Tag Archives: FDI

Waiting for ´Udta´ India

On June 25, exactly a year after the Smart Cities Mission was launched, Prime Minister Narendra Modi launched 84 projects from 20 selected cities that collectively aggregate to Rs 2,000 crore. Standing on stage along with the Union Minister of Urban Development, the Chief Minister of Maharashtra, and the Union Minister for Environment, with the Chief Ministers of Andhra Pradesh, Rajasthan and Odisha on video conference, he lauded the efforts of the winning cities and thanked the citizens of these cities for their participation in the challenge that led to the selection of the cities. The PM has not just launched several schemes for the long-term development of the nation but ensured that they are on track by reviewing operations periodically. His reviews send a shiver down the spine of the ministers as he looks for progress with an eagle eye and has the memory of an elephant!

´Brexit´ has heightened the volatility of global business even while our PM has enhanced India´s engagement with global leaders such that our voice is heard over several others. The Indian economy is on the mend as stated in this column and in our previous issues; even the economic indicators are turning positive. India needs to create a million jobs while it is just managing to provide for half that figure. FDI in 2015-16 has been a record $63 billion and now nine more sectors have been opened to additional liberalisation, with up to 100 per cent under automatic route, like defence, pharma, cable networks, mobile phones, airport, air transport, broadcast carriage services, and so on. Terms have been eased for food processing and retail. This is the second major overhaul of FDI rules in seven months.

In November, the government eased norms in 15 sectors. A Rs 6,000-crore package has been passed for the textile sector, aimed at generating 10 million jobs over the next three years and improving the sector´s global competitiveness. All these measures are aimed at creation of employment opportunities and to cope with the gap in providing opportunities for our country´s youth.

India needs to fill the huge infrastructure gap, which requires over $1.5 trillion in the next 10 years. Acceleration in construction of road projects has yielded twin benefits: Injection of immediate liquidity into construction projects and the benefit of the multiplier effect caused by acceleration of trade owing to connectivity between cities, towns and villages. This is being stepped up with a target of 10,000 km for 2016-17.

Further, NHAI has prepared a grid of 27 horizontal and vertical national highway corridors at a distance of every 250 km crisscrossing the country. All these stretches will be of four lanes. The total length of these corridors, including ones such as Kanyakumari to Srinagar, Porbandar to Kolkata, Surat to Paradip Port, Rameswaram to Dehradun, and Mangalore Port to Chennai Port, is about 36,600 km. Out of this, about 30,100 km are already national highways but only 18,800 km of them are four lanes. The proposed NH grid shall not only improve connectivity in each region and state capital but provide a highway link to 12 major ports, 45 out of 53 million-plus cities and 26 state capitals besides providing connectivity to major tourist and religious places. The recently announced aviation policy also plans to increase the number of airports as part of the ´Regional Connectivity Scheme´ servicing commercial flights from the current 77 to 127 by 2019.

Our institutional capacity needs to keep pace with our aspirations. And if our courts, which are already groaning under the pressure of pending cases, now have to intervene in censorship of movies, like in the Udta Punjab case, then it is a blatant abuse of strained capacity. Only if we hold institutions like ISRO, which recently earned millions of dollars by becoming only the third nation after Russia and the USA to launch the largest number of satellites in one rocket launch, as an example, will our soaring dreams fructify.

Modi 2.0

Never before have the rains mattered so much for the corporate sector as this year -despite all the efforts of a hard working government that has just completed two years. There is no doubt that in these two years, wastage has been targeted and reduced (Rs 36,000 crore saved in leakages). Natural resources like coal and gas have been protected and leveraged in a transparent and efficient manner (the savings through reduction in imports in coal last year saved the country Rs 24,000 crore in foreign exchange). The rightful recipients have been provided the subsidies meant for them. Corruption has been checked. Faith in the administration has begun to be restored.

Considering that we have budgeted Rs 205,000 crore for food and fertiliser schemes for FY17, plus pending bills of over Rs 100,000 crore, the Direct Benefit Transfer schemes will save crores of resources. Just knowing that our revenues are being administered restores a sense of assurance.

While there are plenty of welfare schemes that are being monitored both by the PM´s PRAGATI mechanism (the ICT-based, multi-modal platform for Pro-Active Governance and Timely Implementation) and the opposition, the infrastructure projects initiated by the Centre and states too are under observation. Road projects have taken the lead with 90 per cent of 380 delayed projects worth Rs 3.50 lakh crore taking off. Port projects worth Rs 70,000 crore have been planned and inland water projects are likely to see some traction with the Rs 4,000-crore Haldia waterway project getting the green signal. Railways have stepped up the budget by 100 per cent to Rs 93,975 crore and decision making has been accelerated while political exploitation of this ministry has ended. The Power Ministry has put the sale of LED on fire (sale of LED has increased from 6 lakh annually to 6 lakh per day). The UDAY scheme is aimed at restoring financial viability to the sector (the discom sector is sitting on a loss of Rs 3.20 crore) and several states have joined the scheme. The Urban Development Ministry has brought in the Real-Estate Regulation Act, the model building bylaws, the Smart Cities mission and the AMRUT mission initiating urban renewal reform. The missions are on track and are likely to see tenders being issued by the third quarter of the current financial year.

The Bankruptcy Code has been passed and ´Ease of Doing Business´ has gained momentum with states going on overdrive in terms of reducing the number of formalities hindering quicker registration processes.

The PM´s overseas travel has helped the renewed India brand get recognised at a time when we are the bright spot in economic growth among all countries and a record foreign direct investment (FDI) of $55.4 billion was received during financial year ended 2015-16. The entire effort to reduce leakages and corruption and get the government administration to work efficiently to deliver results has yet to yield clearly visible results. The economy continues to be under strain and the banking sector is heavily stressed despite the godsend opportunity of savings in our oil import bill. Public spending will be required to continue to lead the economy out of the morass. With its recent victory in Assam, the Modi Government needs to step up its game and, with a good monsoon, Modi 2.0 will be off to a good start.

The tide is turning

There is finally good news on the economic front.
Projects commissioned in the country reached a record high of Rs 4.6 lakh crore in FY2016, according to CMIE. This is the highest-ever commissioning of projects in a year and represents a 12 per cent increase over Rs 4 lakh crore in FY2015. The stock of projects on hand is also huge – total outstanding projects are worth Rs 159 lakh crore. Of these, Rs 92 lakh crore worth of projects are estimated to be under implementation.

FDI increased by 27.5 per cent to $42 billion during April-February FY2016 as against $32.96 billion during the corresponding period of the previous year. Indirect tax collections moved up by 31.1 per cent to Rs 7.11 lakh crore in FY2016 over FY2015, indicating an improvement in demand. Transmission companies are recording a 20-25 per cent surge in their order books. And, initiatives like UDAY and DISCOM reforms are firing the power sector.

Among other patches that have started to see green shoots are the solar sector, railways and coal production. Commercial vehicle (CV) sales, which were languishing till a few quarters ago, have veered into positive territory, especially in the medium and heavy segment. In FY2015-16, the overall CV industry did well to post 11.51 per cent year-on-year growth with sales of 685,704.

Even consumption of products used for construction or industrial purposes are indicating an uptick: Bitumen (up by 16.9 per cent), petroleum coke (up by 42.9 per cent) and furnace oil (up by 39.4 per cent). Further indicators include sales of medium and heavy commercial vehicles (up 29.9 per cent in 2015-16), cement production (13.5 per cent increase year-on-year in February) and electricity generation (9.2 per cent growth in February).

Government spending has contributed to this spurt. In 2015-16, a total of 6,029 km of national highways were built, which was not just an all-time high but a substantial jump over the 4,340 km, 3,950 km and 5,732 km that were constructed in the preceding three fiscal years. In the past three to four months of 2016, construction equipment too has been witnessing growth over the previous corresponding years. The green shoots are evidently here. And, with the prospect of a good monsoon after two bad years, the time seems set for an overall improvement in the economic scenario in the construction and infrastructure space. Real estate will still take time as the buoyancy in the economy will take some time to percolate.

A revival in PPP also indicates an improvement in the confidence of the business sector. For India’s infrastructure building plans, a huge contribution has been envisaged from the private sector. A total of about 1,200 projects in different segments of the infrastructure sector, with investments worth about Rs 7 lakh crore, are being carried out under PPP mode throughout India, according to an ASSOCHAM study. Of these, there are about 650 projects worth over Rs 4.5 lakh crore with about 67 per cent share in roads and bridges; followed by over 100 projects in the ports sector (12 per cent) with an investment worth over Rs 80,700 crore; over 150 projects in energy (6 per cent) with investments worth over Rs 41,000 crore; investments worth over Rs 30,000 crore in SEZ (5 per cent); as well as projects in water sanitation (2.6 per cent), and others. Almost 73 per cent of total investments worth over Rs 3.3 lakh crore (rest are either terminated or information is not available on them) attracted by the infrastructure sector in various segments under construction in the PPP mode are concentrated in roads and bridges. Currently, there are about 480 investment projects under construction in the PPP mode in various other segments: SEZ, ports, energy, water sanitation, airports, tourism, healthcare, cold chain and others.

The stage is set for a revival and, with the indulgence of the rain gods, the clouds on the horizon are signalling good tidings – at last!

Build infra, ban construction

As the smog settles, we will be able to see beyond the smokescreen. And the picture does not look too different yet, despite major efforts in keeping our spirits soaring by our PM who is on overdrive in screening favourable optics, one after another. Once the winter chill wanes, financial thrills may take over because the political (as well as the polluting particulate) dust will not settle easily. The Budget will be more about taxation as exemptions will end and the government will step up its easy money source: Service tax. The statistical jugglery that has confounded economists as to how the scales of our GDP changed (the base year was changed to 2011-12 from 2004-05 in January by the Central Statistics Office) has killed the pulse of the GDP number. The other numbers do not indicate an uptick as yet.

In a way, the courts have come to the rescue of the automobile industry after punishing it for its contribution to pollution. A notification to come into effect in January would seek to retire roughly 3.4 million commercial vehicles (CVs) older than 15 years from the Indian roads. Vehicular pollution contributes to 20-25 per cent of the pollution in the city. CVs contribute to nearly 74 per cent of the air pollution caused by all vehicles in the city. This will be a win-win for both the residents of the cities and the CV sector. The other silver lining emerging is the advent of commercial mining. The coal ministry has identified about six coal blocks for allotment to public sector units (PSUs) for commercial mining. Mining activity coupled with the phase-out of old CVs will be a big bonanza for the CV industry. FDI in construction-development projects fell by over 38 per cent during the year ending March 2015 to $758 million compared to $1,226 million in FY14.

FDI flow has remained weak this year with just $34 million of investments in the April-June quarter of this fiscal. The poor pick-up in the inflow is owing to the slow approval process. Despite the ´ease of doing business´ initiative, even the CM of Maharashtra is struggling to break the mafia impasse that stonewalls the approval process and runs an extortion racket under his nose. Even the Environment Ministry approvals have not improved and remain contentious. In a way, this is good, as cities barely have any capacity to carry the weight of high-rise towers. Ideally, construction in cities with a population over 5 million should be banned until and unless the municipal corporation can provide proof of the capacity per capita in terms of ability of the city to handle traffic, sewerage, and provide water and power.

These cut-off capacities should be published on their websites permanently and should be sacrosanct in implementation, or else all – Pune, Ahmedabad, Hyderabad, Chennai, Bengaluru, Kolkata and Mumbai – will follow Delhi in becoming dangerous cities. (Already, 13 of the world´s 20 most polluted cities are in India.) Delhi is bathing in dust as construction debris and dust are contributing to 45 per cent of the pollution in the city. So while the CM of Delhi is at his wits´ end over the odd-even car scheme, the real culprit goes unchecked. A city administration must develop city infra projects to raise the capacities of services before giving a nod to growth. As metro projects progress in a dozen Indian cities, as roads projects accelerate to reach 30 km per day, and as real estate construction gathers momentum to build even higher towers dotting the skyline, we need to set a framework so that the growth of a city is not at the cost of the life of its citizens.

After setting new benchmarks in infrastructure and construction publishing and then inorganically assuming leadership in engineering too, ASAPP is on the move again. In 2016, it aims to fortify its leadership in all three ICE sectors, namely infrastructure, construction & engineering. Its latest digital product DezignGenie.com will be relaunched early 2016. Its digital abilities are being scaled up and its brands will soar new heights. Its events too will accelerate into a new stratosphere. ASAPP has donned a new name in keeping with its mission to be an ´information brands´ company.

Bid, Bill, Build

The next three to four months will be, in a sense, most painful as while the sentiment seems to have improved, it would not be reflected in demonstrably higher sales and profits. So businesses will have to put on a happy face and yet suffer the last leg of the financial squeeze as the economy gains ground… Development and governance are the two wheels of the current government and the road is rocky but we have strong drivers: aspirations of the youngest population in the world and an unleveraged, unlimited potential.¨

This is the concluding paragraph of this column in September 2014. In October 2014, in the same column, I cited the various initiatives of the Modi sarkar. Indeed, the pains and aches of the previous government´s apathy are still hurting but the confidence that the initiatives taken by the current government will bear fruit is rising. The latest Cabinet approval permitting FDI in construction has reduced the minimum built area requirement for projects in which foreign investment is allowed to 20,000 sq m from 50,000 sq m and the minimum capital investment by foreign companies has been cut to $5 million from $10 million. The investor will be allowed to expatriate the investment on completion of the project or three years after the final investment is made provided the trunk infrastructure is complete for those plots. The new rules will encourage development of smaller plots in urban areas, where availability of land is limited. This will complement the initiative to build 100 smart cities. In fact, India received $1.2 billion of FDI in the financial year ended March 31 compared to $1.3 billion the previous year. Between April and August this year, it has received foreign investment worth $446 million. Now, this is likely to get a shot in the arm.

In the forthcoming winter session of Parliament commencing on November 24, 67 pending bills awaiting clearance can help ward off the lag effect of the turnaround. The Real Estate Regulation & Development Bill, Coal Mines Amendment Bill, Prevention of Corruption Act, revised Goods and Services Tax (GST) Constitution Amendment Bill, Land Acquisition Bill and Motor Vehicles Bill are just some important initiatives awaiting clearance that carry potent rocket fuel for the economy. Also, the proposed new Motor Vehicles Bill lays great emphasis on road safety and traffic management through new agencies specifically dedicated to forming and implementing new laws. It also proposes to create a National Road Transport and Multimodal Coordination Authority for coordination on road and other transport issues.

Although the road sector has lost much of its interest for Indian bidders, the Construction Industry Development Board (CIDB) of Malaysia has offered to bid for five such projects costing over Rs 9,000 crore, giving PPP a new lease of life. New investors such as NGI and Tata Realty are bucking the trend and entering the sector as it offers better returns with most project risks already weathered by erstwhile promoters. Another development that would boost industrial production by simplifying the need for regulation and administration for SMEs, which account for over 30 per cent of industrial production, is the Small Factories Bill, in line with the amendments to the Factories Act. This Act will reduce the number of forms required for compliance with rules; allow SMEs to employ women in night shifts based on the fulfilment of certain conditions; and change the inspection system to one based on self-certification and inspections based on computer lots as announced by the government earlier this month.

Evidently, across the board, a huge, orbit shifting change is in the offing. And with a new set of investors and buyers having entered the markets, CW has issued a ´vendor alert´ in its cover story. Go get them.

Watch out for the 12th CW Annual Awards on November 21 at Four Seasons, Mumbai