‘Infra Scape’ – National Infra Pipeline: Aggressive intent, but funding key

03 Jan

‘Infra Scape’ – National Infra Pipeline: Aggressive intent, but funding key

The government ended 2019 with a bang by rolling out the National Infrastructure Pipeline (NIP). With a vision to spend INR100tn on infra over FY20-25 (~2x FY14-19 investments), NIP sets the ball rolling to achieve the objectives of: (a) improving India’s global competitiveness by creating new & upgrading existing infra; and (b) initiating a virtuous cycle of higher investments, growth & employment generation in the economy. We view this as a positive step since a structured approach with active participation of all stakeholders is paramount to achieve substantial scale-up in infra spending. That’s said, we  believe, funding the mammoth plan in light of the current economic headwinds will be a key monitorable.

Genesis of the NIP

Prime Minister Narendra Modi had earlier highlighted that INR100tn will be invested on infra over the next five years. To achieve this goal, a task force was set up to:

(a) identify infra projects that can be initiated over FY20-25;

(b) estimate annual infra investments;

(c) guide ministries in identifying financing sources; and

(d) suggest measures for monitoring projects to minimise cost/time overruns.

Over the past four months, 70 meetings have resulted in the NIP which aims to:

(a) provide inclusive growth & create jobs;

(b) enhance the level of economic activity & improve the government’s revenue base;

(c) boost developers’ confidence by providing project pipeline; and

(d) build investor confidence through better project preparation & active project monitoring.

Deep dive into NIP

NIP projects a peaking of investment over FY20-22 (~60% of overall investments), post which the capex trajectory will taper; however, there may be some spillage to FY23-25. Power remains the biggest sector with 22% share in investments, though it is a marked decline from 32% over FY08-19. Other major sectors are roads (19% versus 18%), railways (13%/10%), urban infra (16%/13%) and irrigation (8%/9%). Funding will be a key monitorable since the plan assumes an increase in budgetary support (as a % of GDP) from 0.73% in FY19 to 1.11% in FY25, along with nominal GDP growth of ~12.5% over FY22-25.

Outlook: Well begun, now on to execution

At a time when muted economic growth and sluggish infra spending have cast a pall of gloom on infra companies, NIP is a much needed saviour to change the narrative on infra investments in India. While the intent is right, the government now needs to focus attention on resource mobilisation, getting requisite clearances and enhancing coordination between various stakeholders. Potential beneficiaries of this opportunity include KNR Constructions (BUY), PNC Infratech (BUY) and NCC (BUY).

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