world and most of this happens on mobile phones,” Deep Gupta says. “The enormous growth in online retail and rising internet penetration means we are going to also need telecommunications infrastructure and data centres to take account of this.”
India will also need infrastructure to support its ambitions when it comes to transitioning to new renewable energy sources. The country is expected to be responsible for 30 per cent of all growth in energy demand by 2035 and the government is looking to renewable energy to fill much of the increase.6 In 2015, it set a target to have 175GW of installed renewable capacity by 2022 and had already installed 138.9GW by March 2020.7
Now, under its Paris Agreement commitment, India has pledged to base 40 per cent of its power generation capacity based on non-fossil fuel resources by 2030.
“This trend towards decarbonising India’s economy and the investments required to support the same will continue to provide interesting investment opportunities over the next decade,” Abhishek Poddar says.
To encourage the investment needed to drive its long-term agenda, the national government has been busy changing much of the regulatory framework that underpins the finance behind large scale projects.
“The public sector will remain a significant creator of infrastructure and there will be a real interplay between government policy and infrastructure - one that favours development,” Poddar says.
Abhishek Poddar
Managing Director, Macquarie Infrastructure and Real Assets (MIRA)
At the same time, however, Abhishek Poddar says that foreign investors cannot come to India and expect to use the same “tried and tested” approach they use in other jurisdictions.
“India is one market where you need deep experience if you’re going to be successful. You have to take the time to appreciate and understand its unique culture and ways of working.”
As one of the largest infrastructure asset manager in India’s roads sector and with almost a decade of experience in Indian infrastructure more generally, Poddar believes Macquarie Infrastructure and Real Assets is uniquely placed among international asset managers to take advantage of opportunities as they arise.
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