The Hindu Business Line : Construction industry takes bigger strides

THE deluge in Mumbai and unprecedented rains in Chennai, Bangalore and other growing cities in 2005 exposed the weak and vulnerable urban infrastructure in India. Slow pace of privatisation of airports and other public-private projects too emerged as a cause for concern of the infrastructure sector during the year.

Notwithstanding these hiccups, the year proved to be a watershed in the infrastructure sector, especially the construction industry for more than one reason. Early this year, the Union Government allowed 100 per cent FDI (foreign direct investment) through the automatic route in construction. The decision was widely welcomed by India Inc, as it would help attract much needed capital and global expertise for developing quality infrastructure.

And towards the end of the year, the Dubai-based Emaar-MGF Land Private Ltd had announced plans to invest $500 million in real estate projects in India. This only hints at the shape of things to come.

Cushman and Wakefield, a real estate solutions company, has forecast that technology firms would trigger a real estate opportunity of around 1.10 million sq ft in Kolkata in the next two years. This forecast also holds good for major cities such as Bangalore, New Delhi, Chennai, Pune and Hyderabad. The boom in the retail sector too would chip in.

"Biggest of the achievements is that the realisation has dawned on the policy makers that there is a great shortfall in infrastructure. Blueprints have been drawn to develop infrastructure in areas such as roads, airports, irrigation and urban infrastructure," Mr E. Sudhir Reddy, Managing Director of IVRCL, told Business Line.

The year saw construction majors bagging big orders and exhibiting a healthy order book situation. On the stock market also several of these companies shone. Not just the big players such as DLF, Rahejas and the Ansals, but mid-sized companies such as IVRCL, Nagarjuna Construction, Madhucon also bagged orders in irrigation and infrastructure.

The year also saw the emergence of public-private partnerships (PPPs) as an important means to attract investments in the sector. Industry experts feel that biggest of leads would be in highways, where the country could achieve a head start in the last two years. Irrigation projects, urban infrastructure projects are also expected to trigger investments in a big way.

Riding on the continuing growth of the IT sector, the year witnessed a boom in real estate across cities such as Bangalore, Chennai, Hyderabad and Pune resulting in retail chains, malls, multiplexes, huge residential complexes and hotels.

The growth was promising to spread to tier-two cities like Chandigarh, Ahmedabad, Jaipur, Thiruvananthapuram etc by the end of the year.

The PPP model got an impetus from a policy on PPP announced late last year. The policy, which announced setting up of a special purpose vehicle for funding infrastructure projects in the 2005-06 Budget, acknowledged that significant shortcomings in the availability of critical infrastructure were hampering the pace of economic development.

Interestingly, South India had taken strides in embracing the PPP model. The Andhra Pradesh Government has picked 13 per cent in the Rs 1,400-crore Hyderabad International Airport Ltd (HIAL), with GMR Infrastructure Ltd as a leading promoter. The Karnataka Government too picked 13 per cent equity participation in the Bangalore International Airport project. In both the cases, the Union Government owned 13 per cent through AAI (Airports Authority of India). Significantly, both the projects achieved financial closure this year.

Though found to be slow in implementation, PPPs did yield tangible benefits such as lower costs in asset creation, good service delivery and accountability. Mr Reddy said the Governments could take a cue from the success of Cyberabad in creating the infrastructure the IT and ITES companies required.

The year also saw some big-ticket fund-raising and acquisition moves by the infrastructure companies. IVRCL acquired 70 per cent of equity of Hindustan Dorr-oliver Ltd for Rs 54 crore. It also raised $65 million through FCCBs (foreign currency convertible bonds) during the year. Nagarjuna Constructions, which bagged huge orders this year, raised $100 million at the Luxemburg Stock Exchange.