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Construction : Cover Story | January 2016 | Source : Infrastructure Today

Happy New Infrastructure!

Clearly, the government had saved the best for the last, with a flurry of policy decisions at the year end. Infrastructure is clearly in for better times in 2016.

The year 2015 was generally a positive one for the economy, although bumpy. In fact, the momentum continued to build throughout the year, from around the second quarter onward, punctuated by structural reforms, cutting down red tape and boosting foreign investment. Alas, legislative action stalled on some pretty serious issues as a political deadlock arose - a stalemate that continues to frustrate. Overall, though, India was one of the few bright spots among the emerging markets that saw improved activity.

For 2016, economists predict that the country will build on the momentum it has generated well beyond the New Year. Urban consumption demand and government capital spending is seen as driving growth. Sushil Gupta of Richa Industries expects ¨capacity utilisation will improve with the government coming forward to spend in infrastructure. The roadmap of the government is quite big and even if we see 50 per cent of this, it can create a huge demand for companies like us.¨

In fact, so big is the plan that even 50 per cent looks fairly ambitious. The country´s ruling party is on overdrive, playing catch up to growth after the inertia of the previous government left the economy and business comatose. ¨Political paralysis does have an impact on economic development of the country and is not warranted in any case. The need of the hour is to build consensus on all issues and move forward,¨ says Shashi Kiran Shetty, Founder & Chairman, Allcargo Logistics. Indeed, it would be a shame if that consensus does not come given that the government plans to spend $140 billion on railways alone over the next five years. A joint report by CRISIL and industry body ASSOCHAM estimates the funding requirement for building India´s infrastructure as being close to Rs.31 lakh crore (`31 trillion) over the next five years. This will be needed to provide uninterrupted power supply to homes and factories, improve roads, telecom, transport and other urban infrastructure, says the report. That translates into more than Rs.6 lakh crore of investments every year or around Rs.1,700 crore every day from April 2015 to March 2020, it adds.

At the time of writing this, the government has just announced a Rs.40,000 crore National Investment and Infrastructure Fund (NIIF) as it seeks to make infrastructure the key growth driver of the Indian economy. While the Cabinet had approved the creation of the fund in July 2015, its first meeting has now been held on the eve of the New Year with Finance Minister Arun Jaitley revealing that several foreign funds and pension funds are willing to participate and cooperate at various levels. So far, so good. The awareness of the size of the task ahead and the steps taken to arrange, allocate, provide and provision for the costs involved is only one aspect of the challenge. In the days and months ahead, the government will deliberate on effective delivery mechanisms and select tried and tested models for construction of various infrastructure assets.

Already, earlier this last week of 2015, the Vijay Kelkar Committee tasked with taking a second look at one of those models - the public private partnership (PPP) model - delivered its recommendations to iron out its chinks. Really, the government had saved the best for the last! The Kelkar panel recommended easier funding, speeding up green clearances, clarity on stamp duty on concession agreements and suggested making authorities responsible for support of infrastructure facilities, including land, reliable access to utilities, dredging, and road and rail evacuation infrastructure, through enforceable obligations. What needs to be seen now is if a number of concerns with the existing way that PPP partnerships were implemented, will go away. However, the large numbers of greenfield infrastructure projects envisaged require a crucial commodity - land. The Narendra Modi government has made this the cornerstone of its growth agenda and is taking steps to address land acquisition problems.

¨It should be ensured that land is acquired before projects are bid out,¨ says Sanjay Date, CEO, Transportation, Shapoorji Pallonji Infrastructure Capital Company, underlining the importance of the problem. The government´s attempts at reforms on this front provide some respite. However, dismally, the crucial Land Acquisition Bill remains stuck in Parliament as opposition parties have so far stymied all discussions on this and other issues such as the goods and services tax (GST) due to political differences and wrangling. ¨Business will not be affected by just the GST issue, but the overall environment is very negative, and that will affect business negatively,¨believes Arnav Jhunjhunwalla, Director, Alom Poly Extrusions.

However, a political consensus seems to be emerging on the GST, and there is a good chance the constitutional amendment could be passed in the next session. Meanwhile, hard indicators like oil and auto demand growth have risen in the last three months, and indicate a broader economic pick-up. In 2016, the downstream effects of government spending on national highways, railways and allocation of coal blocks should show up in demand for labour, construction equipment, and then cement demand. Year-on-year comparisons in the Jan-March quarter, in particular, should be robust.

Also to be expected are the government´s continued efforts at ¨unclogging¨ the administration and removing implementation bottlenecks in an effort to speed up growth. After years of sluggishness, India should be able to witness a growth of over 7.5 per cent and meaningful earnings recovery. True, the stock markets have given only modest returns in 2015 but investors will do well to hold on for a while longer. Based on the improving economy in 2015 and much-improved governance, India is in for better times in 2016. The action, particularly in the infrastructure industries, promises to be riveting.

 
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