India: infrastructure

India’s infrastructure, which for many years has been a drag on growth, is undergoing a transformation. Airports have been upgraded, power networks expanded, and toll roads opened. One of the key catalysts for the upgrade of roads was the national GST, which enabled companies to source and transport inputs on a pan-India basis.

While this was possible prior to the introduction of the GST, the multiple taxes and overlapping requirements in moving goods between states made it impractical for many companies, particularly SMEs.

Indian railways are important arteries for transporting people and goods from factories and small towns to urban centers, ports and distribution hubs. Plans for fast trains between cities are being rolled out following the success of the Vande Bharat Express.

Indian Railways is currently building a 500-kilometer high-speed rail line between Mumbai and Ahmedabad and there are plans for seven additional rail corridors. Indian infrastructure companies have formed joint ventures with European high speed rail specialists in expectation of some of these lines being tendered to the private sector, as part of the liberalization agenda.

One of the fastest growing sectors in India is renewable energy. The government’s PLI program has encouraged companies to produce solar panels and reduce reliance on imports. Renewable energy currently accounts for 30% of installed capacity or 110 gigawatts (GW), of which half is from solar.¹

Renewables are leading newly installed capacity for the past seven years. However, renewables only generated 12.5% of electricity consumption between April–December 2022² partly due to a mismatch between peak demand (evening) and peak supply (afternoon).

Sources: Elekore, HSBC. *Data as of July 2023. There is no assurance any forecast, projection or estimate will be realized.

One of the policies to address this supply/demand mismatch is pumped hydro or pumped storage power (PSP). This is a well-established alternative to battery-based energy storage systems which remains in its infancy.

India’s current PSP capacity is 4.7 GW but estimates from the Ministry of Power (based on PSP plans) highlights 55 projects that could potentially deliver additional future supply of 73 GWs.³ There are concerns over the expansion of PSP due to environmental issues and planning delays.

There is also resistance in expanding hydro projects from river-based—which are the only source of hydro power in India—to off-river sources. An added factor is interconnection with the electricity grid, which is a common issue globally for new renewable energy projects.

While uncertainties remain, if India is to meet its carbon reduction targets, PSP in combination with solar will be part of the solution from an electricity generation perspective.