India's Leading Infrastructure Companies

India's Leading Infrastructure Companies 2015

The construction sector has been consistently contributing around 8% to India’s GDP (at 2004- 05 prices) in the last three years (FY12 to FY14).GDP from the construction sector at factor cost (at FY05 prices) increased to र 8184.31 bn in 2014 from र 5004.58 bn in 2009 Structurally, the construction sector comprises real estate and infrastructure segments, out of which infrastructure holds a major share and is a key driver of the overall growth in the construction sector. Residential buildings, townships, commercial complexes, and SEZ/IT parks all come under the real estate segment while heavy projects conducted on a massive scale involving roads, railways, ports, airports, and highways come under the infrastructure domain.

Sustained increase in infrastructure is expected to be one of the crucial factors for sustaining strong growth in the coming few years. Significant investments in physical infrastructure will also lead to employment generation, increased production efficiency, reduction in cost of doing business, and improved standard of living. India’s infrastructure development has not kept pace with economic growth as it continues to be beleaguered by the perennial problems.

To name a few, these challenges revolve around poor project management practices, financing and regulation. The rising demand for infrastructure facilities, rapid growth in urbanisation, bulging of the middle class and an increasing working-age population would engender substantial increase in infrastructure investments during the next few years. Given the various government initiatives, investments in India’s infrastructure development are expected to surge. Government strategy to increase investment in infrastructure through a combination of public investment and public private partnership indicates an increased thrust on the sector.

The Government has taken a number of initiatives in the Union Budget FY15 to provide boost to the infrastructure sector. Measures announced for physical infrastructure such as roads, railways, industrial corridors and rural infrastructure are likely to modernise and improve the connectivity within all parts of the country. Focus on expediting the completion of pending projects will modernise the infrastructure network and is likely to provide the necessary boost to manufacturing and agriculture sectors. Development of smart cities is likely to bridge the gap in infrastructure development in the country. Setting up of ‘Infrastructure Investment Trust’ will open alternative source of funding for the infrastructure sector, which in turn is likely to reduce the pressure from the traditional source of financing such as banks.

Real Estate
The Indian real estate market comprises both residential and commercial structures. Rapid urbanisation coupled with rising income levels and demand for better lifestyle has collectively led to the growing demand of real estate over the last decade. . The contribution of real estate and dwellings to the country’s GDP stood at 5.9% in 2012-13. The sector has also recorded growth rate of 5.6% in 2012-13.

As per the 2011 census, about 31.1% of the Indian population lived in urban areas with an increasing trend in the number of urban areas and towns. However, the basic urban amenities including housing have not been proportionate with the growth in urban population. Nearly one-sixth of the urban population was reported as slum households, with the largest contribution from Maharashtra. The government has launched various housing and development programmes for the economically weaker sections, which have provided the required growth to the residential real estate.

The non-residential real estate segment comprising commercial complexes, SEZs, and IT parks have observed moderately higher levels of construction activity across major cities. According to CMIE the average quarterly commissioning of projects dropped to र 785 bn in 2013-14 from र 916 bn in 2012-13.There has been rise in price early in FY14 due to rise in inflation leading to reduction in buying power. The cost of properties still remains high in many areas.

Roads and highways
Among all the infrastructure sectors, road transport contributes the most to the country’s GDP implying that developing and improving the network of roads is of supreme importance. According to the estimates by the National Highways Authority of India (NHAI), about 65% of freight and 80% of passenger traffic is carried by roads. As per the NHAI, by FY20, roads are likely to remain the dominant form of passenger and freight movement. However, the % of paved roads in India (53.8%) lags behind the world average of 57% as of 2011. Therefore, it is not only the vast reach of highways and roads but also the quality and maintenance that make a difference.

Highways in India consist of National highways, State Highways and Expressways. India has a reach of 92,851 km of National Highways with the North Eastern states having lesser highways than states such as Maharashtra, Uttar Pradesh, Andhra Pradesh and Rajasthan. Since the National Highways carry a major chunk of traffic, their share in the total road network in the country must increase. In order to catch up to the increasing number of vehicles on the road, the state governments need to invest a higher amount in highways linking different cities in states. This is essential for big states like

Uttar Pradesh, Maharashtra etc. India’s road network has benefited greatly from the National Highway Development Program (NHDP). The NHDP alone is estimated to have employed 40 persons per day per km. Existing 2-lane National Highways are to be developed into 4-lane highways to accommodate reater number of vehicles. Moreover, the highways are likely to be improved by providing underpasses, service roads or alternate roads for slow moving traffic. In order to achieve connectivity between urban and rural areas, state highways need to be constructed and widened. Therefore, the government needs to encourage the initiation of a program that is responsible for the development of state highways. The current budget allocated an amount of र 378.8 bn for NHAI and state roads, out of which 30 bn will be spent in the North East. Moreover, the Budget indicated that approximately 8,500 km of roads will be constructed in the current year.

The NHDP program will be funded primarily through PPP. As per NHAI, PPP in NHDP Phase III picked up substantially. Government needs to ease regulations and encourage PPP to promote private investment in road infrastructure. As compared to र 79.7 bn allocated to states for roads and bridges in the 11th Five Year Plan, the 12th Five Year Plan seems to be more promising as it has allocated र 124.1 bn. Moreover, the union government has shown its inclination towards setting up a committee for project preparation. The committee must not only advocate current policies but it must also plan for the future development and construction of roads.

NHDP and NHAI projects

Railways
Indian Railways has been the primary form of transportation in India with the distinction of being the largest railway system in the world under single management. Historically the railway has always been the frontrunner in the transportation of goods and services. However, recently the railways have made news for the lack of safety standards, rising costs relative to revenues and inferior quality infrastructure and mismanagement of resources. In order to tap the vast potential of the railway network, the government needs to announce and implement new projects and policies that promote the construction and maintenance of railway infrastructure.

With rapid urbanisation, increasing requirement for efficient transportation and increasing standards of living, rail would be the foremost mode of transportation. The Ministry of Railways expects to meet the increasing demand for passenger and freight services with the addition of 25,000 km of new lines by 2020 and increase in rail speeds. Moreover, rail revenue is likely to contribute approximately 3% of GDP by 2020.

In order to create efficient, faster and safer railways, the government is expected to focus on repairing, maintenance and construction of high quality rail tracks, development and building of bridges keeping in mind the safety standards, deployment of proven and reliable on-board train protection system and improvement of the quality and capacity of the rolling stock (wagons, locomotives and coaches). The government wishes to improve the connectivity of the North- Eastern Region and has allocated an additional र 10 bn to expedite the development of rail and connectivity.

One of the goals of Vision 2020 by the Ministry of Railways is to encourage public-private partnerships in order to supplement the financing provided by the government. Around र 14,000 bn is needed for capacity augmentation, upgradation and modernisation of railways by FY20. PPPs will improve the technological capability of the Indian Railways, improve transparency and increase the efficiency of operations. Currently, areas identified for execution through PPPs include development of world-class stations, high-speed corridors including bullet trains, setting up of Multi-modal Logistics Parks, Dedicated Freight Corridors, rolling-stock manufacturing units and port connectivity.

As indicated by the Union Budget FY15, the government has decided to encourage development of metro rail systems, including light rail systems, in the PPP mode. Moreover, it has allocated a sum of र 10 bn for accelerating the development of the Railway system in the border areas. Although the government has taken proactive decisions to foster the development of Indian Railways, it must implement greater measures in order to achieve a world class railway system.

Airports
Indira Gandhi International Airport, Delhi is 5th best airport in the Asia Pacific region as of 2013 as per Airports Council International. However, a few years ago Delhi Airport did not come close to the top 10 best airports in the world. There has been a dramatic change in the quality and quantity of airports in India.

Since the introduction of Public Private Partnerships (PPPs) mode of investment in airport infrastructure, there have been five major international standard airports constructed in cities like Mumbai, Delhi and Bengaluru. Moreover, 35 non-metro airports have been constructed or are under construction in cities such as Agra, Bhopal and Ahmedabad at an estimated cost of around र 45 bn.

According to a report of the Working Group on Civil Aviation Sector, total investment of र 3,773 bn has been estimated for airport infrastructure development work by 2031-32. This investment would result in creation of additional passenger capacity, the development of airport infrastructure, development of world class air navigation services infrastructure and other activities to improve the air connectivity. It is not only the renovation and rebuilding of international airports that is necessary but it is also mandatory to improve domestic airports. As per the Working Group report, airlines in India are expected to add around 370 aircrafts worth र 1,500 bn to their fleet by FY17.