Category Archives: Editor Speaks

Why Public Works needs to work for private!

Have you noticed that the size of project execution has grown manifold? New projects worth Rs 1.95 trillion were announced in the January to March quarter, up from Rs 1.20 trillion in the previous quarter. The capacity of companies in delivering larger projects has expanded. Earlier, we would rarely discuss a few mega projects concurrently in progress. But now, we have the launch of the Rs 167 billion Navi Mumbai International project; the finalisation of 18 bidders for the Rs 460 billion Mumbai Nagpur expressway for which work is expected to commence this September; launch of the Rs 79 billion fourth container project at JNPT to be operated by Singapore ports – all have raised the bar on value, scale and size. However, the construction sector’s share in India’s overall gross value declined to 7.4 per cent in the financial year 2017-18 (FY18) from 9.6 per cent in FY12 owing to poor demand in the real estate sector and lower capital expenditure. Essentially, private sector spending, which contributed a big chunk in infrastructure, has remained shy, and public spending purses have opened to drive the momentum.

The government has finally recognised this imbalance and the GST council is likely to reduce tariff from 28 per cent to 18 per cent for paints, cement, plywood, plaster, etc, later this month to give a fillip for building materials. The PMAY drive to build ‘Housing for All by 2022’ has Rs 600 billion being deployed to build 12 million houses with 0.3 to 0.5 million houses being built every month! Recently, the consortium of Tata Projects, Capacit’e Infraprojects and CITIC Group has been awarded a Rs 117.44 billion project by the Maharashtra Government for redevelopment in Mumbai. This year is all about stepping up awarding of contracts and expediting execution and we are likely to see results of construction companies improve. Non-clarity of our tax laws has been a major reason for litigation and corruption. This has helped the legal profession but paralysed our economic growth. While our ranking in the Ease of Doing Business improved to the 100th position among 190 countries, we are still ranked 119th in paying taxes, 164th in enforcing contracts, and 181st in dealing with construction permits.

Contractors are yet to be compensated by the Public Works Department (PWD) of various states for GST compensation on rates reduced from 18 per cent to 12 per cent for government contracts. Since, Tier-II and Tier-III centres are driving growth in aviation, automobiles and e-commerce, the 13th Construction World Architect & Builder (CWAB) Awards are going “Regional” too. Having completed Kolkata, CWAB is concluding its ‘Regionals’ in Pune, Bengaluru and Delhi and recognising talent all round. Get set for CWAB 2018 scheduled on 12th September in Mumbai.

Check website for more details: www.CWABawards.com

The Tepidity Hangover

While most agencies are speculating on the estimated GDP growth rate for India and the fact that oil is a big worry for our financial health, not one is able to capture the mood of the economy despite the numbers. Are we well past the painful period in the economy? How long do we have to wait to see the green shoots seen by some (but not most)? The answers are at best befuddled. So, let’s start looking at what is definitely the positive part of what is visible.

The Insolvency & Bankruptcy Code (IBC) has brought all delinquent cases on the auction table and bids are at advanced stages. Having bidders indicates that the propositions are attractive. We have the case of Bhushan Steel, which has helped bankers redeem their loans by curtailing losses that would have been caused if the company had gone into liquidation. Bhushan Steel would have fetched only Rs 140 billion if liquidated, but Tata Steel has paid Rs 325 billion for the 5-million capacity plant 150 km away from its Kalinganagar plant. With most banks having already made provisions for 50 per cent of the total Rs 560 billion Bhushan owed them, proceeds from the sale are seen boosting their profitability.

What’s remarkable in this case is that while the liquidation of the company would have fetched Rs 140 billion, the transparent process of auctioning the company has been able to restore a better realisation at nearly three times this value. Further, the asset is getting a bidder that will restore two-third of the funds lent to an active status. In the erstwhile BIFR regime, this asset would have gathered rust until the plant became inoperable and the workers would have lost their means of a livelihood. If the IBC can similarly convert many of these stressed assets into earning assets despite a haircut, it would stem the loss of jobs and save assets from decimation.

On another note, subsidies to the poor in India would not reach the intended beneficiary and would be diverted owing to poor governance. Today, direct benefit transfer and Aadhar linking have helped save Rs 830 billion. What’s more, the housing shortage in urban areas is now settled at 10 million homes, while the government wants to build another 10 million homes for the rural poor by the end of 2018. Houses are being constructed at breakneck speed, with L&T, Shapoorji and NCC being some of the companies picking up large contracts. Further, mega infrastructure projects like the metro, trans-harbour link, coastal road, airports, Bharatmala, Sagarmala, railway stations, freight corridors and bullet train will continue to face execution challenges – but remain our biggest prospects. Grab them and get going or you will miss the opportunity under the hangover of tepidity.

Quality over quantity

Oil, the single biggest factor that helped the government manage the fiscal deficit, has climbed from its advantageous position to well over $75. Even as GST is gaining stability, the E-way bill has caused feathers to be ruffled again. Not only are small companies having to contend with compliance changes a bit too often, there are certain anomalies that require clarification. GST for government contracts has been brought to 12 per cent while GST on private contracts is at 18 per cent. The only good news on the macro front is that a normal monsoon is expected.

However, the outlook is positive for 2018-19. Roads and highways are gathering pace with Union Minister Nitin Gadkari laying the construction target for 2018-19 at 45 km per day. He has also raised the award target to 20,000 km for the current fiscal, up 25 per cent over the previous year.

Year         Roads awarded (km)    Roads constructed (km)
2017-18        17,055                           9,829
(Actual)
2018-19         20,000                           16,420
(Target)

Mumbai’s Development Plan (MDP) 2034 has been released after revisions and has hiked the FSI in the island city to 3 from 1.33 for residential, and 5 for commercial.
In the suburbs, FSI has been raised from 2 to 2.5 for residential and from 2.5 to 5 for commercial. MDP 2034 proposes to unlock 3,700 hectare of public and private land currently tagged as a no-development zone (NDZ) for the construction of 10 lakh affordable homes.

While the unlocking of the land will be from no-development zones, FSI has been enhanced in the island city, which is landlocked. This is likely to put severe pressure on the current infrastructure. While the metro-rail should ease traffic congestion bringing enhanced capacity to public transport, the lack of any build-up in capacity in water, sanitation and waste management will throw the city into an accelerated pace of decay.

The ban on the construction of new buildings, too, was recently lifted by the Supreme Court for six months, with conditions. The ban, which held up construction projects worth Rs 20 billion, had been granted as landfill sites were saturated and developers and contractors were dumping debris all over the city.

The above impetus for construction can help the industry exponentially, provided it also enables its key actors: The workers. With only 4 per cent of the current 32 million construction workers skilled, obtaining high productivity through mechanisation and use of advanced tools remains a pipe dream. An unskilled force will set us to lose qualitative aspects in the quest to chase quantitative targets. Our cover story unravels the pitfalls ailing the industry and what it needs to do to muscle up!

The sustainability challenge

Indian architecture has been decorated with its crown jewel BV Doshi being honoured with the Pritzker Prize, making him the first Indian ever to have received this honour.

Charles-Édouard Jeanneret, known as Le Corbusier, was a Swiss-French architect, designer, painter, urban planner and writer, and a pioneer of what is now called modern architecture. In 1950, Le Corbusier laid the master plan for Chandigarh. Balkrishna Doshi (BV Doshi), born in Pune on 26 August 1927, is one of the last living architects to have apprenticed with Le Corbusier, and has built low-cost housing and public institutions, such as the Centre for Environmental Planning and Technology (CEPT), IIM-Bangalore, the Aranya Low-Cost Housing, and Tagore Memorial Hall. In fact, the Aranya Low-Cost Housing project, located 6 km from Indore, was built at Rs 100 million way back in 1989, which also won Doshi the Aga Khan Award for Architecture in 1996.

The master plan for this had taken several aspects of sustainable living into consideration in a balanced manner; several considerations taken into account are extremely unique to the design and relevant to the concerned income group.

For instance, the building’s height-to-street width ratio ensures shade to streets at all times except when the sun is overhead. Concepts like these remain alien to several planners even today. Further, Doshi was significantly involved in the design and planning of the city of Chandigarh.

For his part, Doshi has said he owed the prestigious prize to his guru, Le Corbusier. My works are an extension of my life, philosophy and dreams trying to create a treasury of architectural spirit.

I owe this prestigious prize to my guru, Le Corbusier, he said in a statement thanking the Pritzker jury.

Indeed, planning a sustainable habitat is the challenge urban local bodies face as they grapple with developing smart cities. While the progress on projects may be slow, the brilliance of some of the torchbearers of this mission is sure to inspire and revive this profession. Despite our rich heritage and knowledge, why has India remained poor in offering the best to architecture in the context of modern urbanism? Why are we not learning from the examples of our own past? Nearly a hundred years ago, Jamshedpur was created as India’s first planned smart industrial city; recently, at a function, Tata Group Chairman N Chandrasekaran promised to turn the city smarter.

All considered, as our nation builds, the construction community must tread carefully. While we provide livelihood, we must train, administer and manage efficiently. Project management, skill training and use of technology are truly the guiding principles today.

Cheers to tomorrow!

Building Smart

According to McKinsey, construction holds the dubious honour of having the lowest productivity gains of any industry. The reasons attributed to this include continued use of labour instead of technology; lack of consolidation; and the fact that builders are still averse to using technology even though architects increasingly espouse it.
Technology is becoming key: The MoRTH is trying to escalate the pace of execution from 25 km to 40 km per day; the Prime Minister’s PRAGATI project, where he reviews projects worth Rs 9 trillion, is regularly laying stress upon speed of execution of metro projects, power plants; and there is a race for implementing affordable housing projects in line with the PMAY, for which incentives are being provided to developers and buyers.

In fact, L&T, Shapoorji Pallonji and NCC have qualified for a number of such projects and these are being executed using technologies like MIVAN. Design and engineering, too, are gaining importance as cities are considering master planning, which will bring tools of urban planning into play. Pre-engineered buildings, prefab and shuttering systems are being deployed like never before. Road building companies are completing projects to earn bonuses by advancing completion deadlines. What’s more, the smart cities mission has advocated the use of technology in planning, administering and maintaining assets for cities. This has encouraged the use of IoT devices, GPS systems, RFID, digital systems, advanced CCTV, Wi-Fi, waste-to-energy management, tracking devices, data management, e-governance and so on.

With the advent of technology comes the need for capacity building, where procurement, engineering, architecture and design departments need to upgrade themselves. Inability to upgrade these skills will lead to flaws in bidding documents, specifications, withdrawal of tenders and failures in generating interest in tenders. This, in turn, would lead to delays in project execution. (Delays in projects cost our nation over Rs 500 billion per annum.)

Clearly, the world is changing and India is transforming. Globally, 3D printing is being used to build flats. Modular buildings, like the one built by a Chinese company that built 57 stories in 19 days, are setting new benchmarks. Just as smart phones are being sold all over India even though so many parts of the country do not have access to electricity, we will have to pursue the dialogue to convert India into a smart nation even though gaps exist in basic delivery of services.

Do visit SM@RT URBANATION on March 22-23, 2018 at HICC, Hyderabad and experience, observe and connect with the smart solutions that are changing our lives – and our nation.

All eyes north!

Finance Minister Arun Jaitley aggregated infrastructure under a single umbrella and drew attention to its importance during his Budget address stating, ‘Our country needs massive investments estimated to be in excess of Rs 50 lakh crore in infrastructure to increase growth of GDP, connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways, and provide good quality services to our people.’

The budgetary expenditure on infrastructure for 2018-19 is being enhanced by Rs 1 lakh crore to Rs 5.97 lakh crore against an estimated expenditure of Rs 4.94 lakh crore in 2017-18.

The Prime Minister’s PRAGATI initiative has been established to fast-track projects worth Rs 9.46 lakh crore. The Budget has provided for plans to complete over 9,000 km of National Highways in 2017-18 – this will mean 25 km per day of construction which is more conservative than what Nitin Gadkari told us in an interview last month.

The Railways’ capex has been pegged at Rs 148,528 crore; 4,000 km of the rail network has been targetted for electrification, 600 stations are being developed, and elevators are being provided to all stations with over 25,000 footfalls.

As for smart cities, 99 cities have been selected with an outlay of Rs 2.04 lakh crore, of which projects worth Rs 2,350 crore have been completed and projects worth Rs 20,852 crore are under progress. State-level plans of Rs 77,640 crore for 500 cities have been approved. Water supply contracts for 494 projects worth Rs 19,428 crore and sewerage work contracts for 272 projects costing Rs 12,429 crore have been awarded.

Expectedly, rural India, too, drew funds in gigantic proportions with a collective amount of Rs 14.34 lakh crore. The Namami Gange programme is on track with 187 projects sanctioned for river surface cleaning, rural sanitation and other interventions at Rs 16,713 crore; of this, 47 projects have been completed and the rest are at various stages of execution. Significantly, all 4,465 villages on the banks of the river have been declared open defecation-free.

The seriousness of envisioning an inclusive society seems apparent in the Budget, which attempts to put ‘its money where its mouth is’. The government has identified 115 aspirational districts for improvement in social services like health, education, nutrition, skill upgrade, financial inclusion and infrastructure, like irrigation, rural electrification, potable drinking water and access to toilets, at an accelerated pace and in a time-bound manner. Thus, infrastructure continues to remain the driver of the growth that India needs to sustain its demographic dividend.

However, some concerns remained unaddressed.
1. Private capital has remained elusive as the government has made efforts to revive the mojo in the economy. Besides reducing the tax rate for companies with turnover less than Rs 250 crore from 30 per cent to 25 per cent, there is no impetus provided. Section 32 AC and (1A) provided a deduction of 15 per cent of cost of new machinery investment made by a company from its profits subject to tax, where the the investment was more than Rs 25 crore. This facility has not been extended beyond assessment year commencing April 1, 2018. Even though this may not have elicited response in the past since 2015 when section 32AC was introduced, the time is ripe for more companies to use this benefit as the economy has begun responding positively now.

2. Also, costs are rising: Raw material like sand, which was earlier available at Rs 3,500 per truckload in 2014 cost Rs 35,000 per truckload in 2017; while a cement bag, which cost Rs 270, is being sold at Rs 330 per bag upwards. Labour costs in road construction have increased almost 50 per cent in the past three years.

A 20-22 per cent hike in iron ore prices announced by state-run miner NMDC in early January has pressed the cost accelerator further. Steel prices have also gone up from the earlier Rs 34,000 per tonne to Rs 47,000 per tonne. In cost index data issued last June, the index for labour cost was at 185, compared to 110.2 in April 2014! (Labour accounts for around 8-10 per cent of road construction cost.)

Further, the Budget has eased tax rates for companies with a turnover under Rs 250 crore to 25 per cent (from 30 per cent earlier). But given the cost pressure in a scenario of slow uptake on demand, there should be more emphasis on quick disbursement of funds under public projects. Public-sector units must step up their expansion plans. The disinvestment target of Rs 80,000 crore set for this year will ensure that more public-sector units come in for dilution, improving efficiency in the process.

In light of the above, the Finance Minister has kept up the momentum from last year-s narrative and continued the push for infrastructure. The results are bound to begin to emerge as projects begin to be executed. Standards of accountability have been stepped up – assurance, indeed, that the green shoots we see emerging will propel us northward.

2018: A Watershed Year?

‘Disruption’ was an oft-used word in 2017. Sometimes it was used when describing a phenomenon that turned an existing business model on its head, as Uber and Airbnb did. But more often than not, it was used when wishful thinking was allowed over logic, or when no clear solution was visible.

In essence, disruption represents a desire to change the status quo. Jio has challenged the status quo, but then it has deep pockets. Meanwhile, HAM tried to be a game-changer but did not get the desired results. The smart cities mission took on urban rejuvenation through inspiration – but it has achieved limited success.

That said, land pooling by Andhra Pradesh proved to be an intelligent solution. And, the Insolvency and Bankruptcy Code has been a game-changer. It is addressing the need to revive assets that have potential for productivity but need some respite. Assets changing hands will ensure that they do not lie idle and rot. Putting them to use enhances the GDP.

In the construction sector, too, consolidation is the name of the game. Stressed owners are selling prime assets and seeking a new lease of life. New buyers are seeking revenue earning assets at good value. This allows a more liquid market in trading revenue-yielding assets such that the investor has an exit route and can free up capital in engaging with new opportunities.

Our cover story sets the tone for the year 2018 as Union Minister Nitin Gadkari spells out his plans for Bharatmala and Sagarmala with timelines and investments. Gadkari’s commitment to work and penchant for numbers and details are legendary. After meeting our editorial team at 7 am, he continued the discussion through his personal grooming process and then set out for the airport! He has a challenge ahead of him as he revs up to accelerate the road construction per day rate.

Indeed, the year ahead is likely to be a watershed one for the construction industry. Here’s why:

  • The GST effect has stabilised and demand is limping back.
  • The demonetisation wounds have healed.
  • Ease of doing business has helped ease regulatory hurdles.
  • The Insolvency & Bankruptcy Code has helped revived several projects.
  • Credit disbursement has picked up and private-sector investment is likely to revive.
  • Uttar Pradesh, Haryana and Gujarat are likely to expedite their projects.
  • There will be ample provision for big-ticket infrastructure projects as next year’s Budget is likely to be completely populist.
  • Maximum contracts will be awarded in FY2018-19 so that they are secured before the election code kicks in by the time of the next Budget.
  • In other news, SM@RT URBANATION opens on March 22-23, 2018, in Hyderabad. Over 25 city officials will descend to seek knowledge on the latest technological smart solutions for cities at the two-day summit and expo, including an evening of awards.

To know more, check out www.SmartUrbanation.com.
And don’t forget to keep your eyes on CONSTRUCTION WORLD on the web and print – we’ll keep you up-to-date on every opportunity so you can stay ahead!

Getting Back on Track

GST rate reduction from 28 per cent to 18 per cent has provided a breather to the construction equipment industry. Although 15 per cent of items would still be at 28 per cent, the major grouse has been addressed. That said, as many as 42,710 units were sold between January and September this year, against 37,346 units in the same period in the last financial year. Just this year, the number of units sold has equalled the prior record of 70,000 units sold during 2011. The industry has grown by 19 per cent in Q1 and 22 per cent in Q2 except for the 35 per cent dip in July owing to GST implementation, according to ICEMA reports. With an eye on growth of over 25 per cent, the construction equipment industry is gearing up for EXCON 2017, to be held from December 12 to 16 in Bengaluru, spread over 260,000 sq m. Although real estate has been tottering, projects like Bharatmala Pariyojana and metro-rail projects across the country are fuelling the revival alongwith irrigation and urban rejuvenation projects.
There is a move to bring real estate under the GST ambit. However, the present constitutional amendment did not cover real estate and stamp duty continues to be within the domain of state tax. Several states may not be ready to part with stamp duty and therefore legalities are being explored. Even currently, as land is an immovable asset, the industry has been given 33 per cent abatement on the 18 per cent GST. Therefore, the effective charge on the sector, for property under construction, is now 12 per cent as against the listed 18 per cent. A further effect of input credit would bring the incidence down to 9 per cent or so. There is no GST on completed projects as they are considered immovable assets.
The unsung success of the Pradhan Mantri Gram Sadak Yojana (PMGSY) needs to be highlighted too. The highest-ever construction of 130 km rural roads per day has been achieved under the PMGSY, leading to an addition of 47,400 km of PMGSY roads in 2016-17.
PM Narendra Modi is planning to spend an additional $14 billion under this scheme by March 2020; about Rs 1.4 lakh crore has already been spent under the programme. The cost will be shared in a 60-40 ratio by the federal and state governments.
Logistics has now been provided infrastructure status, allowing the growth and expansion of this sector at easier financial cost, which can help in distribution and access of goods across the country. This will compliment the rollout of the GST.
Even though the second quarter of 2017-18 has had insipid financial results with the net profit of 1,300 BSE companies declining by 3.54 per cent from the same quarter the previous year and net sales rising 7.39 per cent during the same period, the periods ahead will improve as the base effects of demonetisation and relaxation of the GST effect will trickle in.

Stage Set for Revival?

As the GDP figures of 5.7 per cent appeared in the press, the murmurs began. GST was already making lives difficult for the traders and businessmen, and the ghosts of demonetisation had not completely vanished yet. The evidence of the economy sputtering emboldened the critics and turned the loyalists into skeptics. The government too moved at an amazing speed having realised that the wolves were beginning to bay for their blood. Establishment of the PM Economic Council was announced, and then, within a fortnight, a massive infusion of reforms was launched.

The Rs 6.92 trillion road network of 83,677 km, on the back of the GST reform, can be a potent economic multiplier in times to come. The road construction push includes the Bharatmala Pariyojana with an investment of Rs 5.35 trillion to construct 34,800 km. In addition, Rs 1.57 trillion will be spent on the construction of 48,877 km by NHAI and MoRTH. That said, NHAI has been made the nodal body to ensure timely execution. Financing is innovatively being raised by monetising road assets worth Rs 34,000 crore from 82 operating highways under the TOT model.

Further, the bank recapitalisation plan of Rs 2.11 trillion over the next two years, in a bid to clean banks’ books and revive investment, is a timely move. With this, the projects that will be put to bid can be funded by banks giving a boost to credit disbursal, which has fallen abysmally low.

Besides roads, the next biggest business opportunity has become the Metro-Rail project execution. Over Rs 2 trillion of business is up for grabs over the next few years with Mumbai Metropolitan Region (MMR) itself contributing Rs 1.5 trillion. Metro projects with a total length of 370 km are operational in eight cities. Further, metro projects with a total length of 537 km are in progress in 13 cities. New cities acquiring metro services include Hyderabad (71 km), Nagpur (38 km), Ahmedabad (36 km), Pune (31.25 km) and Lucknow (23 km). Last month, the government introduced a New Metro Policy that focuses on giving clarity on the development of projects, collaborations, participation, standardising norms, financing, and creating a procurement mechanism to implement projects effectively.

Although the timing of the announcements may be scheduled to ensure that the economic agenda reaches a crescendo just before the elections, the forthcoming calendar year 2018 can be extremely rewarding with most contracts getting to fruition during this period.

After a long hiatus, the stage seems set for a revival and if the land acquisition hurdle can be overcome, we are headed for a frenetic pace ahead.

Can India bite into the $ 680-billion EPC market?

The Government has recognised that the economy is suffering and needs a strong booster dose – placebos just won’t work. Today, all the ministers are brainstorming over revitalising the economy. For our part, CONSTRUCTION WORLD, along with Foundation of Infrastructure Research Studies Training (FIRST), took up the challenge and presented Union Minister of Commerce & Industry Suresh Prabhu with solutions to inject adrenaline into the economy. The overall intent is evident: bring in foreign exchange, enhance employment, contribute taxes and plan for long-term positive development for the country.

One of our solutions is to strategise to attract the ‘engineering research and design’ industry to India. This $ 680-billion industry is projected to move $ 170 billion – 25 per cent of total revenues – to Asia. Companies like Bechtel, AmecFoster & Wheeler, Black & Veatch and others are based in India, employing thousands of engineers creating engineering designs for complex multibillion infrastructure projects around the globe. This brings in foreign exchange, tax payments and employment. In fact, India has a talent pool of nearly 500,000 engineers graduating every year; such companies can help boost their skill sets and hone them as worthy assets for the country’s future technical talent pool. The stakes are high-$ 170 billion as mentioned above – and India should stake a claim. Back home, we have such skill sets in public-sector companies like Engineers India, RITES, IRCON, MECON, Engineering Projects, WAPCOS, and so on. Going forward, our EPC companies can create SPVs with such projects to forge future alliances as the home infrastructure market opens up to these global giants from the design and engineering space.

Our recent exercise in analysing India’s Fastest Growing Construction Companies has thrown up new names into the orbit that have grown geometrically over the past three years. These have shot to challenge the erstwhile fastest growing companies, indicating that new money has found its way to supporting companies that do not carry ‘legacy baggage’. Our jury comprising India’s top three rating companies debated the merits of excluding companies on grounds of questionable governance practices; therefore, some companies had to miss their spot of glory. This issue, bearing an element of surprise, we also present the nominees of this exercise. In our view, to be nominated is an important milestone in itself.

Early this year, CONSTRUCTION WORLD launched a new logo that intended to depict the increase in mechanisation, scale of infrastructure projects, project management expertise and adoption of technology. After scouring over the responses and suggestions received, we have conceded that our old logo stands tall with its leadership image well-entrenched in the minds of our readers and followers! Therefore, we have decided to bring it back amid the festivities of the month. On behalf of the entire team, I wish you all Happy Diwali and a prosperous new year!