Tag Archives: NITI Aayog

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.

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!

Unclogging legal and land blocks

NITI Aayog is finally fixing the loose ends with the construction matrix to allow the multiplier effect to breathe its magical effect across the economy. It is putting together a policy to remove hurdles for projects where contractors are locked in arbitration with government agencies so that 75 per cent of the funds would be released to banks in cases where there is unanimous award in favour of a contractor. This will help release funds and revive stalled projects. Close to Rs 3.6 lakh crore is locked up in such cases and banks will see their performance improve even if a part of the funds is released.

According to a survey by research agency Daksh, if one has a case pending in any of the subordinate courts in the country, the average time in which a decision is likely to be made is nearly six years. Even assuming that a case does not go to the Supreme Court, an average litigant who appeals to at least one higher court is likely to spend more than 10 years in court. Now, an underlying informal rule exists within the government department that is causing a huge bottleneck in judgements and awards. A large portion of the ´pending cases backlog´ originates from the fact that all judgements issued against government departments are appealed against, as a standard practice. This is so much of a hard rule that if a government officer does not follow suit, he fears that the Vigilance Commission may come after him. This not only delays justice, even in genuine cases, but clogs the judiciary system unnecessarily. Arbitration awards are also the victim of this informal ´standard rule´.

The new arbitration act has come into effect from October 23, 2015, which allows the awardee of the arbitration the fruits of the award after three months even though an application has been filed objecting to the award, unless the court issues a stay on the award. Considering almost Rs 3 lakh crore is stuck in disputes and arbitration (as per ASSOCHAM, it is closer to Rs 5 lakh crore; just consider that the amount stuck in arbitration and disputes with NHAI alone is Rs 23,000 crore), the new act may help resolve conflicts swiftly. But unless we arrest the root of the higher flow of arbitration cases, namely the ´standard rule´, we will be swimming against the tide.

Another factor strangulating growth is the escalating cost of land and delays caused in land acquisition. Data by the Ministry of Road Transport and Highways shows that during 2015-16, NHAI paid Rs 19,020 crore to acquire 9,285 hectare. This is the most it has paid out by way of compensation in one year compared to disbursements in the past five years. In the last fiscal, NDA paid an average of Rs 2 crore per hectare compared to Rs 1.35 crore per hectare in 2014-15.

Here, renting land for infrastructure projects is a viable and practical solution. It will help save capital by not requiring a large amount of money to be locked up and save time in purchase and the entire process of land acquisition, thereby fast-tracking projects. (According to recent estimates, the capex for land alone for road projects is Rs 185,000 crore.). Some industries already follow the model of leasing land instead of acquiring it. Oil and gas extraction and renewable energy projects usually follow the land-lease model. Land pooling used by Magarpatta city a decade ago and, more recently, by Andhra capital Amaravati, by CIDCO for the Navi Mumbai International Airport and by the Maharashtra Government for the Mumbai-Nagpur road corridor offer examples of how both delays and capex commitment can be lowered.

Indeed, it is time to unclog the arteries for the economic lifeblood to flow unfettered to make India vibrant and reach its growth goals.

And in this issue, understanding the growth goals across Tier-II and Tier-III cities, and consequently the growth in their building and design needs, the second decade and the 11th edition of the CW Architect and Builder Awards – CWAB 2.0 – introduced a whole new category of Noteworthy Projects. Through this category, we recognised the work being done across sectors – interiors, retail, commercial, residential, institutional and hospitality – and a whole new set of winners took centrestage with India´s Top Architects and Builders last month in Mumbai. These included winning projects from Anand, Surat, Calicut, etc.

And, as we pace up with the digital world, stay with us for daily news and updates on the magazine portal www.ConstructionWorld.in Let us also continue to be your single window to share your perspectives and voice your opinions and recommendations – and this time, its digital!