Ajit Gulabchand, President, IFAWPCA, and Chairman & Managing Director, Hindustan Construction Company (HCC)
In an industry faced with innumerable challenges, the 40th International Federation of Asian and Western Pacific Contractors' Associations (IFAWPCA) Convention being held from January 06-09, 2013, in Kochi hopes to offer some solutions from the pool of knowledge of participating countries. This year's theme, 'Responsible Infrastructure', is a shared vision for building a sustainable future.Ajit Gulabchand, President, IFAWPCA, and Chairman & Managing Director, Hindustan Construction Company (HCC), elaborates on the convention and industry concerns in conversation with SHRIYAL SETHUMADHAVAN....
Please tell us about the theme at 40th IFAWPCA convention./b>
The idea of 'responsible infrastructure' is a much wider concept than environmental sustainability - the facility you build must also be socially sustainable. It must be affordable and have a cheaper lifecycle cost. The facility must be built on sound principles such as not using child labour, ensuring proper safety, practising health and occupational safety, and adhering to quality. It should also encourage social interaction.
In case of a dam, for instance, the whole idea revolves around producing electricity for people or using it for an irrigation system. So it has a social context. While you are working on it, you ensure you build the best facility that is permanent and does not cause continuous damage to the environment and encourages social interaction and appreciation across the board. That's what the word 'responsible' means in every way
What are the highlights of this year's convention?
One of the main features is the migration issue. We have a wide variety of people coming to live in our country. How are you going to build in a manner that satisfies all these people? Four hundred million people migrated to cities in Europe over a span of 1,000 years; but in India, it happened in 30-40 years. So the whole idea of responsible infrastructure involves incorporating this idea and elements into design, methods of construction and purpose of the facility. This convention is primarily about contractors from all countries coming together so they can meet and share experiences and form partnerships to work in any part of the world. No one company can deliver everything the client needs; forming partnerships by way of JVs or even subcontracts can go a long way in creating sustainable strutures. These conventions are of special interest to India as we have a huge infrastructure to be built.
Please name a few countries who will actively participate at the convention.
Australia is our partner country. Japan is very keen to participate. New Zealand, Singapore, Malaysia, Thailand, Vietnam, Cambodia, Burma, Korea are all a part of this event. We are also going to expand IFAWPCA beyond the present 16 countries. There are a lot of countries not being included in Asia that were a part of the old Soviet bloc. These countries, namely, Kazakhstan, Uzbekistan, Turkey, etc, will be included in the Asia and West Pacific regions.
What are the challenges Indian contractors currently face?
First, the growth rate isn't enough; therefore, given the capacity we have already built and are in the process of building, we do not have a visible enough order book.
The Twelfth Five-Year Plan talks about a trillion dollars worth of infrastructure to be built in five years. The fear is that this will remain only on paper because of what we have seen in the past two to three years. The anticipated order book has dropped sharply from $110 billion in the past two years to about $50 billion. Moreover, one does not see a commitment to implement these plans. Second, while the governance over procurement practices has improved considerably in the past 15-20 years, it still does not match up to world standards that encourage fair operational contracts. There are far too many disputes and an endless chain of appeals. The government needs more transparent policies for procurement, environment clearances, building rules and standards. Third, not enough is being done to build capacity. For example, we are one of the largest construction forces in the world with over 35 million people but 99 per cent of these are untrained. We are the only country that puts such a large untrained labour force to work. Now, the government has launched skills development training but this is just the beginning. It is a public-private partnership (PPP), which is good, but it is a huge task and we have lost a lot of time. Lastly, I believe that, structurally, India is governed far too centrally. Too much is dependent on Delhi. Of course, now the states are considerably independent and demanding more rights. But we still do not have mayors that are properly elected and given all powers. Whether it is a big city like Mumbai or a small town like Ratnagiri, we need to have governments so that infrastructure and housing are delivered well. When city and town governments take up this responsibility, they will be held accountable for all infrastructure projects. Owing to centralisation in Delhi, we have reduced that to de-licensing. We need more responsible, local governance.
How would you rate the Indian construction industry compared to the global industry?
Our construction industry has the least skilled work force, the result of which is low productivity. An old MIT study shows that the productivity of American workers is 100; that of the German and Japanese is about 52; and India and Egypt stand at about five. Second, as we were a closed industry, we have not adequately absorbed best practices. Now that we have opened up, we have caught up considerably on certain areas like roads, hydro projects, etc. Now, of course, if you see every small building coming up in Mumbai,you see good concrete finishes, fast movement and efficiency. But we need more modernisation and higher productivity. Also, as an industry, the whole financing structure is still dominated by state-run banks. We require very long-term funding in equity and debt, say 20 and 30 years.
It is not easy for those doing organised work in India. There are many challenges all the time and so much is left to last-minute decisions and delays. Indians are good at adapting though. So fundamentally, the very entrepreneurial nature of our people keeps it alive. But it does lag in comparison to the rest of the world. We need to absorb the tools required in terms of skilled workforce, a more efficient contracting system and better technology. Further, we need more discipline, more effective standards, and a better understanding of them. We must imbibe and encourage a culture of safety.
Safety - could you elaborate on that?
The Japanese, Europeans and Koreans have inculcated safety training habits not just at an individual level but at a more encompassing cultural level. We must practise such efficiency, quality and culture of safety rather than shooting from the hip. The next problem is that the Indian construction industry is not adequately specialised. With specialisation, you improve skills and productivity and get better utilisation of equipment and resources, thereby increasing efficiency. India is a country of big and small general contractors. This must change. We need general contractors to do large contracts. We need experts to do systems integration with other specialised people. We need specialisation also to form that partnership to perform in the most efficient way. So this is the next step towards the modernisation of Indian construction industry.
Today, the industry also faces a major issue of land acquisition....
Land acquisition is a problem faced by those of us building infrastructure and it also affects the contractor even though he is not the owner of the facility as these issues stall projects and put money and manpower on hold. The delays create financial and other problems as well.
How does one get around the strenuous environment clearance procedures?
We need a deeper discussion on the subject of the environment and we must create objective, measurable standards so people know what is expected. Stringent procedures must be laid down in order to get a clearance. A strong committee of people, comprising people like Dr Pachouri, Dr Vijay Kelkar, Naresh Chandra, the former cabinet secretary, can set up the whole process as well as objective measures and create a good environment protection agency that will have a director-general accountable for governance. We have to build an immense amount of infrastructure and it must be sensitive to the environment. Mining clearances and procurement processes need to be addressed very well. In fact, they can learn from the contracting process of the construction industry that certainly has a superior process. We need to create a fast-track process to meet all demands and deliver it speedily.
You chair one of India's leading contracting companies. What are the issues faced by projects when it comes to financial closure?
There are two types: pure contracting, and build-operatetransfer (BOT), or the concession business. Some construction problems may also be faced by the concessionaire but these are slightly different problems. First, there is financial stress. Our industry has got into a financial crisis; the Government owes Rs 120,000 crore to the infrastructure industry and that has laid stress on them to return the money of the bankers. So there are problems because of a bad decision-making process to begin with. The structuring of construction agreements still has some flaws. There is a difference between lender's cost and the total project cost as derived by NHAI, for example. These things need to be resolved for people to feel comfortable with the idea of closing financially. There were no problems of closure two-and-a-half years ago. The practice of not paying enough, not settling issues and putting companies into financial stress; not having clear concepts of project financing; not having long-term bond systems for funding long-term infrastructure - these are all the reasons why financing is in trouble.
When we talk about a global economic slowdown, which Asian and Western Pacific country stands out in terms of fighting it?
There are different types of slowdowns. There's one in the US, Europe, Asia, Japan and China too. Each region is trying to tackle its slowdown and the reasons are slightly different from the other. For example, in China, domestic consumption is very low; while 70 per cent GDP is consumed in India, China consumes only 37 per cent. Because of its exports dropping, it has to expand domestic spending. Ours is a different problem; it is self-made. We focus extensively on wealth distribution rather than wealth creation. We could have done both. As a result, for eight years we sat on all those bills and reforms that would have helped all this to happen. We focused on adding to our subsidy bill and as a result, created a financial crisis for ourselves. Our reasons are completely different. Ours are inaction, not adequately selling reforms and reforms being brought into this country by stealth.