Tag Archives: ASSOCHAM

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!

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!