Tag Archives: Infrastructure

The Pacesetters

Union Minister Nitin Gadkari is a man in a hurry. Recently, he announced the Rs 1-trillion Mumbai-Delhi Expressway, which will connect India’s two most backward districts, Mewat (Haryana) and Dahod (Gujarat). With this, the travel time will reduce from the current 24 hours to 12 hours. The first tender for the project worth Rs 440 billion between Mumbai and Vadodara has been floated. The expressway is scheduled for completion in three years. Further, the Maharashtra and Madhya Pradesh governments are to sign a memorandum of understanding (MoU) to build the 339-km Indore-Manmad railway line, worth Rs 100 billion. The Centre and six states of North India will sign a MoU for construction of the Lakhwar multi-purpose project in the Upper Yamuna basin in Uttarakhand, worth Rs 40 billion. Work on five major river linking projects, including the one that would transfer surplus water from Godavari to Cauvery, is expected to commence from December. According to Gadkari, a total of 31 river linking projects are under consideration under the National River Linking programme.

The value of new project announcements by the private sector rose for the first time in two years in the June 2018 quarter, as per analysis by CMIE. However, the bulk of them were made by foreign companies.

So although L&T reported a 37 per cent growth in order book during the quarter, it guided for a subdued 10-12 per cent order inflow growth for the full year, which is only a slight increase of over 7 per cent from the previous year.

Despite the deficit in infrastructure, the pace of public spending is keeping the economic spirits of India up, and the infrastructure sector seems to be back in favour. Given the elections next year, it is estimated that this pace will not slacken as the government wants to achieve numbers, which indicate an upswing in the economy by the time the government is ready to announce the Union Budget on February 1, 2019. This augurs well for a swell in the economic tide.

While contracts are being awarded, it is also time for awards. FIRST Construction Council, the think tank has completed its exercise in identifying winners across verticals. First off, CONSTRUCTION WORLD is hosting its 13th CONSTRUCTION WORLD Architect & Builder Awards on September 11, 2018, in Mumbai (look for our new column on architecture on page 116). On October 24-25, it will then host the INDIA CONSTRUCTION FESTIVAL, which will bring the best and the biggest with the fastest construction companies in India. This issue’s cover story is devoted to bringing you in touch with the nominees of the fastest growing companies in the country.

If Graham Robinson, the eminent economist from the UK – who is the keynote speaker for the CONSTRUCTION WORLD Global Awards being held on October 24 – is right, and India becomes the fastest construction market in the world by 2030, then keep an eye on the nominees as they have already begun to set the pace.

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.

When will the good times roll in?

India is on a path of deep-rooted reform. Many initiatives have been triggered that will see fruition this year: Implementation of RERA (with a deadline of May 17), appointment of a Real-Estate Regulator, credit ratings of municipal corporations, issuance of municipal bonds by cities, introduction of GST, and much more. While these shifts do cause disruption in the regular flow of commerce and require systemic adjustment, India can afford this exercise as growth numbers are robust enough to absorb the shocks of change.

Now, however, all eyes are on public spending, which can bring the mojo back. An amount of Rs 3.96 lakh crore (against Rs 3.48 lakh crore the previous year) has been budgeted for infrastructure with Rs 2.41 lakh crore for transport alone. A separate amount has been provided for metro projects to the tune of Rs 18,000 crore and, similarly, among other schemes like Swachh Bharat, Bharatnet, Deen Dayal Jyoti Yojana, etc.

The government´s record last year gives us a reason to believe that spending has gathered momentum as the chains of bureaucracy are being delinked through transparency and accountability. However, it is important that the urgency shown in preponing the dates for the Budget should crystallise into an early disbursal of funds for the projects.

A favourable poll result for the ruling party will accelerate government programmes. Renewable power prices, including solar and wind, seem to have ushered in hope for improvement in production costs for India´s manufacturing sector. Labour costs have risen geometrically for all industries. Also, with rural electrification being implemented on a war footing and Bharatnet expected to make high-speed broadband on a fibre-optic network available by 2017-18 in more than 1.5 lakh gram panchayats, the aspirations of the population will explode countrywide. Lag in power availability stunted our progress; but states are resurrecting their power finances with UDAY.

Further, housing, which was the topic of our cover story last issue, is likely to gallop as it has now been given ´infrastructure´ status and the Central Government is providing interest subvention for ´affordable housing´. ´With an additional interest subvention of 3-odd per cent offered by states, housing demand can skyrocket,´ stated the Union Minister of Urban Development and Housing, while launching the new logo of CW at a conference organised by PHD Chamber in Delhi recently. What´s more, the smart cities mission is quietly making progress with 30 of the 60 identified cities having organised SPVs and appointed CEOs. Tenders are being issued and over 90 projects are underway. To discuss smart solutions that can be executed in the Indian context across cities, Smart Cities Council India is organising the 4th SM@RT CITIES SUMMIT at Pragati Maidan, New Delhi, from March 15-17. For details, visit www.SmartCitiesSummit.in.

Indeed, the vote is for development all the way. And if all political parties realise this, we are likely to see development as a common agenda with each vying to outdo each other. Then, the good times would have truly begun.

Set for growth

Last month, in a swift move at the recommendation of  NITI Aayog, the government reversed the misery of construction and infrastructure companies. In this column last month, I had pitched for a resolution to the impasse on matters stuck in arbitration, disputes and appeals. So while the ruling has now provided that the company in question is not squeezed to death of its finances and left to dry, and this takes care of the financial disease such companies come down with, the core attitudinal shift causing this legal pileup has not been addressed.

That said, the ruling has led to the rerating of construction and infrastructure stocks at the bourses. Companies planning InvITs will see better valuations. Huge funds are likely to come back into the system to companies like HCC, Patel Engineering, Sadbhav, IRB, etc. While this augurs well for equipment companies, there is also likely to be a shift in the list of bidders for EPC and hybrid annuity contracts issued by MoRTH
and NHAI.

Meanwhile, real-estate companies are experiencing rough weather as the consumer protection movement is gaining momentum. Several companies like Unitech, Supertech and Parsvanath have been instructed by courts to return the money invested by those who have booked flats where either the companies have not presented a ´true and fair´ picture of the offering when they raised investments from buyers or violated deadlines for delivery. The Real Estate Regulation Act (RERA) has sent a shiver down the spines of developers as rulings have begun to send developer after developer behind bars for violations and misrepresentations, non-delivery and unfair practices. Consolidation is already in progress in this sector as several stressed developers have made alliances with financially stronger partners to bail them out. Ajay Piramal´s real-estate fund initiatives have rescued many of them too. New money is coming in under changed conditions seeking fresh rules for play.

The Smart Cities mission has released 27 additional cities, taking the total number of cities selected under the mission to 60. The new cities are from 12 states and have proposed to invest a total of Rs 66,883 crore under their respective city development plans. The amount includes Rs 42,524 crore in area-based development (79 per cent of the total) and Rs 11,379 crore (21 per cent) in technology-based pan-city solutions. With this, the total investment proposed for the 60 cities selected has now gone up to Rs 144,742 crore. Several of these cities are now readying DPRs; RFPs for some projects have already been readied and launched by Pune, Jaipur, Ahmedabad, etc. Another Rs 45,935 crore has been approved by the Ministry of Urban Development under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). In addition to 68 projects launched in 14 smart cities this June, another 134 projects have been identified, of which 114 are under bidding. The pace of urban renewal has been stepped up under these initiatives and is likely to accelerate in the coming year.

Growth has been initiated by eliminating bottlenecks and making structural changes. Liquidity released through the Pay Commission, OROP and government spending will add to the buoyancy likely to emerge as a result of the above normal monsoon, which will hopefully provide a bountiful harvest in the coming season. Obstacles are being eased with the initiatives enumerated above and the scenario is set for a revival. It indeed augurs well for the festive season ahead  Happy Diwali!

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!

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.

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.