India's transport infrastructure growth to gain pace over 5 years: Report

It will propel growth rates include reform measures and new policies

India's transport infrastructure will grow at higher rates over the next five years on account of a string of measures, including increased spendings on road and rail projects, says BMI Research, a Fitch Group company.

Other factors that will propel growth rates include reform measures and new policies, encouraging private participation, it said.

"India's transport infrastructure sector will experience elevated growth rates over the next five years on the back of increased government investment, especially in roads and railways, and a gradually improving environment for private investors and public-private partnerships (PPPs)," it said.

The latest FY 2017-18 Union Budget increased allocations for National Highways Authority's (NHA) by 24 per cent and Indian Railways by 8.2 per cent to support significant expansion plans.

Additionally, the government proposed a new Metro Rail Policy aimed at easing and encouraging the use of PPPs for urban transit projects, expanding the number of opportunities for private parties to invest in infrastructure.

"Our latest forecast is for India's transport infrastructure sector to grow by 6.1 per cent in real terms in 2017 and average 5.9 per cent annually through 2021 - the fastest-expanding component of the country's infrastructure sector," it said.

PPPs will become increasingly important when financing and operating many upcoming transport projects, as the government seeks to tap private capital to supplement its limited fiscal capacity.

"The new Metro Rail Policy, proposed as part of the FY2017/18 Union Budget, is aimed at easing and encouraging private participation in urban transit projects by allowing the use of tax-free bonds and assigning the responsibility of securing all regulatory approvals to the state governments," it said.

This comes after the introduction of a hybrid-annuity model for highway PPPs in 2016, in which the private partner is responsible for construction and receives fixed payments from the government operator.

Ongoing improvements to India's regulatory and operating environment will help spur private investment in the transport sector, but challenges such as acquiring land and maintaining a stable revenue stream pose risks to potential participants.