Why is India’s Infrastructure Trailing?
Over years, the list of profit-making construction companies has been shrinking. September 2020
The webinar began with presenter Pratap Padode, Editor-in-Chief, Construction World and President, FIRST Construction Council, welcoming the guest panellists to the session. The panellists included industry stalwarts – Arun Goyal, Former Special Secretary, GST Council & Former Member, Project Monitoring Group, Government of India; P Uma Shankar, Former Secretary, Ministry of Power, Government of India; Raghav Chandra, Former Chairman, NHAI; and Vijay Agarwal, Executive Director, Equirus Capital.
Said Pratap Padode, Editor-in-Chief, Construction World and President, FIRST Construction Council, on an opening note: “India has been spending Rs 8 trillion on infrastructure from FY2013-2018. Roads and power has been taking the lion’s share in India’s infra spending.”
Coming to the National Infrastructure Pipeline (NIP), Padode highlighted, “Of the total expected capital expenditure of Rs 102 trillion, projects worth Rs 42.7 trillion (42 per cent) are already under the implementation stage and about 19 per cent are under development. So, the critical ones are the projects worth Rs 32.7 trillion (32 per cent), which are in the conceptualisation stage – which is where the opportunities lie. Non-conceptualised projects of NIP are a huge opportunity.”
Said P Uma Shanker, Former Secretary, Ministry of Power, “The NIP is definitely aggressive in the amount to be spent in the energy sector. I expect the bulk of it to come in the renewable sector – Rs 9 trillion is to be spent there. For conventional, we do not have enough details in the NIP. Apart from the Rs 9 trillion, the rest would I think be spent on transmission and distribution.”
Further, added Arun Goyal, Former Secretary, GST Council, “Under the NIP, we find that little amounts have been set aside for social infra – just about 3 per cent. But there is now a realisation that more needs to be done in healthcare and the social sector.”
Padode went on to add, “There is a huge chunk that the private sector contributes. The PPP model is a successful step for economic growth.”
“PPP is a successful framework and can go a long way – but it needs good managers. We need private operators to be treated as partners, not as operators, and that has been missing in the mindset of some government missionaries,” said Raghav Chandra, Former Chairman, National Highways Authority of India.
He went on to add, “Some of our private developers – from 2010-15 took it easy and did not monitor issues effectively. Also, there was a wide scale diversion of funds to other projects. So the entire PPP framework earned a bad name. However, some developers who have been sincere and actively collaborated with the government have got their projects going and done really good projects.”
One big lock has been the litigation and the arbitration process. “The mechanism of resolving these issues needs to be much smoother,” said Padode.
“Yes, we have to resolve arbitrations as a systemic issue,” agreed Chandra. “We must reduce the number of arbitrations. We must accept arbitration decisions.”
Goyal said, “In India, we see investments happening in infrastructure, but the challenge is we see these mega projects facing time overruns and cost overruns. In infra projects, the quantum of decisions are huge, and when this delays, the projects delay.”
Specific to the roads and highways sector, Chandra added, “One of the key reasons why, in India, roads have been successful and unsuccessful is because of the Model Concession Agreement. While it is a modern framework, the rigidity and detailing build into it has become cumbersome.” Speaking about project delays, he added that the PMG and the PRAGATI have been helpful in executing projects. “These are useful areas of getting projects going.”
Further, when we talk about the prequalification criteria for bidding, Chandra goes on to add, “The life-cycle cost is a point which is already taken into consideration. Technical qualification of contractors and net worth of contractors and developers is also taken into consideration. The L1 is the simplest one but is not being followed. And this is something our Union Minister Nitin Gadkari is looking into.”
A major hurdle faced in the power sector is the availability of coal, Shanker shared. “Another issue is the lack of availability or interest of Discoms in looking for long term PPAs. Another major issue is the crash of distribution companies. A lot of efforts are being made, but that has not resolved issues of the distribution companies. Not all, but some of them are in difficulties.” Speaking about the renewable sector, he added that availability of land and the delay in getting land have been serious issues for the renewable sector, and that the government and states need to take positive ambitious steps regarding these. “We need to ensure that those getting onto renewable energy projects do not face these issues – of getting land in time, of getting money in time,” he added.
Money was never the challenge historically, for Vijay Agarwal, Executive Director, Equirus Capital. There are sectors doing well; allocation has been increasing consistently for various sectors. Railways and roads have seen a major allocation from the centre as the size of our GDP is also increasing. PSUs are also doing large investments. They are also available to leverage from the market. Long terms capital investors also see the opportunities. The capital is available. So, investment is not a challenge – government is.”
Where do the opportunities lie?
“The roads and highways sector is a great opportunity and urban infra is the biggest opportunity,” believes Chandra.
In the energy sector, “Transmission and distribution will be the areas where there will be a lot of opportunities,” according to Shanker.
Speaking about investments, Agrawal urged that we need to also create a mechanism to attract retail capital to infrastructure. “If we are able to create an additional chain for funding of infra projects – such as bond guarantees, INVITs, etc, it will help. We can also create suitable pension funds. If we are able to create a good system, it will solve issues.”
There is also a need for a mindset change at all levels – political and the public at large, highlighted Goyal. “Another mindset change required is at the grassroots level – government and bureaucrat level.”
Padode observed that FY2021-22 will be the golden years of infra spending. “We need to spend 8 per cent of our GDP on infrastructure annually. The project pipeline has to be constantly fuelled with newer projects,” he highlighted.
Finally, the webinar concluded on the COVID-19 or Coronavirus impact, to which Chandra said, “We are going to see a push back by a couple of months. I don’t see any construction happening until June. There will be about four months of disruption, or even more if things get worse – so that is 1/3rd of the year.”
On a concluding note, Padode thanked the esteemed panellists for being part of this extremely successful webinar on the subject.
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About this webinar: The Supreme Court on March 17 held that the Architects Act, 1972, does not prohibit individuals not registered under the Act to undertake the practice of architecture and other cognate activities. The Court has now held that while Section 37 does not bar a person not registered under the Act from carrying out activities related to the profession, it prohibits an unregistered person from using the title of architect.
India has around 8,000 cities and towns, 600 districts besides over 400,000 villages, hence, even if one qualified town planner is to be deployed in these towns, we do not have the sufficient number of town planners. In addition, to meet this shortage, the job is currently being done by the non-qualified planners, resulting in haphazard planning. Can this be an avenue for solely qualified architects?
Presenter: Pratap Padode, Editor-in-Chief, Construction World and President, FIRST Construction Council
Guest panellists: Dr Niranjan Hiranandani, CoFounder and Managing Director, Hiranandani Group; Subodh Dixit, Executive Director-Engineering and Construction, Shapoorji and Pallonji and Company; Rajiv Mishra, Principal, JJ School of Architecture; Sanjay Puri, Principal Architect, Sanjay Puri Architects; Mahesh Mudda, Managing Director & CEO, NCCCL; and Habeeb Khan, President, Council of Architecture.