Tag Archives: Roads

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!

Toasting the fighters

We are not out of the woods yet. Eight core sectors – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – slowed to 1.1 per cent in July after a growth of 3 per cent in June, mainly on account of low expansion in coal output and contraction in steel, crude oil and natural gas production, all hinting at weakness in industrial recovery. AM Naik, chairman of engineering and construction conglomerate L&T, expressed his anguish publicly, and maintained that any recovery was at least a year away.

While Naik may be right, the roads sector has definitely rebounded, to about 13 km a day from just 3 km when the NDA took over, as per the ministry´s website. The government plans to sanction 20,000 km of projects in the coming three years and the target for the year to March 2016 has been set at 8,000 km. Seven top road builders have raised Rs 10,700 crore by way of bonds, paving the way for finance to the debt-stressed sector. Bonds come at a cost of 11 per cent and can be serviced, provided tolls commence within the timeline. Recent easing of policies, including allowing companies to exit projects and getting environmental clearances in time, have helped improve the climate.

Raising finance overseas has been the route many companies like ITNL have followed. The global scenario, though, is not too smooth with Caterpillar planning to cut up to 10,000 jobs by 2018 and JCB cutting 400 jobs in the UK. The Chinese residential property market, which contributes tremendously to the GDP, continues to remain under pressure. In the Middle East, too, the pressure on oil prices has rubbed off on public-sector spending, with the award of new construction projects having slowed down.

In the light of this global upheaval, India remains an attractive option. During Prime Minister Modi´s visit to the US, American CEOs implored him to step up the pace of reforms. Once he´s back, he will jump into the Bihar elections, but will have to sharpen his ability on seeing through bills of reform. For instance, the plan to build 50 non-frill regional airports has been revived. The logic to accelerate connection of the hinterland is unquestionable. However, roads take their own time and larger investment; a quicker way would be to deploy air taxis on economically run airports. Creation of these ´air corridors´ can accelerate economic growth.

Similarly Union Minister for Roads, Highways and Shipping Nitin Gadkari has been a strong proponent of the use of inland waterways and a bill is in the works. There is a proposal to offer 850 ports along major rivers to transport coal to the private sector. This will create new opportunities in logistics and is likely to bring in Rs 4,000 crore of private investments apart from saving sizeable freight costs. The smart cities mission, in which nearly two dozen countries are showing interest, also has great potential to revive the urban construction scenario. However, all this will require good footwork on the floor of Parliament.

Meanwhile, a flock of nimble-footed construction companies are emerging, who are moving stealthily and strengthening their order-books. Many of them are small and new. These and others who have retained their conservative approach are in the reckoning to grab the business as it is likely to unfold. Our 13th Construction World Annual Awards will celebrate these winners on October 16, in Mumbai. So while the third quarter gets underway along with the hopes of a better festive season, we will raise a toast to the fighters who managed to score on a rough turf.

Ten Triggers for Team Modi

The manufacturing indices, which appeared to be positive till last month, turned negative, killing all joy espoused by optimists. Loans continued to pile up. The RBI maintained its stance. And interest rates didn´t ease off enough to make an impact in a debt-burdened commercial sector. The government is still struggling to get its Land Bill and GST Bill through Parliament. Corporate results are reflecting the pain – in the financial year ended in March 2015, Corporate India is expected to drop marginally by 0.8 per cent at the aggregate level for the June 2015 quarter from a year ago. Net profit is expected to grow just 0.3 per cent. And in the March 2015 quarter, sales dropped by 5.6 per cent while net profit tanked as much as 45.3 per cent from the corresponding quarter of 2013-14.

One year into the new government´s rule and nothing has changed on the ground. While there has been a rally in Indian equities since May 2014 owing to the optimism of investors, the BJP´s lack of a majority in the 245-seat Rajya Sabha (48 seats against the INC´s 68) has led to the derailment of the reform momentum. The real-estate sector is holding an unsold inventory of 688,000 units, measuring 919 million sq ft. While commercial real estate has been languishing for long, the residential sector has lost steam too. This is likely to have a cascading effect on building material sectors. Steel is already suffering on account of large Chinese imports and cement is waiting for housing demand to rise. Poor demand is causing unemployment among labour and they are returning back to villages where an even worse scenario awaits them. The MNREGA scheme budget has been slashed, agriculture yields are soft, and rural infrastructure schemes are still struggling with environment clearances and land acquisition problems.

Despite Team Modi´s tireless work to improve structural lacunae and launch of new schemes to digitise, smarten, skill, house, power and connect India, over 55 per cent believe that the business environment is ´moderately worse´ and only 24 per cent expect the overall economic situation to improve in the next quarter.

What can the government do to correct this and restore the faith of businesses? Here are 10 suggestions:

  1. The PM should go easy on his international trips and focus on the economy.
  2. Public spending figures should be declared sector-wise every month. Targeted public spending for the forthcoming quarter should also be made public.
  3. PSU spending on capex should be consolidated and declared every quarter.
  4. The government should focus on stalled projects and give them a chance to recalibrate within a specified time.
  5. The FM needs to clear tax hurdles to make India an attractive destination.
  6. The NREGA budget must be restored with direct benefit transfer mechanism.
  7. Budgeted spending for roads, defence, infra and renewable energy should be accelerated.
  8. Timelines should be set for arbitration with the government for infra disputes and we should push forth with the Public Contracts (Settlement of Disputes) Bill.
  9. The Power Minister must corporatise discoms through government infusion as equity instead of grants so they can raise further capital; transfer of subsidy should be done by ´direct benefit transfer´ to the consumer.
  10. We need an ´ease of doing business´ challenge on the lines of the ´smart cities challenge´ between states with a quarterly ranking.
  11. This month, we mourn the passing of former president Dr A P J Abdul Kalam. Missile man, scientist, teacher and inspiration, his light will continue to guide us as we strive for a better tomorrow.