Tag Archives: Smart Cities

We are getting there

NITI Aayog has put forth a plan to turn India’s economy to reach a size of $7.5 trillion, (though targeting $10 trillion) or more than three times of what it is today, at $2 trillion. Implementation of GST, tax reform and ease of doing business (read the Cover Story) are all parts of the building blocks of this plan. And, they all seem to be moving on course so far. India is on the throes of a massive change. The change is not only limited to economy and industry but is also being instituted in social behaviour, and most importantly, in changing mindsets. Just look at what all is happening: Swachh Bharat, Digital India, Smart Cities, AMRUT, Affordable Housing, E-governance, E-Procurement, Make in India, Direct Benefit Transfer, Demonetisation, black money campaign, renewable energy thrust, UDAN, etc, and other social campaigns such as the Ujwala Yojna, Beti Bachao Beti Padhao and so on. This is a lot of work in so short a time and work is in progress.

The recently announced affordable housing scheme and Pradhan Mantri Awas Yojana or PMAY have seen the launch of over 350 projects to build about 2 lakh houses with a private sector commitment of investing Rs 38,000 crore. The cost of constructing these units will be in the range of Rs 15 lakh to Rs 30 lakh with an average construction cost of Rs 18 lakh per house.

Under PMAY-U, central assistance is provided to each beneficiary in the range of Rs 1 lakh to Rs 2.35 lakh. Of the 2 lakh houses, over 1 lakh will be constructed in Maharashtra, followed by 41,921 houses in the NCR; 28,465 in Gujarat; 7,037 in Karnataka; and 6,055 in Uttar Pradesh; among others. Cement prices have already reached pre-demonetisation levels on the back of demand coming from infrastructure and will firm further due to these housing projects.

GST is on track and is likely to cause another disruption for a quarter, but will soon bring great prosperity. Distressed assets of around $6.8 trillion sitting on books of the banks would also heave a sigh of relief as firms and funds like KKR, Lone Star, Kotak and Edelweiss are planning to mobilise their resurrection. It is estimated by experts that the capital required for the next four to five years to resolve distressed situations is about Rs 30,000 crore to Rs 40,000 crore, and it is already being provided for by NBFCs, PEs and international funds.

The PM completes three years on May 26 this month and a lot is on his plate. Fortunately, for us, his plans have accorded priority to infrastructure and while public spending is leading the way, the private sector is preparing to jump in the fray too. Recently, at a private charity function, I bumped into Sajjan Jindal, Chairman of JSW Group, and when I posed him a casual question on whether the private sector was ready to invest into the India story: “We are getting there,” he quipped.

Will February be transformational?

While the global outlook is disconcerting, it has brought in good tidings in the form of nearly $60 billion of savings owing to sub $30 oil prices. However, our stock markets indicate that the near-term outlook for India is yet to see a revival. The Sensex is at the same level as when our current PM assumed office. The manufacturing indices have slipped below levels that would have indicated a positive trend. The economy is on the mend but recovery is delayed.

According to reports on real estate trends, sales volumes dropped and new launches have plunged. Amid large-scale delivery defaults, slow sales and huge unsold inventory, residential real estate remained in the slow lane, like last year. Luxury real estate was badly hit, though the affordable housing segment did gain some ground with sales of residential units from Rs 50 lakh to Rs 1 crore, seeing maximum traction. However, the infusion of private equity into e-commerce led the boost of office space absorption to 3.5 million sq ft, the second highest after 2011, with rise in rents across cities, especially in certain segments in Tier-I cities. The year 2016 is expected to see a continuation of the increase in demand driven by IT and ITES.

Change is in the offing. The consumer movement has seen success in beating the dogmatic attitude of the super-rich-and-powerful club. Around a third of over 25 lakh apartments launched between 2008 and 2014 were delayed by at least a year, according to property research firm Liases Foras. Of the total space of 3.2 billion sq ft under construction across 25 cities, about 34 per cent of the space valued at Rs 165,064 crore (1.32 per cent of GDP) was delayed by over a year. But consumers are being empowered. Their ire recently saw the courts order the promoters of the Unitech Group to be held behind bars. The Competition Commission of India (CCI) has even filed first information reports with the police where fraud was involved. Although it has been provided a foreign equity bonanza, waiver of entry and exit barriers, raising of approval limit for the Foreign Investment Promotion Board limit from Rs 3,000 crore to Rs 5,000 crore, doing away with area restrictions of 20,000 sq m and capitalisation of $5 million, besides allowing investment repatriation before project completion with three-year lock-in, governance is what this sector clearly lacks. The real estate bill will provide some correction.

On the infrastructure front, Nitin Gadkari, Minister of Roads & Highways, said the pace of road building, which is at 18 km a day at present, will reach 30 km a day by March and projects worth Rs 1.5 lakh crore would start by March. While he did make tall claims early on, one has seen there is some semblance of truth in his claims. He has taken on the 19 stuck highway projects and is finding solutions. The projects have been grounded owing to various problems, including cost escalation, non-viability and rows between bankers and concessionaires. The cost of these stalled projects, which are threatening to pile up the non-performing assets of banks, is at least Rs 30,000 crore, with some of them having cost escalation of up to 30 per cent.

The Budget throws open yet another opportunity for the government to undertake transformational reforms. This does require a switch in policy, which can trigger a landslide win. The black money policy has been a dud and even the gold bond does not seem to have the muscle to restrain imports that are unnecessarily draining our forex reserves.

Activity will pick up pace in February, beginning with the smart cities kickoff. The US Smart Cities Infrastructure Mission will be at the 3rd SM@RT CITIES SUMMIT on February 10-11, followed by several delegations converging for the ´Make in India Week´ in Mumbai. It is likely that we get some large commitments from international companies to source manufacturing from India. Finally, it will be over to the FM who will reveal what the Budget holds for the year ahead – I only hope I get to hear the word ´transformational´ more than ´deficit´ during the Budget sessions on TV.

Don’t buy land for infrastructure, lease it

The Land Acquisition Act has been constantly running into rough political weather every now and then. And if the government caves into the loud opposition demands, many infrastructure projects (including smart cities, rural electrification programmes and industrial corridors, to list a few) will be stuck in limbo. However, the solution lies in turning the idea on its head. Land for such projects need not be bought but should be taken on a 99-year lease. Apart from the rent that would accrue to the land owner some token compensation should be made such that the land owner can buy a piece of land elsewhere for agriculture activity and he should also be given a share in the super-profits on the project to bring the land owner an upside. This solution can ensure that the capex for such projects is contained, the land owner continues to get rent for subsistence, he does not end up destroying his wealth and capital and he can continue to be an agriculturist with another piece of land. Renting land for infra projects is a viable and practical solution. It will help save capital by:

  1. not requiring the locking up of a large amount of capital
  2. saving time in purchase and the entire process of land acquisition thereby fast tracking projects

Some industries already follow the model of leasing lands instead of acquiring it. Oil & gas extraction usually follows the model of leasing lands. Renewable energy projects such as Wind Power & Solar farms and Bio-fuel projects often lease the land from land owners instead of trying to acquire the land which could make the projects prohibitively expensive.

So lease land and release capex required.

 

#NewAgeIndia

One of the highlights of Barrack Obama’s visit to the recently concluded Indian visit was the stress that Obama laid upon recognising the focus that PM Modi laid on enhancing the ‘ease of doing business’ quotient in India. PM Modi has not only made this his mission but has also made an international commitment in improving a benchmark in bureaucracy by a huge margin. India currently ranks 142nd out of 189 countries in ‘ease of doing business’. India further ranks 184th in ‘dealing with construction permits’. Only five countries are worse than India in the red tape associated with getting construction permits. This also means that Indian construction companies are dealing with the world’s toughest market in obtaining construction permits. India further ranks 186th in ‘enforcing construction contracts’. With such a poor business environment, it is no wonder that our developers have experienced a harrowing time and are now laden with crushing debt while they struggle with permissions or are awaiting arbitration awards. The Jaiprakash Gaur Group has been on an asset fire sale with a view to paring the debt. Its debt it to the tune of Rs 72,599 crore and its debt to equity ratio stands at 5.16. GMR Infra, meanwhile, has loans worth Rs 45,041 crore with a debt-to-equity ratio of 5.87. Gammon India and Hindustan Construction Company have higher ratios of 19.26 and 15.06, respectively. It is not infrastructure developers alone that need to ease their financial pressure, banks too are saddled with a massive Rs 8.5 lakh crore in stressed assets, which forms about 14 percent of their total loan book, making it difficult for them to take any initiative in providing any relief.
There are only two ways out: Either FDI comes pouring in or the economy takes off. Both will take time. The PM has put the greatest efforts in first visiting all countries from which we can hope for a high FDI inflow and then holding a huge Vibrant Gujarat show and getting the biggest leaders including the US President to India. Having brought the spotlight onto India and pushing India’s readiness for business he has set the stage for FDI to flow into India. However kickstarting the economy would need public spending or a great incentive for entrepreneurs to pull out all stops for investing into their enterprises despite the current challenging business environment. For e.g. the PM’s ‘Make in India’ policy is likely to offer a huge bag of goodies to encourage manufacture of electronics. India imports 65% of the current demand for electronic products, most of it from China. So dire is the situation that, the country’s electronics import bill may well surpass its oil import expenses by 2020.While the demand for electronics hardware in India is projected to increase to $400 billion by 2020, the estimated domestic production could rise to $104 billion only, creating a gap of $296 billion, which has to be met through imports. India imported $31 billion worth of electronic items in 2013-14 of which $10.9 billion was accounted for by cell phones alone.
The economy is showing signs of a consistent improvement as evidenced from the HSBC PM indices. The rail freight by volume has improved by 5% over previous year. On January 15, the RBI cut the policy rate by 25 bps to 7.75%, the first cut since May 2013, before the monetary policy meeting scheduled on February 3. As per a report, the medium and heavy commercial vehicle segment, which signals improvement in the economy, is scheduled to see a volume growth of 13-17 per cent next fiscal and accelerate the CV sector, while LCVs will see only a marginal growth of up to 3 per cent.
The forthcoming budget is likely to be PM Modi’s big opportunity in propelling the economy forward on the back of concrete evidence of a revival. The vision of India is changing and every Indian needs to reaffirm his or her commitment to supporting the rebuilding a #NewAgeIndia.

ASAPP Media ( publishers of Construction World) are launching the 2nd SM@RT CITIES SUMMIT on February 17-18 at India Habitat Centre in Delhi. Register at www.SmartCitiesSummit.in
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