The demand of construction is increasing with a speed equivalent to the speed of Delhi metro traveling each day. Road Construction and infrastructure construction is wheel of Indian economic growth from the time of 2004 when it became a word of mouth. Recent economic growth is placing increasing strains on India’s physical infrastructure, not only from population growth and expanding economic activities, but also structural changes in the economy. Before recession have touched the Indian shores the total investment in India’s infrastructure was estimated at approximately 5% of GDP in 2006-07.
But after recession there have been quite delays in the achieving the desired targets despite of adequate supply of liquidity. Constraints have been due to other reasons apart from liquidity or recession dark nights affects.
Very recently the governments of India have geared up to meet the target of building 20 km of highways a day. We are currently doing around 12 km a day. By next year, we will have work in progress on over 25, 000 km of highways. I am hopeful that we will soon be able to achieve 20 km a day target,” Kamal Nath. The government is very keen to put strict practices for on target completion of projects. According to a recent survey done by IQPC, the major challenges in road construction is meeting project deadlines and upgrading existing construction techniques with the latest technologies and materials. The industry is actively searching for best practices in delivering projects within time frame and budget, constructing sustainable and low maintenance roads and most of all incorporating road safety into the design and planning of roads.
In the month of December 2010 many senior representatives from the Ministry of Road Transport and Highways India, National Highways Authority of India, State Road Transport Authorities, consultants and contractors are congregating at Le Meridien, Delhi for a conference to bring g out new strategies for on target completion of projects. The discussion will be focusing on recent projects and overcoming the challenges in designing, planning and constructing roads in India. India will need to spend over USD 1 trillion in infrastructure development during the 12th Five-Year Plan. .Hence new strategies and techniques of execution of road and highway construction projects will be required to be adopted and implemented.
Apart from strategies we also need huge supply of cements and steel to carry on the construction without any interruption. Inadequate capacity to meet demand for coal, natural gas, power and other utilities is “worrying” as it constraints economic growth. This has been raised many times on the table but this time we need to pay real attention for these ancillaries.
Recently the governments of India have banned import of steel and export of iron ore. The industry and the stock market needs to understand that these have been deployed to expand our own production capacity. If we simply meet our demand from export we are just giving away part of the huge growth of Indian economy. We need to setup internal plants and production capacity which will add growth to the companies, stocks prices and also to the Indian GDP. If we set up internal plants we will attract huge amount of FDI and other venture capitalist. Employment and consumption of Indian products will increase bringing huge growth across many sectors.
For example The Ministry of Construction predicts the country’s cement consumption in 2010 will reach 50 to 51.5 million tonnes, an 11 per cent year-on-year increase. But this growth number is still inadequate as compared to upcoming huge demand. Coal is another material which will be needed for construction sector. Mining of new coal blocks needs to be increased so that cement and steel don’t have to scout for import of the coal.
The construction sector is facing not only problems of supply of cement and steel and other ancillaries but also of manpower. The construction sector is facing labor shortage of around 10 million persons in any given day and the situation will worsen in next decade when requirement for workers is expected to go up three-fold.
The blessing of this crisis has taken birth from the womb of Business and Technical Schools. The mismatch between the requirements of the industry and the learning in engineering and business schools is creating the gap of skilled manpower for the sector. More surprisingly the only about 1-2 engineers out of every 10 seeking work are employable, according to human resource managers in construction companies. The problems occur from the students and colleges who are having the responsibility of sending the students to site of construction. Now everyone avoids and builds a mindset of working in a cool place away from the site.
The 2011 Growth Path.
To achieve a target GDP growth rate of 9% set by the Planning Commission, gross capital formation (GCF) in infrastructure should rise to 9% of GDP by the end of 2012. This equates to an increase of GCF from 2,598 billion rupees in 2007-08 to 5,740 billion rupees in 2011-124. If achieved, the 11th Five-Year Plan period (2007-12) will result in an aggregate GCF of 20,115 billion rupees (US$447 billion at an exchange rate of 45 rupees/U.S. dollar).
• More than USD 475 bn worth of investment is to flow into India’s infrastructure by 2012. No country in the world other than India needs and can absorb so many funds for the infrastructure sector. With the above investments India’s infrastructure would be equal to the best in the world by 2017.
• In the next five years planned infrastructure investment in India in some key sectors are (at current prices): Modernization of highways -US$ 75 billion, Development of civil aviation US$ 12 billion, Development of Irrigation system- US$ 18 billion, Development of Ports-US$ 26 billion, Development of Railways- US$ 71 billion, Development of Telecom- US$ 32 billion, Development of Power -US$ 232 billion.
Under the 11-Five Year Plan.
• Investment in the above sectors (Aviation infrastructure ,Construction infrastructure, Highway infrastructure ,Power infrastructure, Port infrastructure ,Telecom infrastructure ) will be US$ 384 billions(Rs 17,20,000 Crores) considering the huge infrastructure market potential in India.
• In addition to the above, investments to the tune of US$ 91 billions have been planned in other infrastructure sectors like Tourism infrastructure ,Urban infrastructure ,Rural infrastructure, SEZs ,and water infrastructure and sanitation infrastructure thus making the total infrastructure investments in the eleventh plan period 2007-08 to 2011-12 as US$475 billions.
• Domestic and global infrastructure funds have exposure to Indian infrastructure sectors.
Infrastructure sector targets for Eleventh five year plan ending 2012.
• Electricity: Additional power generation capacity of about 90,000 MW , reaching electricity to all un-electrified hamlets and providing access to all rural households through Rajiv Gandhi Grameen VidyutikaranYojna (RGGVY).
• National Highways: Six-laning 6,500 km of Golden Quadrilateral and selected National Highways, Four-laning 6,736 km on North-South and East-West Corridors, Four-laning 12,109 km of National Highways, Widening 20,000 km of National Highways to two lanes, Developing 1000 km of Expressways, Constructing 8,737 km of roads, including 3,846 km of National Highways, in the North East
• Rural Roads: Constructing 1, 65,244 km of new rural roads, and renewing and upgrading existing 1, 92,464 km covering 78,304 rural habitations.
• Railways: Constructing Dedicated Freight Corridors between Mumbai-Delhi and Ludhiana-Kolkatta, 10,300 km of new railway lines; gauge conversion of over 10,000 km and doubling, Modernization and redevelopment of 21 railway stations, Introduction of private entities in container trains for rapid addition of rolling stock and capacity, Metro rails and world class stations.
• Ports: Capacity addition of 485 million MT in Major Ports, 345 million MT in Minor Ports, construction of jetties and berths, Port connectivity ,channels deepening and port equipments.
• Airports : Modernization and redevelopment of 4 metro and 35 non-metro airports, Constructing 7 Greenfield airports, Constructing 3 airports in North East, Upgrading CNS/ATM facilities ,Establishing training facilities and MRO.
• Telecom and IT : Achieving a telecom subscriber base of 600 million, with 200 million rural telephone connections, Achieving a broadband coverage of 20million and 40 million internet connections.
• Irrigation: Developing 16 million hectares through major, medium and minor irrigation works
• Urban Infrastructure: Urban renewal projects for selected cities; one million plus cities, state capitals and places of historical, religious or tourist importance under Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
• Rural infrastructure :As per Bharat Nirman action proposed in rural infrastructure for irrigation, roads, housing, water supply, electrification and telecommunication connectivity.
• Construction and Real Estate infrastructure: Development of residential and retail real estate ,Green buildings ,construction of SEZs, Infrastructure projects, Infrastructure facilities for Common wealth games 2010 .
• Mining Infrastructure: Mineral exploration, Mineral extraction, processing, technology and equipments.
We are still lagging way behind under the 11 plan and we need to finish the backlog as well as proceed with the future growth plans. Hence one can clearly understand the volume of capital will be needed by this sector in the comings days’ .Huge investments opportunities will come from Venture Capitalist, Corporate Finance and Private Equity under the flagship of PPP. China’s economy, which was about the same size as India’s $183 billion in 1980, has swelled close to $5 trillion, four times that of India, after it boosted public spending. We are yet to witness such numbers in Indian economy.
The infrastructure-growth cycle suggests that India should be growing at these rates for the next five years, and this growth should see the Sensex at 40,000,” CLSA’s strategist Christopher Wood, who was ranked second in Asia by Institutional Investor in a 2010 survey. It may not be 40000 sensex but 30000 sensex is very much possible and we should make our minds ready for the growth keeping the small hiccups in mind. One should understand that the growth of Indian market is not dependent on Global Platform. India has identified its own growth opportunities and will en-cash on them. Today it may sound funny about that 30000 mark but will not be in future. Since everyone wants to make money from investments in Indian economy irrespective of the funds which comes from US QE1 or QE2 or Ireland bailout.
Indraneel Sen Gupta
Financial, Economic Writer and Research Analyst.