The X-Factors

The factors that have been governing the construction and infrastructure industry in India
 Indian construction and infrastructure industry, except for the past 2 years, has consistently seen a double-digit growth. The outlook for the construction sector appears to be very strong. The next couple of months should kick-start the process where after the growth should start. The industry is forecast to grow at 7-8 per cent each year over the next decade.
The growth in Indian construction and infrastructure industry will vary in terms of the industries, and the industry sentiments are driven by various factors. Here are the major factors that have been governing the construction and infrastructure industry:
Modified governmentThe biggest factor is the government’s confidence to drive economic growth and the reforms. The new government’s policies are definitely working in industry’s favour with emphasis on development. The “Make in India” is one such initiative that will promote inclusive growth and provide employment opportunities to many.
“The current policies of the Indian Government are definitely encouraging the investors in infrastructure and construction projects from both domestic as well as overseas private capital,” opines Anjan Dutta Roy, Vice President, Tiger Steel India. “Liberalisation of policies and deliberate strategies from the Government of India in promoting infrastructure spells opportunity for EPC organisations, e.g. roads and highways, ports, airports, railways and power.”
The new government has started putting in place the blueprint to execute a massive infrastructure upgrade which includes smart cities and industrial corridors connecting different parts of India. It is estimated that the projects will cost nearly $1 trillion over the next 5 years and the government of India will be floating an infrastructure investment trust and a realty investment trust as financial instruments with tax rebates to fund this development. The government is committed to delivering growth, and for doing so it needs to have infrastructure at place.
“The new government’s 10-year plan to improve infrastructure includes building smaller airports in towns, a high-sped train network, revamping trains and modernising ports,” says. The government is planning a multi-billion dollar infrastructure fund to push investments. Four ministries — Civil Aviation, Railways, Road and Shipping — have been asked to work together. This will improve coordination and avoid delays in decision making. The government is all set to roll out Rs. 2 lakh crore worth of infrastructure projects this year. Undoubtedly, the focus should be on expediting stalled infrastructure projects and resolve iron and coal mining issues. These measures must combine with reforms in environment issues, land acquisition, taxation, labour and speedy clearances of project approvals.
“With the backdrop of active new government initiatives, friendly policies and rising investment trends in the sector, the Indian construction sector offers promising growth trends and opportunities,” explains P V Rao, Managing Director, PEBS Pennar. “The new government has initiated innumerable initiatives to lift the sector from its current dormant conditions.”
Openness to Public Private PartnershipThe government’s openness towards the Public Private Partnership (PPP) model deserves credit too. It is very significant as this industry requires huge amount of investment which would require help from the private firms in the country as well as outside. The private sector has invested $225 billion in India’s infrastructure projects between 2007 and 2012, much of it through PPPs.
According to Mr Rao, “The 12th Plan, which started in 2013 looks set to include $1 trillion for infra development, with around 50 per cent of this likely to come from private funds.”
The recent interest shown by countries like Singapore, France, Dubai and Russia to invest in the smart city project and other projects is a meaningful step in that direction.
Growing urbanisationThe buildout of infrastructure must occur as the country and the Asia region urbanisation is going to provide a large platform for growth. With more people moving into the cities, increasing industrialisation and change in food consumption pattern, every industry from manufacturing to processing and last mile delivery promise for consumer satisfaction will dictate the future of the segment. About 590 million people will live in cities by 2030 and account for 70 per cent of Indian GDP.
About 70 per cent of the infrastructure that India needs has still not been constructed. “As per estimates, by 2030, there will be about 10 billion square meters of constructed homes, hospitals and other buildings,” says Kamal Singh, Vice President, Power Electronics Division, Danfoss India. “In fact, according to a study by US Department of Energy, the country doubled its floor space between 2001 and 2005 and is expected to add 35 billion sq. metres of new buildings by 2050.”
Even Ramesh Tipirneni, Country Manager, Caterpillar India, thinks the same. He remarks, “An increase in domestic demand created by an urbanising population and continued growth and development will benefit the entire industrial sector.”
GDP growthThe growth of Indian economy slipped from 10.5 per cent in 2010 to 4.8 per cent in 2013. In the past few years, delayed decision making has led to negative growth and sentiment. Lack of quick decision making and clearances from land acquisition and environment has brought the wheels to a near standstill.
The Indian economy, however, is going underway of gradual recovery. The nation is expected to clock a GDP growth of 5.5 per cent in the current fiscal and 6.6 per cent in FY16.
According to Dr S. P. Pandey, Deputy Executive Director, Quality Management and R&D, Dalmia Bharat Ltd., “The total construction market in India for FY14 was $157 billion, an increase of $4 billion over FY13. Infrastructure accounts for 49 per cent, housing and real estate 42 per cent and industrial projects 9 per cent. Industrial construction is contributed by expansion projects from various manufacturing sectors.”
“Emergence of India as a key investment area is opening up rather enriching avenues for the industry,” says Sunil MK, Head – AEC, Autodesk, India and SAARC. “Indian construction market is expected to be the world’s third largest by 2020 doubling to $ 649.5 billion by 2020 from $ 360 billion in 2010.”
The time has come for India to gear up to the make the best of the impending golden era of the Indian economy.
‘Make In India’ initiativeTo attract investments from businesses around the world as well as strengthen India’s economy. The mission, no doubt, would enforce secondary and tertiary sector, boost the national economy, convert India to a self-reliant country and give the Indian economy global recognition.
“The ‘Make in India’ is one such initiative that will promote inclusive growth and provide employment opportunities to many,” explains J. C. Sharma, Vice Chairman and Managing Director, Sobha Ltd. “The new government’s policies are definitely working in industry’s favour with emphasis on development.”
Since 25 September, 2014, PM Narendra Modi has been taking every possible step to make this mission a soaring success. To push the “Make in India” initiative to the global level, PM Modi even plans to pitch India as a manufacturing destination at the upcoming World International Fair in Hannover, Germany. In the global event, our prime minister to showcase India as a business friendly destination. The Modi-led government has already showcased the much-talked initiative in Davos.
Youth demographicIndia has an unrivalled youth demographic. Nearly two-thirds of Indians are under 35 and half are under 25. By 2020, India will be the youngest nation in the world. With such a big number of its population under the age of 35, India today boasts one of the largest available workforces in the world.
The TeamLease Indian Labor Report suggests that 300 million people will enter the workforce by 2025. Most important, 25 per cent of the world’s skilled workers will be Indians. This young workforce is going to drive and impact the country and organizations’ strategy in years to come.
Exploding super rich populationIndia is also the home to 1.17 lakh ultra-high net worth individuals, and these super-rich people are growing their wealth exponentially. India’s super rich are not only getting richer but doing it faster than most Asian countries. Between 2013 and 2014, the number of ultra-high net worth individuals in India grew by 9.49 per cent. This factor will surely augur well for the economy and the real estate market.
Foreign Direct Investment (FDI)As per UNCTAD reports, India is being rated the second most attractive location (after China) for global FDI. In order to increase FDI inflows, particularly with a view to catalysing investment and enhancing infrastructure, the Indian Government has also introduced significant policy reforms. There are global players and investors who are keen to participate in India’s growth story by holding stakes on a long-term basis.
Mr Kalantri adds, “The government has eased foreign investment rules to make it easier for investors to enter the markets. The new rules proposed include reducing the built-up area requirement for FDI in construction projects to 20,000 sq. metres from 50,000 sq. metres. The minimum capital requirement has also been reduced to $5 million from $10 million. The new rules will make it easier for the government to attract investments to build smart cities and affordable homes in the country. It is also likely to improve the dismal infrastructure in Asia’s third largest economy.”
Infrastructure and construction industry, no doubt, hold massive potential in India. The confidence behind the promise comes from the fact that infrastructure and construction industry has witnessed exponential growth in the past and it is a part of the 5-year plan. “The proposed increase in allocation in the 12th Plan (2012-2017) will translate into a healthy business for construction companies,” explains Dr Pandey. “According to a technical committee set up by the Ministry of Housing & Poverty Alleviation, the total provides a big investment opportunity.”
The X-Factor comes from the fact that it will spearhead the growth in India, and rest everything will be secondary or consequential. With the new government in place, some of the bottlenecks affecting these projects are being taken care of. With more funding for the sector and a favourable business climate for investments, the sector is expected to take off. _________________________________________Expert viewAn increase in domestic demand created by an urbanising population and continued growth and development will benefit the entire industrial sector.
Ramesh Tipirneni, Country Manager, Caterpillar India _______________________________________Expert viewThe ‘Make in India’ is one such initiative that will promote inclusive growth and provide employment opportunities to many.
J. C. Sharma, Vice Chairman and Managing Director, Sobha Ltd.

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