In a promising development for India’s infrastructure landscape, the combined capital expenditure on roads and renewables is set to surge to approximately Rs 13 lakh crore, marking a remarkable 35% growth compared to the preceding two fiscal years. This boost is attributed to the rapid pace of execution in these sectors.
According to projections, the construction of roads and capacity addition in renewables is expected to rise by 25% and 33%, respectively, over the current and next fiscal years. This acceleration not only holds immense economic potential but also aligns with India’s energy transition goals by emphasizing renewable energy.
These growth trends are forecasted to persist in the medium term, driven by favorable policies, robust investor interest, and strong financial profiles of companies within the CRISIL Ratings portfolio in both sectors.
Gurpreet Chhatwal, Managing Director at CRISIL Ratings, commented, “The pace of execution of renewable energy projects is set to increase by 33%, reaching approximately 20 GW per annum over the current and next fiscal years, supported by a substantial pipeline of around 50 GW of projects as of March 31, 2023. Similarly, road construction is poised to accelerate by 25%, with 12,500-13,000 km per year, driven by ongoing project awards and enhanced execution efforts.”
Supportive policy measures have played a pivotal role. Initiatives like the late payment surcharge have helped maintain dues from discoms to renewable generators, while the introduction of the hybrid annuity model (HAM) in the road sector has expedited execution and attracted investments.
Manish Gupta, Senior Director and Deputy Chief Ratings Officer, highlighted the encouraging investor interest, with significant equity and asset monetization raising Rs 75,000-80,000 crore in the past two fiscal years. He emphasized that continued focus on asset monetization and equity raising, combined with healthy cash flows, will ensure balanced capital structures for rated renewables and road entities, maintaining their credit profiles.
However, challenges persist, including the risks associated with aggressive bidding and execution by new entrants. Rationalized bidding strategies will be essential for sustaining profitability and quality.
In this evolving landscape, timely asset monetization will remain crucial for the roads sector, as infrastructure investment trusts (InvITs) continue to expand. In the renewables sector, potential disruptions in supply chains due to geopolitical developments could impact internal rates of return, posing a risk to estimates.
