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GLOBAL ECONOMIC OVERVIEW

Global Economy

Outlook by World Bank:

The World Bank in its Report on "Global Economic Prospects" dated January 2023 has projected the global growth to decelerate to 1.7 % in 2023 on account of synchronous policy tightening aimed at containing very high inflation, deteriorating financial conditions and continued effects from the Ukraine war.

As per the report, the Investment growth in emerging market and developing economies is expected to remain below its average rate of the past two decades.

Growth in South Asia Region is projected to be 5.5% in 2023, led by the robust growth in India. Indias growth is projected to at 6.6 % in FY 2023-24, making it the fastest growing economy of the seven largest Emerging Market and Developing Economies (EMDEs). At the same time, small states economies are projected to remain vulnerable to slowdown on account of dependence on imports of essential goods, elevated levels of debt, reliance on external financing, and susceptibility to natural disasters and climate change.

Outlook by International Monetary Fund (IMF):

As per the IMFs world economic outlook published in April 2023, the global economy is projected to grow at 2.8% in 2023 followed by the medium-term growth plateauing at 3.0% in 2024. Advanced economies are expected to see a continued growth slowdown, from 2.7% in 2022 to 1.3% in 2023. At the same time, the Emerging Market and Developing Economies are expected to grow at 3.9% in 2023 and 4.2% in 2024.

Global headline inflation is expected to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly.

As per the report, India is expected to grow at 5.9% in FY 24 making it one of the fastest growing major economies in the world. The growth in FY 25 is projected at 6.3%. At the same time, IMF has projected the growth for China at 5.2% and 4.5% respectively for 2023 and 2024.

The CPI (Consumer Price Index) inflation in India is projected at 4.9% in 2023 and 4.4% in 2024. Further Indias medium- term inflation (2028) is projected at 4%.

Outlook by Reserve Bank of India (RBI)

The outlook by the RBI as provided in its annual report for the financial year 2022-23 is summarized below:

The war in Ukraine, the persistent elevation in food and energy inflation and the tightening of financial conditions in response to aggressive monetary policy tightening across the world suggest a weaker outlook for the global economy in the financial year 2024.

In the early months of 2023, some of the war-induced pressures on inflation have eased with the decline in commodity prices and gradual normalisation of supply chains. However, for emerging market economies (EMEs), the outlook appears uncertain on account of continuing pandemic woes, surging inflation and shortages and debt overhangs.

In the turbulent global economic environment, India has experienced macroeconomic and financial stability with a steady pick-up in the momentum of growth. India has remained among the fastest growing major economies of the world. Strong and healthy balance sheets of banks, financial institutions and corporate entities is helping to regain growth momentum eroded by the pandemic and the war.

The RBI has pegged Indias real GDP growth for FY 24 at 6.5%. The CPI inflation has been projected at 5.2% is 2023-24 with a stable exchange rate, a normal monsoon and assuming no El Nino event. The annual report of RBI further indicates that the conduct of monetary policy will continue to be guided by the medium-term target for CPI inflation of 4% within a band of +/- 2%, while supporting growth.

Road Infrastructure in India

• India has the second-largest road network in the world, spanning over 6.37 Mn kms as on November 30, 2022. This comprises National Highways, Expressways, State Highways, Major District Roads, Other District Roads and Village Roads as under:

Particulars	In kms	% Share
National Highways	1,40,995	2.2%
State Highways	1,71,039	2.6%
Other Roads	60,59,813	95.0%
Total	63,71,847

Source: IBEF February 2023 Report

• This road network transports ~ 64.5% of all goods in the country and ~90% of Indias total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

Growth Drivers

• Under the Union Budget 2023-24, the Government of India has allocated INR 2,704,350 Mn (US$ 33.8 billion). 36% increase in allocation as compared to Union Budget 2022-23 to the Ministry of Road Transport and Highways.

• For financial year 2022-23, as per sales data published by SIAM, Passenger vehicles sales grew 26.7% while Commercial vehicles grew 34.2%.

• National Highways Authority of India under Bharatmala phase 1 envisages a network of 34,800 Km (~20,632 Km already under execution) of roads is scheduled to be completed by 2027. The total investment in the project is estimated to be ~ INR 11 lakh crore.

• Under Bharatmala Phase-2, 5000 Km of expressways and highways are planned to be constructed and National Highways Authority of India proposes to issue tenders for the construction of some sections of the roads under Phase-2 as early as the first half of FY 24 so that these expressways and highways become operational in line with remaining projects under Phase-1 that is scheduled to be completed by 2027.

Strong momentum in expansion of roadways

• According to the data released by Department for Promotion of Industry and Internal Trade Policy, construction development sector attracted Foreign Direct Investment inflow worth US$ 920 Bn between April 2000 and March 2023 (In FY 23 - FDI Inflows were ~US$ 46 Bn).

• Construction of national highways reached its highest in February, when the Centre developed 42.03 Km of highways per day, according to Ministry of Road Transport and Highways (MoRTH) data1. The Centre has constructed 8,064 kms of highways this fiscal. The ministry is focusing on fast land acquisition to expedite execution in many highway projects. MoRTH issued a total of 197 land acquisition notifications in February, for which it paid INR 4,510 Mn as compensation for land.

The National Highways serve as the arterial network of the country. The development of National Highways is the responsibility of the Government of India. The Government of India had launched major initiatives to upgrade and strengthen National Highways through various phases of the National Highways Development Project (NHDP) and is taking the initiative forward through the umbrella program of Bharatmala Pariyojana Phase-I and other schemes and projects. The status of various components of Bharatmala Pariyojana Phase-I and other schemes up to December 31, 20 222 are as under

Components / Scheme	Total Length (Km)	Length completed up to 31.12.2022
A. Bharatmala Pariyojana Phase - I
Economic Corridors	9,000	3,155
Inter-corridor & Feeder Roads	6,000	1,381
National Corridors Efficiency Improvement	5,000	1,412
Border & International Connectivity	2,000	1,213
Coastal & Port Connectivity Roads	2,000	93
Expressways	800	779
Sub Total	24,800	8,033
Balance Road works under NHDP	10,000	3,756
Total	34,800	11,789
B. Other Schemes
SARDP-NE (Phase A and Arunachal Pradesh)	6,418	4,473
LWE (including Vijayawada Ranchi Route)	6,085	5,818
EAP (WB+JICA+ADB)	2,855	1,764

1 Ministry of Road Transport and Highways. Data captured till February 2023.

• Focus on infrastructure development: Government has keen focus on infrastructure development and overall road projects exceeding 65,000 km in length, costing more than INR 11 lakh crore, are in progress, of which work ir respect of projects of more than 39,000 km length has been completed and in balance length of more than 26,000 km construction works are in progress.

• In order to provide a boost to infrastructure development and enable it to overcome the impact of Covid-19 pandemic, the Ministry awarded highways of 12,375 km length and achieved construction of 10,993 km for the FY 2022-23.

• Development of last mile connectivity: For improving first/last mile connectivity to all Major & Non-major ports ol the country specifically the operational/under implementation ports, 55 port connectivity and associated hinterland projects with a total length of 2,779 km have been initiated by the Ministry and its implementing agencies. As ol FY 23, 8 projects of length 294 km have been completed, 14 projects of length 1,645 km are under implementation 13 projects of length 363 km are under bidding and 20 projects of length 476 km are yet to be awarded. Pos1 completion of these projects, 45 maritime ports will be provided with National Highway or 4 Lane+ connectivity.

• Seamless movement due to faster penetration of Fastag: In order to ensure seamless movement of traffic through fee plazas and increase transparency in collection of user fee using FASTag, the National Electronic Toll Collection (NETC) programme, the flagship initiative of Ministry of Road Transport and Highways, has been implemented on pan India basis. There are thirty eight banks (including Public and Private sector banks) engaged as issuer banks for FASTag issuance to road users and fourteen acquirer banks to process the transactions at fee plazas. As ol December 31,2022, collectively banks have issued over 6.33 crore FASTags with an average daily ETC transactions of INR 99.05 lakh; the average daily collection through ETC has increased to INR 158.66 crore with penetration ol 97.6% in total fee collection. On April 29, 2023, the daily toll collection through FASTag system achieved an all-time high collection of INR 193.15 crore, with 1.16 crore transactions recorded in a single day. As on May 2, 2023 there are 1228 National Highways (NH) and State Highways fee plazas live with ETC infrastructure in all lanes.

Growth Drivers

Growing Demand	• Rise in two and four wheeler population Growing
	• Increasing freight traffic Demand
	• Strong trade and tourist flows between states

Policy Support	• Greater Government focus on infrastructure
	• Standardised processes for bidding and tolling and clear policy framework
	• Tax SOPS, FDI,FII Encouragement

Increasing Investment	• In the Union Budget 2023-24, INR 2,704,350 Mn was allocated to MorTH.
	• 100% rebate on income tax for 10 consecutive years, out of the first 20 years of a project Under Section 80IA
	• NHAI bonds have been exempted from Capital gain tax

Source: IBEF February 2023 Report

Future growth prospects:

• The highway developers are increasingly shifting their focus to asset light strategy. They have been deleveraging their balance sheet by selling their operational BOT (Toll) and Annuity assets to Toll Operators, financial investors and InvITs. Given the continued pipeline of projects involving construction, the developers are likely to continue divesting their existing assets and participating in new projects.

• The HAM projects which are set to become operational in the next two to three years are also expected to be monetised by the developers ensuring continuous pipeline of assets for the secondary market.

• In FY 24, NHAI has planned to monetise ~ 30 highways having with around 1987 km length for monetisation in FY 24 through ToT, InvIT and toll securitization modes and ~INR 350,000 Mn through this monetisation of highway assets.