Capital outlay on roads and renewables set to surge 35% to ₹13 lakh crore: Crisil

New Delhi: The capital expenditure on road infrastructure and renewable energy in India is poised to witness an impressive surge of approximately 35% over the current and upcoming fiscal years, amounting to an estimated ₹13 lakh crore, rating firm Crisil said in a report.

This growth trajectory is primarily attributed to a robust execution pace, bolstered by a favourable policy environment, healthy leverage, and heightened investor interest.

The Crisil report spotlights a projected 25% increase in road construction and a substantial 33% uptick in renewable energy capacity expansion over the current and forthcoming fiscal periods.

“This bodes well for the economy, given the high multiplier effect of road development and the critical role renewable energy can play in achieving India’s energy transition,” it said.

The report underscores the expectation that this growth will not be a transient phenomenon but is likely to endure over the medium term. This sustained growth is underpinned by conducive policies, robust investor interest, and the financial health of companies within Crisil Ratings' portfolio operating in both these sectors.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said, “The pace of execution of renewable energy projects is set to increase 33 per cent to ~20 GW per annum over current and next fiscals (15 GW per annum in the past two fiscals) supported by a healthy executable pipeline of 50 GW of projects as on March 31, 2023. Similarly, road construction is set to accelerate 25 per cent to 12,500-13,0002 km per year over the current and next fiscals on continued healthy awarding of projects and step up in execution by road construction players.”

The report underscores the pivotal role of a supportive policy environment in propelling this growth. Initiatives such as the late payment surcharge have been effective in curbing outstanding dues from distribution companies to renewable energy generators. In the realm of road construction, the adoption of the hybrid annuity model (HAM) has expedited project execution and attracted investments.

Additionally, government initiatives like Atmanirbhar Bharat, pandemic-induced forbearance, and the emergence of infrastructure investment trusts (InvITs) have significantly boosted both sectors.

Manish Gupta, senior director and deputy chief ratings officer, stated, "Investor interest in these sectors has remained consistently robust, with approximately ₹75,000-80,000 crore raised through equity and asset monetization in the past two fiscal years. A continued focus on asset monetization and equity mobilization, coupled with healthy cash flows, will ensure a balanced capital structure in both sectors. Hence, despite the higher capital outlays, rated renewable and road entities are well-positioned to maintain a robust average debt service cushion of 1.2-1.3 times over the tenure of their debt, further bolstering their credit profiles."