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India's Leading Infrastructur Companies 2013

 
 

The construction sector has been consistently contributing around 8% to India’s GDP (at 2004-05 prices) in the last three years (FY11 to FY13)1. GDP from the construction sector at factor cost (at FY05 prices) increased to Rs 7673.9 bn in 2013 from Rs 4510.3 bn in 20092. Recognised as one of the largest employment generators after agriculture, the sector employs nearly 35 mn people, out of which nearly 85% serve as workers. Employment growth of this sector has almost reached 70% between 2004 and 20093. As per estimates, the sector further demands infusion of at least six mn people each year4.

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.

During the eleventh five-year plan (2007-2012), the construction sector grew at an average of 7.7%, particularly outpacing the overall GDP growth during 2007-08 and 2010-11. However, with slowing GDP growth, the sector too saw slowdown from 2011-12, recording 4.3% growth in 2012-13. The construction sector contributed about 6% to the overall Gross Fixed Capital Formation (GFCF) in 2011-125. Foreign Direct Investment (FDI) into the construction development activities slowed by almost CAGR of 5% between 2009-13 reaching Rs 72.5 bn. During the same period, scheduled commercial banks (SCBs) remained a major funding source, with gross bank credit to the construction sector growing by CAGR of almost 8%. Share of construction in overall bank lending to industries stood at 2.3% as on Mar 2013. The twelfth five-year plan expects the total market size of the construction sector to reach Rs 52.3 trillion by the end-2017.

The last decade and a half has seen a major spurt in infrastructure investments with segments including airports, telecommunications, and roads and bridges seeing more than 100% growth in investments. However, as per the planning commission data, infrastructure segments such as ports and railways have underperformed in terms of meeting investment targets during the eleventh five-year plan.

I. 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 2011-12. The sector has also recorded growth rate of 7.2% in 2011-12.

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. With no indications of price stabilization, commercial leasing activity is seen largely as a popular strategy. This strategy however, has seen some rent escalations in the recent past.

A closer look into the project status reveals some slowdown trends in the 2012-13, with nearly 17% decline in completed projects compared to 39% growth in 2011-12 in the housing construction category. Projects under non-residential category also revealed the same story. Number of new projects continued to de-grow at nearly 25% in 2012-13 compared to 8.6% in the previous year. The commercial complexes category however, showed some signs of improvement with slowing YoY growth in revived and stalled projects.

II. Infrastructure

1. Roads and Highways
Indian road network mainly comprises national highways, expressways, state highways, district, and village roads. The road network runs deeply across the length and breadth of the country acting as an intermediary service to railway, airways, and shipping. 

According to the Ministry of Road transport and Highways, India has one of the largest road networks of 4.69 mn kms, mainly utilized for carrying nearly 85% of the total passenger traffic and 60% of the total goods traffic6. National Highways and expressways account for only 1.7% of the entire Indian road network, out of which only 24% are Four Lane/Six Lane/Eight Lane. 

The government lined up several key investments to help India’s highways meet international standards. These include widening of 20,000 km of less than two-lane National Highways to two-lane standard under the EPC mode and six-laning of four-laned roads, expressways, and port connectivity projects. 

2. Airports
Air transport in India comprises 125 airports mainly controlled and managed by the Airport Authority of India (AAI). It is also responsible for providing air traffic services in the country. During Jan-Nov 2012, domestic passenger traffic handled by Indian airports reached 106 mn; while international passenger traffic touched 37.8 mn. At the same time, international and cargo throughput at Indian airports stood at 1.30 MMT and 0.73 MMT respectively7. With rapid progress across the passenger and cargo segment, the present air transport infrastructure and network of airports is being increasingly enhanced through private participation. Overall investment by private sector on the four metro airports stood at nearly Rs 231.87 bn8. 

Developments during eleventh five-year plan through PPP:
• Development of green field international airports at Hyderabad and Bengaluru
• Redevelopment of the Delhi International airport
• Upgradation of two metro airports by Airport Authority of India (AAI) (Chennai and Kolkata)
• Development of 35 non-metro airports by AAI

The twelfth plan further encourages the use of PPP for expansion and modernization of Indian airport infrastructure. An investment of Rs 65,000 crore has been proposed, of which a contribution of about Rs 50,000 crore is expected from the private sector. The AAI has undertaken development of 35 non-metro airports identified based on regional connectivity, tourist destinations, and potential business development hubs. Moreover, the government identified five green field airport developments at Navi Mumbai, Goa, Kannur, Chandigarh, and Kota.

3. Ports
In India, more than 90% of foreign trade is carried through the sea route via 12 major ports and 187 minor/intermediate ports along the 7,517 kms long coastline of the country9. Port efficiency analysed with the help of terms of turnaround time (TRT), which is total time spent by a ship at the ports from its entry until its departure, has shown improvement from 8.10 days in 1990-91 to 4.47 days in 2011-12.

The eleventh five-year plan envisaged an increase in capacity of major ports to 1,016.5 MT by end-2011-12. However, the actual capacity addition was moderate at 696.53 MT. Like other construction segments, the government has encouraged private participation in ports segment as well. For port development projects, the government permitted FDI to the extent of 100% under the automatic route. The Maritime Agenda 2010-20 of Ministry of Shipping targets 3130 MT of port capacity by 2020, with traffic handling capacity of non-major airports expected to increase to 1280 MT. Up until Jan 2013, 22 projects involving capacity addition of 97.34 MTPA and investment of Rs 5755.72 cr have been awarded. 

4. Railways
Indian railways is operated by the Government of India (GoI) under the Ministry of Railways and is considered one of the world’s largest network connecting nearly 7,146 stations. As on Mar 31, 2012, its network comprised 9,549 steam, diesel and electric locomotives, 61,899 coaching stocks, 239,321 wagons, and 64,600 route kms. During the same period, its employee base stood at 1,306 employees.

Freight earnings (revenues derived from goods transport) account for a major share in overall revenues of Indian railways. Yet railways loses its share to road transport in terms of freight carrying capacity, connectivity, and safety. Necessary investments are accelerated to enhance this crucial lifeline of Indian transport network. The twelfth five-year plan targets an overall investment of Rs 5.2 trillion in the expansion and modernization of Indian railways. The eastern and western dedicated freight corridor is a mega project undertaken to tackle bottlenecks in railway transport. Other crucial initiatives include re-development of stations, Mumbai Elevated Rail Corridor, and the High Speed Corridor. However, progress of these projects continues to be a challenge with ongoing issues such as availability of resources, land acquisitions and forest clearance, law and order problems, and contract failures among others. In 2013, out of the 124 railways projects, only eight were reported to be on schedule while 41 were delayed. Remaining appeared to be without a date of commissioning. Out of all major central sector projects, railways suffered the highest cost overruns of more than 150% in 2013, accounting for almost 48% of the overall cost overruns.

Conclusion

As we move towards achieving double-digit growth, accelerated focus on the construction sector remains crucial for policymakers. Rapid growth in the construction sector boosts several other linked industries such as cement, chemicals, steel, fittings and fixtures, and paints. The sector also holds importance from an employment point of view. As per the approach paper for the twelfth five-year plan, the sector is expected to employ nearly 92 mn people by 2022. Hence, it is extremely important for the policymakers to closely examine and eliminate all possible bottlenecks including clearances, permissions, time lag in land acquisition, and resource constraints among others. The sector is also presently facing some challenges in availability of skilled labor. Moreover, the fragmented nature of the industry makes growth and presence of smaller units increasingly prominent.

1 CSO, Ministry of Statistics and Programme Implementation
2 Handbook of Statistics 2013, RBI
3 Economic Survey 2012-13
4 Working Group Report on Human Resource Development for Construction Sector (12th Plan)
5 Economic Survey 2013
6 Annual Report 2013, Ministry of Road Transport & Highways
7 Economic Survey 2013
8 Twelfth Five Year Plan, Planning Commission
9 Ministry of Shipping