Infrastructure Boom in India

INFRASTRUCTURE BOOM: - TRENDS, OPPORTUNITY AND
CHALLENGES

Introduction:-

It is now widely acknowledged that Infrastructure development is critically important to underpin and sustain high growth that Indian economy has witnessed over the past five years. To maintain an average annual GDP over 9%, an estimated US $ 500 billion of Investment in Infrastructure is needed over the Eleven Five years Plan period (2007-12). This implies an increase in Infrastructure investment from about 5% of GDP in 2006-07 to 9% of GDP by the end of the plan period. About 30% of this investment is envisaged to be by the private sector. Hence, the focus has now changed from Government and Public Sector led projects to Private Sector or Public Private Participation mode.

Scope: -

There is no doubt that infrastructure boom is a huge growth opportunity for Civil Engineering professionals. Widespread recognition of the infrastructure growth potential is evident in the active participation of retail investors in the capital market and consistently better performance of infrastructure stocks (as measured by FTSE-IDFC India infrastructure Index), relative to the BSE Sensex, even during the sharp down turn in 2007-2008. According, to the Ministry of Finance, in 2006, commitments to Indian infrastructure projects with private participation, were around double that of the Brazil and China, making India leader amongst the middle and low income countries. Key infrastructure sectors are Telecom, ports, roads, civil aviation, airports, Power-Generation, Transmission and Distribution, Urban Transport, Metro Rails etc.

Airport infrastructure is being upgraded with increasing involvement of the private sector. Indian’s largest airports Mumbai and New Delhi- are being modernized and run by the private sector. Two green field private airport have come up at Banglore and Hyderabad. Several sea ports are being developed by the private sector- green-field as well as expansion of existing ports. To name just a few of the Green Field ports in the pipe line- Gangavaram is likely to begin functioning from mid –2008; Krishnapattanam around 2009, Dhamra from 2010, and Mundra is being expanded to emerge as the largest coal receiving terminal in the world. Even in the power sector the private sector’s share in generation capacity is growing with the thrust on Ultra Mega Power Plant (UMPPs) and merchant power plants.



Currently about 30% of India’s population lives in urban areas and the share of urban population is expected to rise to about 40% of total population by 2020. Like elsewhere in the world, cities are engine of growth in India too. Although investment requirements in India’s urban infrastructure are enormous, very little investment has been materializing because of main reason that the urban local Boded (ULBs) have neither the financial resources nor the capacity to under take large Engineering Projects. To overcome the resources constraint and introduce Urban reforms, the GOI launched Jawaharlal Nehru National Urban Renewal Mission (JLNNURM) in 2005-2006. Key focus now is on Urban Housing and Transport. The Ministry of Urban Development has formulated National Urban Transport Policy in which public transport system has been given high priority. Following Delhi and Kolkata, Metro Rail system are being introduced in Bangalore, Mumbai and Hyderabad. Further proposals for Bus Rapid Transit System (BRTS) have been approved for Ahmedabad, Bhopal, Indore, Pune, Rajkot, Vijaywada and Vishakhapattanam under JLNNURM at an estimated cost Rs 27.4 Billion

Challenges:-

Notwithstanding the opportunities as above there are constraints and several challenges in sustaining the growth momentum of Civil Engineering Infrastructure Projects. Integrated and perspective planning of different infrastructure sectors is imperative for meaningful development of the sectors. If there is inadequate planning, an otherwise well-designed infrastructure project may run into problems. For example, new Bangalore airport was ready, but could not start commercial operations for some time because there was no road the airport to the city. Rail and road connectivity to ports remains a major challenge for proper utilization of port facilities constructed.

Non-availability of technology, equipments and material; inadequate number of competent construction agencies; skilled and unskilled manpower shortages, are major constraints to rapid build-up of infrastructures. Shortage of wagons, cranes and trucks is also adversely affecting other sectors.

Land has emerged as a major constraint in Civil Infrastructure Development and land acquisition has become a contentious issue. The timely implementation of National Highway projects has suffered due to delays in approval process, land acquisition and shifting of utilities, difficulties in environmental and forest clearances, law and order problems in some states and poor performance of some contractors, who were awarded contracts for extraneous consideration rather than on their Professional Competence.


The Pradhan Mantri Gram Sadak Yojana (PMGSY), has been launched in Dec 2000, with the objective of providing connectivity through all weather road to all unconnected habitation with a population of more than 500. The reasons for poor progress of its projects include excessive procedural formalities, shortage of manpower and machinery at the state level and deficiencies in standard bidding documents etc.

Sudden rise in price of key building materials viz steel, cement, petroleum products has caused manifold increase in cost of the ongoing projects, resulting in large scale desertions, abandonment of projects by the contractor, in want of suitable price- escalation and risk mitigation clauses in agreements. The contracts agreement are to be rationalized and formulated based on enquiry as per FIDIC documents to avoid disputes, delays and litigation. New MCA which has been approved, addresses wide-ranging issue including, mitigation and unbundling of risks, allocation of risks and rewards, symmetry of obligations between the principal parties, precision and predictability of costs and obligations, reduction of transaction costs, force majeure and termination.

Conclusion:-

With the new models of Public-Private partnership, for funding and developing the infrastructures projects of Civil Engineering viz Urban transport, National Highway, State Highway, rural roads, Airports, Ports, Power-generation, Metros, Electrifications, Water and Sewage Treatment Plants etc, there has been flood of schemes, projects, Developers, Realtors, Contractors to cash in the opportunities. However, a shortage of individual and institutional capacity within the Public Sector to plan and administer PPP Projects, has emerged as major constraining factor. To expand, private sector participation, there is need to strengthen the Regulatory and Institutional Mechanism. To bring greater transparency and accountability, various contract agreements need to be fair and equitable. The standardization of agreements viz Model Concession Agreement (MCA), Power Purchase Agreement (PPAs). Request for Qualifications (RFQs) and Request for Proposal (RFP), shall simplify and streamline the bidding procedures. There is definite need to train and orient the Civil Engineering professionals and contractors to handle the opportunities unleashed and deliver the projects of the best quality within planned time frame. Time and cost over runs, disputes and arbitration, which are counter productive need to be reduced to conserve scarce resources