The massive railway spends by Indian Railways will create opportunities for companies across the space ranging from rolling stock companies, logistics companies, system providers to cement & steel.
Roadways at Rs. 263,404 crore took up the largest chunk of Government published tenders in 2015-16, adding upto more than 51% of the total published tender amount of Rs. 623,709 crore ($90 billion).
The figures indicate high public spending in hard infrastructure at a time when investment led growth from the private sector has slowed down considerably.
Source: Industry Wrap, State Bank of India
Most research reports have predicted muted capital expenditure by India’s private sector this year.
Roadways was followed by Indian Railways (IR) which published tenders worth Rs. 54,916 crore of which Rs. 35,522 crore were awarded in the same year. India has over 96,000 km of highways and over 131,000 km of state roads.
IR had last year announced Rs. 856,000 crore of investment in the next five years and this spend will drive structural changes. “This means that some 20% of incremental economic growth in the 2015-19 period could come from IR spend alone,” argues a just released report from State Bank of India Research.
However, if you look at the top four sectors where tenders were awarded in the last year, roadways once again leads the ranking at Rs. 55,862 crore (16.5%) but it is power distribution that comes next at Rs. 51,513 crore (15.2%) and then power equipment Rs. 54,637 crore (16.1%) and then railways at Rs. 35,522 crore or (10.5%).
About 65% of freight and 80% of passenger traffic travel on roads today.
The SBI report however focuses on IR and the potential transformation massive spends could bring about.
The railways are expected to build around 7 km of fresh railway lines a day while the roads ministry expects to build 40 km a day of new roads.
While high speed trains, metro and redevelopment of stations ought to change the traveling experience in coming days, dedicated freight coridors (DFC) will revitalise the transportation system in the country, by potentially cutting logistics costs by 10%.
The massive railway spends by IR will create opportunities for companies across the space ranging from rolling stock companies, logistics companies, system providers (technology), cement & steel, banking and engineering companies, according to a report from State Bank of India Research.
IR has indicated its intent to modernize 115,000 km of railway tracks across the country. The SBI report argues for the need to speed up redevelopment of railway stations, upgrade and diversify uses of infrastructure such as rail infrastructure in rural areas which could be used for skill development, leasing station/rails, building inter-sector synergy like renewable energy and agriculture. All of this could lead to non-fare revenue for Railways, the report says.
The three departments of roads, rail and power have already pitched to the Government for additional funding, newspaper reports say. The total additional funding desired is around Rs. 25,000 crore for the current year, beyond budgetary allocations.
The road ministry is believed to have sought an additional Rs. 15,000 crore, railways Rs. 10,000 crore and power Rs. 3,000 crore.