India´s infrastructure kings share their experiences of the past year and recommendations for a smooth way forward.
Fiscal years come and go, but FY14 has been different. As a country, India has never been as united as it was this year, giving Narendra Modi the mandate to form a coalition-free government, with a lot of expectations riding on it. From 45 ministers in May to 66 currently, a lot has changed in the Modi Government. But what has changed in governance? Is it still a wait-and-watch game for the construction industry?
After the new government was sworn in on May 26 this year, a gradual revival was visible in June 2014 with a marginal growth of 0.50 per cent in July. Core sector output growth accelerated to 5.8 per cent in August 2014 compared to 2.7 per cent in July 2014, as steel, coal, cement and power production expanded significantly. The April-August figures showed 4.4 per cent expansion compared to 4.2 per cent growth in the first five months of the last financial year.
The Oil and Gas Ministry has been an achiever with regulated fuel prices and aversion of major price hikes to an extent. With crude prices witnessing a decline, fuel prices have actually reduced.
The new and progressive Budget presented within 45 days focused on long-term benefits and was devoid of major reforms or market-shaking policies. Apart from the green signal to the much-awaited bullet trains and 100-per-cent foreign direct investment (FDI) in Railways, excluding train operations and safety, the Railway Budget focused on greater efficiency.
Infrastructure projects will get easier long-term loans without regulatory pre-emptions such as CRR, SLR and priority-sector lending norms. The National Highways Authority of India (NHAI) was allotted Rs 37,880 crore for highway construction, and Rs 3,000 crore to boost road connectivity in the Northeast.
The development of 16 new ports was proposed at Rs 11,000 crore and Rs 11,600 crore were allocated for the development of outer harbour port projects. Other components of the Budget û development of new airports through PPP mode, money allocation for cleaner thermal power technology, development of villages along the border, rail connectivity in the Northeast, toilets in every school and household - further fuelled the positive sentiment. Every MP was instructed to adopt a village to develop it efficiently. And Rs 7,060 crore was allotted for the creation of 100 smart cities across India.
As for the housing sector, the Budget brought good news: Rs 4,000 crore for low-cost housing schemes and relaxation of FDI norms for the affordable housing sector. The Government´s vision of ´Housing for all by 2022´ requires an investment of over $2 trillion. And Modi´s ´Make in India´ has already received success with Japan´s $35-billion and China´s $100-billion investment plans. Facilitating clearance However, 467 projects worth Rs 23 lakh crore are still pending for clearance from the Project Monitoring Group (PMG). Of these, there are 57 projects where hardly any action can be taken. The good news is that 180 projects worth Rs 6.5 lakh crore have already been cleared and around 220-225 projects entailing Rs 11 lakh crore are under consideration.
Notably, when the domestic order book was drying up, some large companies focused on global markets. L&T followed this strategy to sustain growth. Although the margins in the global markets were a tad lower than domestic markets, the consistent inflow of orders kept the financial performance of the company on track. To sum it up, the dream of achhe din is very much alive in the market. And, as the industry looks forward to the new government delivering what it promised, India´s infrastructure kings share their experiences this year and recommendations for a smooth 2015, exclusively with CW.
RK Goyal Managing Director, Kalyani Steels Ltd
¨This has not been a great year from the customer side. The business did not grow in the automobile sector to which we are the largest supplier. Ditto for power, where we supply steel. We did not acquire any new projects as few orders were placed. Infrastructure projects have been announced but there is still time for orders to be placed for steel. That said, we see order inflow in the next six months to a year. At the policy level, there have been many reforms in labour laws to make for a more hassle-free environment. Also, bureaucrats and ministers in Delhi are much more accessible now. We are yet to see any result but things are moving positively. If we want rapid industrialisation, project clearances should become quicker. With this, investment will start coming into place, employment will be generated and the economy will be on the fast track.¨
Madhukar N Parikh CEO-VNR Rail & Business Development, VNR Infrastructures Ltd
¨As a company, we are focused on Railways, which is going pretty slow. The change will take place next year. Engineering, signalling and overhead are very different for Railways and the earlier government had clubbed them under a PSU called RVNL - Rail Vikas Nigam Ltd - formed in 2003. Railway employees are recruited into this and getting approval from them is challenging. If the new government looks into this area, it will certainly open up opportunities galore. Also, there have not been many changes as the Railway Budget was a mere carry-forward one. Changes will come in the next Budget. We definitely need a policy change. We are expecting the Railways to start the redevelopment of railway stations, metros and monorails and give ownership to private companies. Let´s hope the Budget will be realistic.¨
Vipin Sondhi Managing Director & CEO, JCB India Ltd
¨The industry is down by 20 per cent and JCB is down less than the industry. We have gained in market share. We sell a lot to small contractors and individuals, but the large contractors are now coming back. They have gone through a difficult time. Going forward, we see 2015 translating into large contracts with big contractors. A lot of opportunities have come in from roads and real estate. Changes in policy will impact the people who actually construct. Policy changes in the environment are making it easier for constructing linear projects. I would recommend only execution, execution and execution to the government. This means take the top 15 nationally important projects and execute them. And the wheels will start rolling. All small, medium and large projects will start moving. People want to see whether we can implement projects.¨
K Subrahmanian Vice Chairman & Managing Director, Afcons Infrastructure Ltd
¨We had taken certain insulators from the negative swing; otherwise, the year has been brilliant. We get one-third of our business from outside the country and even in India we go only for selected projects. We have a light rail project in Mauritius that will take off in 2015. Hence, it was a balanced year for Afcons. But for the industry, 2014 has been a testing year. The government has to bring in some people for leadership to key areas, people who walk that extra mile and are not run of the mill. The government should take their solutions and implement them. Many projects are on the run. While there have not been any changes at the ground level, it is a wait-and-watch situation for the private sector.¨
Rajas R Doshi Chairman & Managing Director, The Indian Hume Pipe Co Ltd
¨The year 2014 has been satisfactory and we are growing at 25 per cent so far. There have not been any changes. We are living on the past orders of the last government. There has not been any action after the new government came to office. I do not know what is going to happen. The government has to spend a lot of money on infrastructure and remove bottlenecks like land acquisition, higher interest cost and higher inventories that are a big problem for the industry.¨
Somnath Bhattacharjee President & CEO, Material Handling Solutions Equipment & Project Solutions Business, TIL Ltd
¨As domestic demand remained quite stagnant, we focused on taking our business to the international arena. We have expanded our reach stackers business, and our market value has risen to 60 per cent. In our coal business and mobile cranes, we have grown in volumes. Compared to expectation and capacity, the growth is not in line. But we have worked on operating efficiency and delivery cycle. Although basic infrastructure was weak, oil and gas remained strong. The mine sector was low, but overall we have seen a marginal growth in volume. Some things on the policy side could improve TIL´s business and the construction equipment business. The root cause for projects not taking off was that the basic policy framework did not work. We have great expectations from the winter session of Parliament with bills such as the Land Bill and Labour Reform being taken up for approval.¨
Rajeev M Pai CFO, JSW Steel Ltd
¨It was a challenging year for the steel industry but JSW Steel witnessed profitable growth by 8-9 per cent. It is on track to maintain its guidance on volumes for the year. We work in a dynamic business model, with 25 per cent exports and have strong retail sales in the rural sector. Also, the company has collaborated with Japan´s JFE Steel Corporation, which supplies to large OEMs. There has been a focus on manufacturing and mineral resources allocation like coal and iron ore. We are looking forward to the Land Acquisition Bill. The year 2015 will be an extremely positive one. There may be a cut in the interest rates; this could result in a revival in the investment pipeline and we are eagerly looking forward to it.¨
AVN Raju Director, NCC
¨We could still achieve, despite the unpleasant situation. We are already executing one of the big projects in the power industry, and have taken an EPC of 1,320 mw valued at Rs 5,000 crore. At the policy level, we are expecting changes with the new government and believe that things will improve in the infrastructure and construction world for a greater future. In the construction industry, there are several rules and regulations for tenders, and we sincerely advise the government to follow the FedEx system that is being used worldwide.¨
Sanjay Bahadur Group CEO, Construction Chemicals Business, Pidilite Industries Ltd
¨It was a tough year, but we managed to grow. As we work on many small orders, if there is a growth in the overall business and more construction activity, our products are naturally consumed. The present is promising, but results are yet to come. However, the general energy level looks good. But it has not transformed into figures. This will take more time. Everybody will manage. I do not want to recommend anything.¨