Infrastructure investments to boost economic growth

By Upendra Nath Sharma and Pooja Thomas, J. Sagar Associates

Infrastructure is the backbone of any nation’s development and, therefore, the sector enjoys the government’s attention. In the interim budget for 2019-2020, around ₹4.56 trillion (US$63.20 billion) was allocated to the infrastructure sector, which comprises transportation (rail, aviation), power (renewable and non-renewable) and construction. A large part of the budget, coupled with government initiatives and policies, has made the infrastructure sector lucrative for both domestic and foreign players.


The government has focused on attracting investment in railway infrastructure by making investor-friendly policies. Currently, 100% foreign direct investment (FDI) under the automatic route is permitted in railway infrastructure, which includes manufacture and maintenance of rolling stock (coaches and locomotives) and mass rapid transport systems (metros).

Upendra Nath Sharma
J. Sagar Associates

FDI inflows into railways-related components from April 2000 to March 2019 stood at around US$969 million. In December 2018, French manufacturer Alstom announced plans to expand capacity at its coach production facility in Sri City, Andhra Pradesh. The government has signed an agreement with Japan to implement the Mumbai-Ahmedabad high-speed rail corridor along with financial assistance that would cover 81% of the total project cost. The construction of the Virgin Hyperloop One is in full swing between Mumbai-Pune and the government of Andhra Pradesh has signed a memorandum of understanding with Hyperloop Transportation Technologies for the Amravati-Vijayawada route.

India is currently the world’s seventh largest aviation market and is expected to become the third largest market in the next few years. With government initiatives like the UDAN scheme and the Regional Connectivity Scheme under the National Policy on Civil Aviation, 2016, government agencies estimate a requirement of around 250 brownfield and greenfield airports by 2020.

Pooja Thomas
Senior associate
J. Sagar Associates

According to the Department of Industrial Policy and Promotion (DIPP) data, FDI inflows to India’s air transport sector reached about US$1.8 billion between April 2000 and March 2019. The government allows 100% FDI in scheduled air transport services, regional air transport services and domestic scheduled passenger airlines. While FDI up to 49% is under the automatic route, investments over 49% would require government approval. It is estimated that the airport infrastructure sector is set to get a boost with an investment of around US$ 15.52 billion between 2018 and 2023.


Power generation covers conventional sources (coal, natural gas, oil) and non-conventional sources (wind, solar). India’s ranking has significantly improved to 24 in 2018 from 137 in 2014 on World Bank’s “Ease of doing business – getting electricity” sub-ranking. The industry attracted around US$14.31 billion in FDI since 2000 until March 2019, accounting for about 3.41% of total FDI inflows in to India.

After the ratification of the Paris Agreement, the government aims to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. Fresh investments in this sector reached about US$7.8 billion between April 2000 and March 2019 in India.


At present, 100% FDI under the automatic route is permitted in the construction development sector (subject to certain conditions), which includes development of townships, residential or commercial premises, roads or bridges. FDI in the construction sector stood at around US$25.04 billion from April 2000 to March 2019, according to the DIPP. With the government’s smart city mission and affordable housing schemes, construction development in tier-2 cities has thrown open investment opportunities to private players.

The government aims to construct 12,000 km of highways in the current financial year – targeting a record per day highway construction figure of 40 km per day as compared with 32 km achieved in the previous financial year. In its election manifesto, the ruling Bharatiya Janata Party has promised to construct of 60,000 km of national highways over the next five years.

India has a requirement of investment worth ₹50 trillion (US$777.73 billion) in infrastructure by 2022 to have sustainable development in the country. India is witnessing significant interest from international investors in this sector with private equity and venture capital investments worth approximately US$1.97 billion in 2018 alone.

(The article was updated on 27 June 2019. The data are subject to change with the budget.)

Upendra Nath Sharma is a partner and Pooja Thomas is a senior associate with J. Sagar Associates. Their views are personal.


J. Sagar Associates
Sandstone Crest, Opposite Park Plaza Hotel
Sushant Lok – Ph 1
Gurugram – 122 009, India
New Delhi | Mumbai | Bengaluru | Chennai | Hyderabad | Ahmedabad | GIFT IFSC
Contact details
Upendra Nath Sharma | Tel: +91 124 439 0643
Pooja Thomas | Tel: +91 124 439 0757