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Trend 1: Traffic, Urban Infrastructure & Productivity

Investment Outlook 2016 – Trend 1, Published Aug 2, 2016

This blog is part of Sanctum Wealth Management’s Mid-year Investment Outlook 2016. The Outlook gives us an opportunity to step back and look at the big picture to identify trends that have the potential to affect investment portfolios, both domestically and globally. We’re focused on six key trends and this week’s blog calls attention to how economic growth will be influenced by infrastructural changes in our larger cities over the next decade.

India’s major urban centres are struggling to accommodate the accelerated pace of urbanisation. Under the burden of mass migration from rural areas, the country’s urban infrastructure is crumbling. On the other hand, a rise in the urban population has led to a middle class with higher disposable incomes and a greater contribution towards a services-led, knowledge driven economy that accounts for a substantial share of GDP.Experts like the RBI Governor Dr. Raghuram Rajan believe that India’s young populace is ready to shoulder the burden of revolutionising the world. As such, a geographically restricted, unproductive workforce is not the vision that the country wants to showcase. We believe that apathy towards creation of basic public infrastructure could be a major hurdle in realising the nation’s true demographic dividend. 
A rising urban share of GDP
600 mn Indians will live in urban areas in India by 2031, contributing to 75% of India’s GDP.
According to the 2011 Census, by 2031, the urban share of GDP is expected to rise from 52% to 75%; urbanisation will rise to 50% in 2031 (from 31% in 2011). Over 600 mn Indians will choose to live in urban areas. Further, it is forecast that nearly 50% of future urban homes will be concentrated in 87 metropolitan cities (an average populace of six mn per city). This is an ominous scenario indeed as India’s largest city, Mumbai, is already brimming with over 16.4 mn people, perfectly living up to its reputation as the ‘maximum city’.
Traffic, Urban Infrastructure & ProductivityUrban road development will require almost a 50% share of total urban development funding. Traffic, Urban Infrastructure & ProductivityIt has been estimated by the Report of the Working Group on Financing Urban Infrastructure that the investment requirement from 2013 to 2031 would be INR 39.2 lakh crores or USD 638 bn to meet the existing infrastructure shortages as well as future development for the projected population growth. These figures, however, do not even take into account the cost of land.Smart Cities ProjectRealising this, the Modi government has prioritised the Smart Cities Mission as a centrepiece of its development agenda. The total estimated investment for 100 Smart Cities would be INR 7 lakh crore (USD 113 bn) over a period of 20 years, translating into an annual spending of 35 thousand crore (USD 5.7 bn). A large chunk of the infrastructure spend is expected to be taken up by private investments via Public Private Partnership. Funding remains a key challenge to implement the vision of Smart Cities.Nifty 50 Earnings Are Off to a Decent Start

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Mid-Year Investment Outlook 2016

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