Investments in India’s key infrastructure sectors — renewable energy and roads – and real estate are expected to grow ~38% in fiscals 2025 and 2026 compared with the previous two fiscals to Rs 15 lakh crore (see annexure).
The surge will ride on India’s need for creation of sustainable infrastructure by adding more green power to the energy mix, improving physical connectivity through a denser road network, as well as rising demand for residential and commercial real estate.
Says Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL Ratings, “The underlying demand drivers in these three sectors remain strong, with regular policy interventions fuelling investor interest. This has also supported healthy credit risk profiles of private players and strengthened their execution and funding capabilities.”
For renewables, the key growth driver is demand for sustainable energy transition. The government target is driving up auctions, which has created a strong pipeline.
India saw auctions of 35 GW in fiscal 2024, the highest ever in a single fiscal, resulting in a strong pipeline of 75 GW. This will primarily drive implementation of 50 GW capacity over the next two fiscals.
In the roads sector, the need for improved physical connectivity, which helps in efficiency gains for the economy, has driven healthy awarding over the past few fiscals, barring the last one. Strengthened order books of road developers, at ~2.5 times of revenue, will support ~11% growth in highway construction, which is seen at ~12,500 km per year over the next two fiscals.
As for real estate, net leasing of commercial office space will see demand growth of 8-10% this fiscal and the next. The primary drivers of the same will be global capability centres eyeing India’s large talent pool and competitive rentals, as well as healthy demand from domestic sectors. Demand growth for residential real estate will sustain at 8-12% this fiscal and the next, aided by favourable affordability and premiumisation.
Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, “Regular policy interventions in these sectors have also increased investor interest, thus providing opportunities to developers to unlock equity capital. Cumulatively ~Rs 2 lakh crore of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation. A key enabler here has been the emergence of vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). The capital inflows from investors have helped improve credit profiles of private players, thus strengthening their ability to fund future growth.”
That said, there are some risks to watch out for as the growth momentum could be impacted if these play out in a meaningful way.
