Road, railway and power infrastructure to outperform in India

02 January 2019

India’s economy is expected to accelerate in 2019, supported by Prime Minister Narendra Modi’s reform agenda and rising private consumption. A robust pipeline of road, railway and power projects will drive growth in the infrastructure sector. However, the ruling National Democratic Alliance (NDA) may lose its parliamentary majority in lower house general elections due to be held in 2019, which could undermine the government’s fiscal consolidation measures.


Militant groups based in Pakistan, including Lashkar-e-Taiba and Hizbul Mujahideen, pose a moderate risk to the infrastructure sector. India’s intelligence agencies have improved their capacity to counter terrorist activity since the 2008 Mumbai attacks, but public transport systems in urban centres are likely aspirational targets for militant groups. Infrastructure assets in the states of Bihar, Chhattisgarh, Jharkhand and Odisha face an elevated risk of attack or extortion by Naxalite militants.

India’s relations with Pakistan remain strained due to their intractable dispute over Kashmir. The number of border skirmishes between India and Pakistan has risen over the past two years, although both countries pledged to restore their ceasefire agreement in May 2018. While further cross-border exchanges of fire are likely to occur, the risk of large-scale conflict will remain low, particularly as both countries possess nuclear weapons.

While India and China were involved in a military stand-off on the Doklam plateau between July and August 2017, both sides subsequently withdrew their troops from the area. Despite their deepening rivalry for influence and the possibility of further incidents, military conflict is unlikely.

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India’s economic growth is forecasted to accelerate from 7.2% in 2018 to 7.4% in 2019, supported by growing private consumption, strengthening performance in the manufacturing sector and rising government investment in infrastructure. Prime Minister Narendra Modi is pursuing a growth-positive reform agenda that aims to improve tax collection and formalise economic activity.

Despite India’s broadly positive outlook, downside risks remain. The rupee depreciated by approximately 10% against the US dollar in 2018, which will heighten the impact of rising oil prices on the manufacturing sector, while also driving inflationary pressures in the coming quarters. There are also rising credit risks in the Indian economy, given high levels of non-performing assets in public sector banks, which hold approximately 75% of total deposits.

Non-performing loans in Indian banks rose from 2.9% of gross loans in 2012 to 11.8% in June 2018. India’s fiscal deficits increased general government debt to 69% in the fiscal year ending in March 2018, while interest payments equate to around 22% of general government revenue. However, government debt is likely to very gradually moderate in the medium-term as reform measures improve tax revenue.

India is set to hold lower house general elections in the second quarter of 2019. While the ruling National Democratic Alliance (NDA) is likely to form the next government, it may lose its parliamentary majority, which would increase the risk of policy reversals. The NDA's measures to reduce the fiscal deficit could be reversed as the opposition Indian National Congress (INC) has pledged to raise public expenditure.


India’s construction industry is forecasted to grow at an average of 7.0% annually between 2018 and 2022, driven by rapid urbanisation and growing government investment. The power plants and transmission grids sector is expected to be an outperformer, as it is set to record average annual growth of 7.8% between 2018 and 2022. India’s Union Budget for fiscal year 2018/19 increases funding for infrastructure development, including financing for railway upgrades, the construction of 9,000 kilometres of highway, and the expansion of urban transit systems in Bengaluru and Mumbai.

Modi’s ‘Make in India’ initiative has eased a number of restrictions on foreign investment. The government is seeking to increase foreign investment in the infrastructure sector, but heavy bureaucracy increases the risk of project delays. India’s ambitious infrastructure plans may also be undermined by a slowdown in lending. In October 2018, the government replaced the board of Infrastructure Leasing & Financial Services (IL&FS), one of India’s largest infrastructure companies, due to liquidity problems. As a result, the government is likely to review contracts in road transport projects where it suspects that firms face a high risk of default.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for India, Viet Nam, Angola and Ethiopia all of which have been the subject of recent enquiries from JLT's client base.

World Risk Review January 2019

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