Investments in renewables, roads, realty to rise 38 per cent over two fiscals to Rs 15 lakh cr: CRISIL – EQ

In Short : CRISIL projects a 38% increase in investments in renewables, roads, and real estate, reaching ₹15 lakh crore over the next two fiscal years. This growth reflects strong investment momentum in infrastructure and sustainable development sectors.

In Detail : Supportive policy interventions driving growth and improvement in credit profiles

Investments in India’s key infrastructure sectors — renewable energy and roads – and real estate are expected to grow ~38% in fiscals 2025 and 2026 compared with the previous two fiscals to Rs 15 lakh crore1 (see annexure).

The surge will ride on India’s need for creation of sustainable infrastructure by adding more green power to the energy mix, improving physical connectivity through a denser road network, as well as rising demand for residential and commercial real estate.

Says Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL Ratings, “The underlying demand drivers in these three sectors remain strong, with regular policy interventions fuelling investor interest. This has also supported healthy credit risk profiles of private players and strengthened their execution and funding capabilities.”

For renewables, the key growth driver is demand for sustainable energy transition. The government target2 is driving up auctions, which has created a strong pipeline. India saw auctions of 35 GW in fiscal 2024, the highest ever in a single fiscal, resulting in a strong pipeline of 75 GW. This will primarily drive implementation of 50 GW capacity over the next two fiscals3.

In the roads sector, the need for improved physical connectivity, which helps in efficiency gains for the economy, has driven healthy awarding over the past few fiscals, barring the last one. Strengthened order books of road developers, at ~2.5 times of revenue, will support ~11% growth in highway construction, which is seen at ~12,500 km per year over the next two fiscals.

As for real estate, net leasing4 of commercial office space will see demand growth of 8-10% this fiscal and the next. The primary drivers of the same will be global capability centres eyeing India’s large talent pool and competitive rentals, as well as healthy demand from domestic sectors. Demand growth for residential real estate5 will sustain at 8-12% this fiscal and the next, aided by favourable affordability and premiumisation.

The growth momentum in these three sectors is expected to be further aided by policy enablement, which has reduced risks.

For renewables, higher import duties have enabled a domestic ecosystem for module production. This not only reined in import dependence and price volatilities but also facilitated better control on supply-chain. Also, production linked incentive scheme for battery and solar cells sets a more sustainable growth path. Further, increased presence of central counterparties in renewable projects has resulted in greater predictability of payments for sponsors.

In roads, too, the confidence of the private sector has been boosted through the hybrid annuity model (HAM) and improvement in concession agreements, with more-equitable risk sharing between developers and concessionaires. HAM provides upfront right-of-way and provision for descoping and delinking, mitigating some of the key execution risks.

Further, residential real estate has also seen supportive policy interventions, the key being the implementation of the Real Estate (Regulation and Development) Act, 2016, which has improved transparency and enabled timely completion of projects, thus enhancing stakeholder confidence. In commercial real estate, the recent amendments in the Special Economic Zones (SEZ) Act, which allow floor-wise demarcating of SEZ areas into non-SEZ areas, should aid faster growth by attracting wider base of tenants.

Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, “Regular policy interventions in these sectors have also increased investor interest, thus providing opportunities to developers to unlock equity capital. Cumulatively ~Rs 2 lakh crore of equity capital has been deployed in these sectors over the past two fiscals driven by strong investor participation. A key enabler here has been the emergence of vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs). The capital inflows from investors have helped improve credit profiles of private players, thus strengthening their ability to fund future growth.”

That said, there are some risks to watch out for as the growth momentum could be impacted if these play out in a meaningful way.

In renewables, timely commissioning of storage and storage-linked capacities6 remains a key risk given their higher tariffs compared with the usual renewable capacities7. These storage-linked capacities have so far had low traction on the ground in finding off-takers, with nearly 7 GW of the ~9 GW projects yet to find buyers.

Similarly, in the roads sector, as government budgetary allocation is moderating, amendments in the build-operate-transfer (BOT) toll model concession agreement have been made to increase private participation. However, improvement in traffic estimation accuracy and increase in willingness of lenders to fund BOT toll projects will bear watching.

In real estate, while reduction in inventory in recent years has added to the resilience of the sector, discipline in new launches and, consequently, the impact on inventory going ahead will remain monitorable.