Current scenario
Construction Sector: Current Scenario & Emerging Trends
After recording a spectacular growth of over 12%, more than the country’s GDP in the past half decade, the Indian construction sector all of a sudden lost stream in last fiscal largely due to global financial turmoil. Not just this, the turmoil tremors created multiplier impact across sectors including steel, cement, power, petroleum, aluminum, IT and ports, besides badly bruising the Indian economy.
But few sectors such as telecom, urban infrastructure, railways, oil and gas, which are also generating large share of construction activities have not been affected badly. These segments have registered a noticeable growth in project orders from centre, states, and local firms. However, orders from overseas firms have drastically dwindled.
Current Global Scenario
Currently, the global economy is in severe slowdown mode amidst deepening credit crunch and upsetting developmental targets of economies across the world. In the prevailing scenario, infrastructure remains a top priority for addressing developmental gaps as it is considered omnipotent with potentials of lifting economies out of the financial turmoil. The governments around the world are pumping money to generate demands for goods and services by creating jobs through higher spending into physical and social infrastructure. Likewise, the Indian government on its part is not lagging behind on this score and has taken concrete steps to revive the sector to regain its past glory.
Speeding Infra Spending
After recording a spectacular growth of over 12%, more than the country’s GDP in the past half decade, the Indian construction sector all of a sudden lost stream in last fiscal largely due to global financial turmoil. Not just this, the turmoil tremors created multiplier impact across sectors including steel, cement, power, petroleum, aluminum, IT and ports, besides badly bruising the Indian economy.
But few sectors such as telecom, urban infrastructure, railways, oil and gas, which are also generating large share of construction activities have not been affected badly. These segments have registered a noticeable growth in project orders from centre, states, and local firms. However, orders from overseas firms have drastically dwindled.
Current Global Scenario
Currently, the global economy is in severe slowdown mode amidst deepening credit crunch and upsetting developmental targets of economies across the world. In the prevailing scenario, infrastructure remains a top priority for addressing developmental gaps as it is considered omnipotent with potentials of lifting economies out of the financial turmoil. The governments around the world are pumping money to generate demands for goods and services by creating jobs through higher spending into physical and social infrastructure. Likewise, the Indian government on its part is not lagging behind on this score and has taken concrete steps to revive the sector to regain its past glory.
Speeding Infra Spending
- The government authorised Indian Infrastructure Finance Company Limited (IIFCL) to
- Raise Rs.100 billion by issuing of tax free bonds
- Raise additional funds worth Rs. 300 billion
- Sanction highways and port projects funding worth Rs. 250 billion
- Finance projects worth Rs. 750 billion over the next 18 months.
- Liberalization of the external commercial borrowing (ECBs) policy
- Revision in the cap for home loans to Rs. 2 million from Rs. 0.5 million through inclusion in the priority sector
- Increase in foreign institutional investors limit in rupee denominated corporate bonds from $6 billion to $15 billion
- Exemption of countervailing duty on cement and TMT bars and structural
- Close monitoring of the government spending to expedite expenditure for all schemes and programmes.
- The Planning Commission estimates an investment of about $492 billion will be required for the infrastructure sector during the Eleventh Five Year Plan.
Construction Equipment Industry
$3.1 billion construction equipment industry witnessed slowdown.
The Indian equipment market was growing at a rate of about 35% for almost seven years.
October-December 2008 quarter, the growth rate declined by 30%.
The new equipment purchases have slumped due to a lack of funds.
Equipment sales have taken a hit of about 18 to 25%.
Rental rates have consequently firmed up, benefiting companies involved in the rental business.
The price of major input material such as cement and steel has declined significantly, thus mitigating project costs.
Roads & Highways
The network spans about 3.3 million kms. Road densities of 2.75 km per 1,000 people and 770 km per 1,000 sq km as compared to world averages of 6.7km and 840 km respectively.
About 15% of the network carries 80% of the traffic.
The National Highways Development Programme (NHDP) has created the biggest construction opportunity in the road and highways sector that aims at developing 50,000 km of national highways in seven phases by 2015 with an investment of over Rs. 3,000 billion at 2007 prices.
Till January 2009, projects covering 33,000 km under phases I, II, III A and V have been under development out of which about 10,000 km has been four-lane.
The Golden Quadrilateral, providing four-lane connectivity to four metros is near completion.
The North-South-East West (NSEW) corridor is around 45% complete.
Phases III, V and VI are under– implementation.
Phases IV and VII are at initial stages of implementation.
The projected commitment of Rs. 131.73 billion for financial year 2008–09 under the CRF is expected to be met.
Nearly 60% of the future funding requirements of the NHDP Rs. 3,014.88 billion till 2015 are expected to come from the private sector.
Urban Infrastructure
The government has allocated Rs. 11,842 crore under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which is much higher than Rs. 6870 crore sanctioned in the previous budget. The funds aimed at integrated development of urban infrastructure and services in rural areas and urban cities to boost allied sectors including construction material, steel and cement.
The government has also set aside Rs. 40,900 crore for 2009–10 for its Bharat Nirman initiative. This is a time bound plan for the development of housing, rural roads, power, irrigation, telephony, and drinking water supply. This would in turn boost business opportunities to small and large players alike in the construction and infrastructure as they would offer sizeable scope for contractual work for the local populace.
That apart, the decision of the government to continue with a corpus of Rs. 4,000 crore for rural roads in the Interim Budget has brought cheer to the companies engaged in construction, infrastructure, logistics and transport segments. The move is expected to bring a shift in the supply-chain pattern and improve the delivery of construction materials as due to lack of such facilities in the countryside, the delivery is inadequate both in term of quantity and quality. Today, most of the tier II and III towns are emerging as rural market hubs of production, consumption and distribution.
The government has also launched the Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT) with an outlay of Rs. 64 billion to address infrastructure needs of 5,098 small towns and cities with an outlay of about Rs. 1,064. The JNNURM outlay of over Rs.1 trillion is targeted at augmenting urban infrastructure needs of over 65 mission cities under which the government provides grants ranging from 35% to 90% of the project cost, depending upon the size of the city with state governments and private players contributing the rest.
Moreover, the emphasis on creating infrastructure in villages through Rural Infrastructure Development Fund (RIDF) has raised hopes for construction and consumer companies hopping that the growing demands from the rural heartland will boost the sagging sectors.
Railways
• An investment outlay of Rs. 2,510 billion has been proposed for the Eleventh Plan period, of which around 67% is proposed to be mobilized through internal generation and extra-budgetary resources.
• As per the eleventh Five Year Plan Working Group Report, the total fund required for capacity enhancement projects during the plan period is Rs. 544 billion, apart from Rs. 70 billion for national railway projects.
• Infrastructure is being upgraded by way of new railway line projects, gauge conversion, doubling, construction of terminals and logistic parks.
• Construction opportunities are available for rail-road connectivity and other capacity augmentation projects being undertaken by the Rail Vikas Nigam Limited (RVNL).
• Modernization projects of 26 railway stations, including those of Delhi and Mumbai to be upgraded on the PPP model.
• The Indian Railways has decided to attract private investments by allowing areas around stations and above platforms to be commercially developed. This includes separation of operational passenger handling areas from the proposed commercial space as is the case in airports with an estimated investment of about $500 million each.
• The Dedicated Freight Corridor (DFC) envisaging construction of dedicated freight lines on the eastern and western sides of the country covering 2,729 km through seven states interlinked at Khurja will require a total investment of Rs. 372.18 billion.
Delhi–Mumbai Industrial Corridor (DMIC)
• Development of a 1,500 km industrial belt between Delhi and Mumbai passing through seven states extending upto 150km on either side of the DFC. The investment requirement for the entire DMIC project is Rs. 3,648 billion.
• 24 industrial development hubs have been identified in the form of industrial regions for development across the corridor.
• The Phase 1 of the project between Delhi and Vadodara will be carried out during 2008-12 and Phase II will be extended till 2013-18.
• In a five year period, it is envisaged to double the employment potential upto 14.87% compounding annual growth rate to be triple of the industrial output of about 24.57% and quadruple exports from the region is expected to be 31.95% with a total employment potential of about 0.8 million masses.
Metro Rail Projects
• Cities including Delhi, Mumbai, Kolkata, Bangalore, Hyderabad, Chennai, and Kochi have already initiated heavy rail based transit system projects.
• State governments like Punjab, Uttar Pradesh and Gujarat are also inclined to introduce metros in their major city clusters.
• According to India Infrastructure Research, investments of over 860 billion lined up for heavy rail based project across the country, of which Rs. 550 billion is planned to be mobilized in the next five years.
Real Estate
• Falling inflation, interest rates and above all the recent fiscal stimulus announced by the government, will give indirect push to construction and housing activities across the country.
• Steel players will benefit from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products.
• The reduction of excise duty in cases where the output is sold directly to the consumer, withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports, besides encouraging developers to focus on affordable housing.
• The Rs. 4000 crore refinance facility for NHB will ensure availability of loans for the sector.
• The reduction in home loans rates by PSU banks 8 – 9.25% to Rs. 5 lakh and 9.5% for loans in the range of Rs. 5 to 20 lakh has prompted large private players to cut rates, the development will again encourage housing activities which will again boost the business of steel and cement and construction companies.
• The centre has given a major incentive to the states to engage private developers by agreeing in doling out 25% of the total cost of external services such as drainage, roads, sewage and a water supply as grant to state governments.
• The Centre has been awaiting a reply from state governments on its Rs. 5,000 crore package to create on million affordable houses across the country.
• Developers and the leading players in the real estate business have also announced plans to foray into the affordable housing segment.
Power Sector
• With an estimated investment of $150 billion by 2012, the power sector is destined to give much needed impetus to the economy in the time of current financial crisis.
• The Integrated Energy Policy estimated that to wipe out poverty from the country the economic growth needs to be at least 8 to 9% annually until 2032 and by that time the power capacity needs will be as much as 800 GW.
• The Union Government has decided to add about 78,000 MW of power generation capacity during the Eleventh Plan period.
• The generation capacity additional needs are being complemented by commensurate investments in transmission and distribution networks.
• The sector has witnessed increased investment interest from private players especially in the generation segment and in the past half decade the trend has registered consistent growth.
• The demand supply gap of about 16% as peak shortage and 10% as average shortage indicates a huge opportunity for developers and their financiers including power equipment suppliers.
• The generation segment has grown at an annual rate of 5.6% during the period and transmission and distribution segment have also grown at an annual rate of 3% and 1.5% respectively.
• In the past couple of years, the power generation pace has grown from 124.287 MW in 2005–06 to 143.061 in 2007–08 and the Electricity Act 2003 is said to be the main driver behind the marked growth.
Chennai – Why?
Chennai is the fourth largest city in India and the capital city of the Indian state of Tamil Nadu. Located on the Coromandel Coast of the Bay of Bengal, Chennai had a population of 4.2 million in the 2001 census within its municipal corporation. The urban agglomeration of Chennai has an estimated population over 8 million, making it one of the largest urban agglomerations in India.
Economy: Chennai has a diversified economic base anchored by the automobile, software services, hardware manufacturing, healthcare and financial services industries. As of 2000, the city's total personal income was Rs.12, 488.83 crores, making up 10.9% of the total income of Tamil Nadu. Chennai Zone contributes 39 per cent of the State’s GDP.
Politics: The political stability offered by the Centre as well as the State of Tamil Nadu, coupled with the pro-developer attitudes of the governance offers a great reason to invest in Chennai with maximum security. Further, the forthcoming Budget is said to offer:
• A cut in Home-Loan rates
• Extended Tax-Holidays for Developers
Both these factors would go a long way in inspiring more and more people to buy houses and apartments, while giving real-estate developers healthy margins.
Investments: Chennai, along with other cities in India, is enjoying a steady rise in investment opportunities because of the emphasis of the government in attracting foreign investors to have a stake in industry. Laws related to FDI and related documentation is now geared to ease the process and increase its speed. With the resurgence of the real-estate around the corner, the current liberal FDI policies beckon foreign investors to invest in India in this field.
Employment: In 2001, the total workforce in Chennai was about 1.5 million, which was 31.79% of its population. According to the 1991 census, most of the city's workforce was involved in trade (25.65%), manufacturing (23.52%), transportation (10.72%), construction (6.3%) and other services (31.8%).
Taxes: Chennai metropolitan area accounts for over 75% of the sales tax revenue in the state. According to the CII, Chennai's is estimated to grow to a $100-billion economy, 2.5 times its present size, by the year 2025.
Automobile: The city is base to around 30% of India's automobile industry and 35% of its auto components industry. A large number of automotive companies including Hyundai, Ford, BMW, Mitsubishi, Komatsu, The TVS Group (TVS), Ashok Leyland, Nissan-Renault, Daimler Trucks, TI Cycles of India, TAFE Tractors, Royal Enfield, Caterpillar Inc., Caparo, Madras Rubber Factory (MRF) and Michelin have manufacturing plants in and around Chennai. The Heavy Vehicles Factory at Avadi produces military vehicles, including India's main battle tank: Arjun MBT. The Integral Coach Factory manufactures railway coaches and other rolling stock for Indian Railways. Chennai accounts for 60 per cent of the country’s automotive exports and is sometimes referred to as the Detroit of India.
Leather & Textiles: The Ambattur-Padi industrial zone houses many textile manufacturers, and an SEZ for apparel and footwear manufacture has been set up in the southern suburbs of the city. Chennai contributes more than 50% of India's leather exports.
Electronics: The city is an electronics manufacturing hub where multinational corporations like Dell, Nokia, Motorola, Samsung, Flextronics and Foxconn have set up electronics and hardware manufacturing plants, mainly in the Sriperumbudur Special Economic Zone (SEZ).
Software: Many software and software services companies have development centres in Chennai, which contributed 14% of India's total software exports of Rs.144,214 crores during 2006–07, making it the second-largest exporter of software in the country, behind Bangalore.
Health Care: Some of India's well-known healthcare institutions such as Apollo Hospitals (the largest private healthcare provider in Asia), Sankara Nethralaya and Sri Ramachandra Medical Centre are based in the city, making it one of the preferred destinations for medical tourists from across the globe. Chennai is widely acknowledged as having the best health care facilities of any city in India. It is also home to the Apollo Hospitals group, which is the largest private healthcare provider in Asia and one of the largest in the world. With the advent of healthcare tourism, Chennai is further cementing its status as India's health capital, as it nets in 45% of health tourists from abroad and 30-40% of domestic health tourists.
Telecom/ Pharma/ Chemicals: Telecom giants Ericsson and Alcatel-Lucent, pharmaceuticals giant Pfizer and chemicals giant Dow Chemicals have research and development facilities in Chennai.
Bio-tech: TICEL bio-tech park and Golden Jubilee bio-tech park at Siruseri house biotechnology companies and laboratories.
SEZ: Chennai is crisscrossed with and also surrounded by SEZs - Special Economic Zones. These offer multiple special benefits to industries and infrastructure set up here. The benefits attract and retain a large number of plants, factories, offices and IT-parks. As a result, these and the surrounding areas experience a concentration of people and economic activity. Large neighborhoods thus see a hike in land-value and the demand of built-up space, both residential and commercial.
Financial Hub: Prominent financial institutions, including the World Bank, HSBC, Citi bank have back office operations in the city. Chennai is home to three large national level commercial banks and many state level co-operative banks, finance and insurance companies.
Stock Exchange: Chennai has a fully computerised stock exchange called the Madras Stock Exchange.
Airport: Chennai serves as a major gateway to South India and the Chennai International Airport, comprising the Anna international terminal and the Kamaraj domestic terminal, is the third busiest airport in India. The existing airport is undergoing further modernization and expansion, and a new Greenfield airport is to be constructed at an estimated cost of Rs 2,000 crore in Sriperumbudur
Ports: The city is served by two major ports, Chennai Port, one of the largest artificial ports, and Ennore Port. The Ennore Port is underway for a complete overhaul or redevelopment to handle more traffic. A smaller harbour at Royapuram is used by local fishing boats and trawlers. A new karaikal port from marg group would also be a stepping stone for chennai in handling sea traffic.
MRTS/ Metro: Chennai also boasts of an elevated Mass Rapid Transit System (MRTS) which links Chennai Beach to Velachery and is interlinked with the remaining rail network. Plans are underway for an underground Metro. Sports: The M.A. Chidambaram Stadium (MAC) in Chepauk is one of the oldest cricket stadiums in India. The Chemplast Cricket Ground on the IIT Madras campus is another important venue hosting first class matches. Plans are also underway to build an ultra modern cricket stadium, near Chennai, which would be ready for the 2011 Cricket World Cup will give way for massive development in that region.
Administration and utility services: The metropolitan region of Chennai covers many suburbs that are part of Kanchipuram and Thiruvallur districts. The larger suburbs are governed by town municipalities, and the smaller ones are governed by town councils called panchayats. While the city covers an area of 174 km² (67 mi²), the metropolitan area is spread over 1,189 km² (458 mi²). The Chennai Metropolitan Development Authority (CMDA) has drafted a Second Master Plan that aims to develop satellite townships around the city. Contiguous satellite towns include Mahabalipuram to the south, Chengalpattu and Maraimalai Nagar to the southwest, and Kanchipuram town, Sriperumpudur, Tiruvallur and Arakkonam to the west. Water supply and sewage treatment are handled by the Chennai Metropolitan Water Supply and Sewage Board, popularly referred to as CMWSSB. Electricity is supplied by the Tamil Nadu Electricity Board. Next: Chennai is a stones' throw from the II-Tier cities of Coimbatore, Madurai and Thiruchy. Developing the passageways to these cities has become imperative, what with the high demand for land throughout this region. This opens up a whole new arena for real-estate development, all along the routes to these mushrooming II-Tier cities.
Conclusion
Construction activities have gained momentum. The Government has issued contracts worth Rs 1,861 crore relating to projects in mining, railway, infrastructure, commercial buildings, and some of the construction companies are also coasting along with a steady flow of contracts. About 90% of these contracts are from the Government agencies and this is going to be the mainstay of business in construction sector for some time to come till such orders start flowing from the private sector.
Expectation are that sooner rather than later, the sleepy construction project sites would pulsate with construction work once again and one would see trucks loads of men, materials and machinery moving to and fro with men and women working on a war footing to translate country’s development vision into a concrete reality.
Shedding its initial pessimism, the construction equipment sector is also getting into optimistic mode and is busy in giving final touches to their expansion plans to add new manufacturing facilities sensing a demand pull in the next 6-8 months. All in all, the construction industry was no doubt down but not out.
The next 2-3 years are going to be the moment of reckoning for the construction industry to demonstrate its managerial, financial and technical prowess to establish new benchmarks in construction management, construction quality, imparting value addition to its products and services in critical construction equipment product line.
To resist such like present global meltdown, the industry has to look within to develop its competitiveness across segments through enhancing their capabilities in R&D to leverage innovation through indigenous capability and expertise. They need to exploit and build on their own inherent labor and material cost advantage and resource savings to manage crisis. The present time is the best time to revisit some of these and other strategies and explore new growth avenues not only to mere recover from such situations, but also to prepare itself for new global shocks.
With or without stimulus packages, the best means for the well being and growth come from within. What matters most is to put one’s best foot forward in recession, recover fast and emerge stronger than ever.
The current scenario of chennai and the complementing growth plans of infrastructure facilities of India would lead to proportional increase in investment and subsequently the return on investment and capital.
The next 2-3 years are going to be the moment of reckoning for the construction industry to demonstrate its managerial, financial and technical prowess to establish new benchmarks in construction management, construction quality, imparting value addition to its products and services in critical construction equipment product line.
To resist such like present global meltdown, the industry has to look within to develop its competitiveness across segments through enhancing their capabilities in R&D to leverage innovation through indigenous capability and expertise. They need to exploit and build on their own inherent labor and material cost advantage and resource savings to manage crisis. The present time is the best time to revisit some of these and other strategies and explore new growth avenues not only to mere recover from such situations, but also to prepare itself for new global shocks.
With or without stimulus packages, the best means for the well being and growth come from within. What matters most is to put one’s best foot forward in recession, recover fast and emerge stronger than ever.
The current scenario of chennai and the complementing growth plans of infrastructure facilities of India would lead to proportional increase in investment and subsequently the return on investment and capital.
A special tip: property experts are betting on two areas in Chennai to benefit the most from the construction of the airport, and those two are Guindy and its surrounding areas, and Velachery and its surrounding areas. Since the hotel industry is also likely to benefit from the airport construction because of the inflow of more travelers to the area, land and built-up spaces suitable for hospitality purposes are a great investment option at the moment!
$3.1 billion construction equipment industry witnessed slowdown.
The Indian equipment market was growing at a rate of about 35% for almost seven years.
October-December 2008 quarter, the growth rate declined by 30%.
The new equipment purchases have slumped due to a lack of funds.
Equipment sales have taken a hit of about 18 to 25%.
Rental rates have consequently firmed up, benefiting companies involved in the rental business.
The price of major input material such as cement and steel has declined significantly, thus mitigating project costs.
Roads & Highways
The network spans about 3.3 million kms. Road densities of 2.75 km per 1,000 people and 770 km per 1,000 sq km as compared to world averages of 6.7km and 840 km respectively.
About 15% of the network carries 80% of the traffic.
The National Highways Development Programme (NHDP) has created the biggest construction opportunity in the road and highways sector that aims at developing 50,000 km of national highways in seven phases by 2015 with an investment of over Rs. 3,000 billion at 2007 prices.
Till January 2009, projects covering 33,000 km under phases I, II, III A and V have been under development out of which about 10,000 km has been four-lane.
The Golden Quadrilateral, providing four-lane connectivity to four metros is near completion.
The North-South-East West (NSEW) corridor is around 45% complete.
Phases III, V and VI are under– implementation.
Phases IV and VII are at initial stages of implementation.
The projected commitment of Rs. 131.73 billion for financial year 2008–09 under the CRF is expected to be met.
Nearly 60% of the future funding requirements of the NHDP Rs. 3,014.88 billion till 2015 are expected to come from the private sector.
Urban Infrastructure
The government has allocated Rs. 11,842 crore under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which is much higher than Rs. 6870 crore sanctioned in the previous budget. The funds aimed at integrated development of urban infrastructure and services in rural areas and urban cities to boost allied sectors including construction material, steel and cement.
The government has also set aside Rs. 40,900 crore for 2009–10 for its Bharat Nirman initiative. This is a time bound plan for the development of housing, rural roads, power, irrigation, telephony, and drinking water supply. This would in turn boost business opportunities to small and large players alike in the construction and infrastructure as they would offer sizeable scope for contractual work for the local populace.
That apart, the decision of the government to continue with a corpus of Rs. 4,000 crore for rural roads in the Interim Budget has brought cheer to the companies engaged in construction, infrastructure, logistics and transport segments. The move is expected to bring a shift in the supply-chain pattern and improve the delivery of construction materials as due to lack of such facilities in the countryside, the delivery is inadequate both in term of quantity and quality. Today, most of the tier II and III towns are emerging as rural market hubs of production, consumption and distribution.
The government has also launched the Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT) with an outlay of Rs. 64 billion to address infrastructure needs of 5,098 small towns and cities with an outlay of about Rs. 1,064. The JNNURM outlay of over Rs.1 trillion is targeted at augmenting urban infrastructure needs of over 65 mission cities under which the government provides grants ranging from 35% to 90% of the project cost, depending upon the size of the city with state governments and private players contributing the rest.
Moreover, the emphasis on creating infrastructure in villages through Rural Infrastructure Development Fund (RIDF) has raised hopes for construction and consumer companies hopping that the growing demands from the rural heartland will boost the sagging sectors.
Railways
• An investment outlay of Rs. 2,510 billion has been proposed for the Eleventh Plan period, of which around 67% is proposed to be mobilized through internal generation and extra-budgetary resources.
• As per the eleventh Five Year Plan Working Group Report, the total fund required for capacity enhancement projects during the plan period is Rs. 544 billion, apart from Rs. 70 billion for national railway projects.
• Infrastructure is being upgraded by way of new railway line projects, gauge conversion, doubling, construction of terminals and logistic parks.
• Construction opportunities are available for rail-road connectivity and other capacity augmentation projects being undertaken by the Rail Vikas Nigam Limited (RVNL).
• Modernization projects of 26 railway stations, including those of Delhi and Mumbai to be upgraded on the PPP model.
• The Indian Railways has decided to attract private investments by allowing areas around stations and above platforms to be commercially developed. This includes separation of operational passenger handling areas from the proposed commercial space as is the case in airports with an estimated investment of about $500 million each.
• The Dedicated Freight Corridor (DFC) envisaging construction of dedicated freight lines on the eastern and western sides of the country covering 2,729 km through seven states interlinked at Khurja will require a total investment of Rs. 372.18 billion.
Delhi–Mumbai Industrial Corridor (DMIC)
• Development of a 1,500 km industrial belt between Delhi and Mumbai passing through seven states extending upto 150km on either side of the DFC. The investment requirement for the entire DMIC project is Rs. 3,648 billion.
• 24 industrial development hubs have been identified in the form of industrial regions for development across the corridor.
• The Phase 1 of the project between Delhi and Vadodara will be carried out during 2008-12 and Phase II will be extended till 2013-18.
• In a five year period, it is envisaged to double the employment potential upto 14.87% compounding annual growth rate to be triple of the industrial output of about 24.57% and quadruple exports from the region is expected to be 31.95% with a total employment potential of about 0.8 million masses.
Metro Rail Projects
• Cities including Delhi, Mumbai, Kolkata, Bangalore, Hyderabad, Chennai, and Kochi have already initiated heavy rail based transit system projects.
• State governments like Punjab, Uttar Pradesh and Gujarat are also inclined to introduce metros in their major city clusters.
• According to India Infrastructure Research, investments of over 860 billion lined up for heavy rail based project across the country, of which Rs. 550 billion is planned to be mobilized in the next five years.
Real Estate
• Falling inflation, interest rates and above all the recent fiscal stimulus announced by the government, will give indirect push to construction and housing activities across the country.
• Steel players will benefit from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products.
• The reduction of excise duty in cases where the output is sold directly to the consumer, withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports, besides encouraging developers to focus on affordable housing.
• The Rs. 4000 crore refinance facility for NHB will ensure availability of loans for the sector.
• The reduction in home loans rates by PSU banks 8 – 9.25% to Rs. 5 lakh and 9.5% for loans in the range of Rs. 5 to 20 lakh has prompted large private players to cut rates, the development will again encourage housing activities which will again boost the business of steel and cement and construction companies.
• The centre has given a major incentive to the states to engage private developers by agreeing in doling out 25% of the total cost of external services such as drainage, roads, sewage and a water supply as grant to state governments.
• The Centre has been awaiting a reply from state governments on its Rs. 5,000 crore package to create on million affordable houses across the country.
• Developers and the leading players in the real estate business have also announced plans to foray into the affordable housing segment.
Power Sector
• With an estimated investment of $150 billion by 2012, the power sector is destined to give much needed impetus to the economy in the time of current financial crisis.
• The Integrated Energy Policy estimated that to wipe out poverty from the country the economic growth needs to be at least 8 to 9% annually until 2032 and by that time the power capacity needs will be as much as 800 GW.
• The Union Government has decided to add about 78,000 MW of power generation capacity during the Eleventh Plan period.
• The generation capacity additional needs are being complemented by commensurate investments in transmission and distribution networks.
• The sector has witnessed increased investment interest from private players especially in the generation segment and in the past half decade the trend has registered consistent growth.
• The demand supply gap of about 16% as peak shortage and 10% as average shortage indicates a huge opportunity for developers and their financiers including power equipment suppliers.
• The generation segment has grown at an annual rate of 5.6% during the period and transmission and distribution segment have also grown at an annual rate of 3% and 1.5% respectively.
• In the past couple of years, the power generation pace has grown from 124.287 MW in 2005–06 to 143.061 in 2007–08 and the Electricity Act 2003 is said to be the main driver behind the marked growth.
Chennai – Why?
Chennai is the fourth largest city in India and the capital city of the Indian state of Tamil Nadu. Located on the Coromandel Coast of the Bay of Bengal, Chennai had a population of 4.2 million in the 2001 census within its municipal corporation. The urban agglomeration of Chennai has an estimated population over 8 million, making it one of the largest urban agglomerations in India.
Economy: Chennai has a diversified economic base anchored by the automobile, software services, hardware manufacturing, healthcare and financial services industries. As of 2000, the city's total personal income was Rs.12, 488.83 crores, making up 10.9% of the total income of Tamil Nadu. Chennai Zone contributes 39 per cent of the State’s GDP.
Politics: The political stability offered by the Centre as well as the State of Tamil Nadu, coupled with the pro-developer attitudes of the governance offers a great reason to invest in Chennai with maximum security. Further, the forthcoming Budget is said to offer:
• A cut in Home-Loan rates
• Extended Tax-Holidays for Developers
Both these factors would go a long way in inspiring more and more people to buy houses and apartments, while giving real-estate developers healthy margins.
Investments: Chennai, along with other cities in India, is enjoying a steady rise in investment opportunities because of the emphasis of the government in attracting foreign investors to have a stake in industry. Laws related to FDI and related documentation is now geared to ease the process and increase its speed. With the resurgence of the real-estate around the corner, the current liberal FDI policies beckon foreign investors to invest in India in this field.
Employment: In 2001, the total workforce in Chennai was about 1.5 million, which was 31.79% of its population. According to the 1991 census, most of the city's workforce was involved in trade (25.65%), manufacturing (23.52%), transportation (10.72%), construction (6.3%) and other services (31.8%).
Taxes: Chennai metropolitan area accounts for over 75% of the sales tax revenue in the state. According to the CII, Chennai's is estimated to grow to a $100-billion economy, 2.5 times its present size, by the year 2025.
Automobile: The city is base to around 30% of India's automobile industry and 35% of its auto components industry. A large number of automotive companies including Hyundai, Ford, BMW, Mitsubishi, Komatsu, The TVS Group (TVS), Ashok Leyland, Nissan-Renault, Daimler Trucks, TI Cycles of India, TAFE Tractors, Royal Enfield, Caterpillar Inc., Caparo, Madras Rubber Factory (MRF) and Michelin have manufacturing plants in and around Chennai. The Heavy Vehicles Factory at Avadi produces military vehicles, including India's main battle tank: Arjun MBT. The Integral Coach Factory manufactures railway coaches and other rolling stock for Indian Railways. Chennai accounts for 60 per cent of the country’s automotive exports and is sometimes referred to as the Detroit of India.
Leather & Textiles: The Ambattur-Padi industrial zone houses many textile manufacturers, and an SEZ for apparel and footwear manufacture has been set up in the southern suburbs of the city. Chennai contributes more than 50% of India's leather exports.
Electronics: The city is an electronics manufacturing hub where multinational corporations like Dell, Nokia, Motorola, Samsung, Flextronics and Foxconn have set up electronics and hardware manufacturing plants, mainly in the Sriperumbudur Special Economic Zone (SEZ).
Software: Many software and software services companies have development centres in Chennai, which contributed 14% of India's total software exports of Rs.144,214 crores during 2006–07, making it the second-largest exporter of software in the country, behind Bangalore.
Health Care: Some of India's well-known healthcare institutions such as Apollo Hospitals (the largest private healthcare provider in Asia), Sankara Nethralaya and Sri Ramachandra Medical Centre are based in the city, making it one of the preferred destinations for medical tourists from across the globe. Chennai is widely acknowledged as having the best health care facilities of any city in India. It is also home to the Apollo Hospitals group, which is the largest private healthcare provider in Asia and one of the largest in the world. With the advent of healthcare tourism, Chennai is further cementing its status as India's health capital, as it nets in 45% of health tourists from abroad and 30-40% of domestic health tourists.
Telecom/ Pharma/ Chemicals: Telecom giants Ericsson and Alcatel-Lucent, pharmaceuticals giant Pfizer and chemicals giant Dow Chemicals have research and development facilities in Chennai.
Bio-tech: TICEL bio-tech park and Golden Jubilee bio-tech park at Siruseri house biotechnology companies and laboratories.
SEZ: Chennai is crisscrossed with and also surrounded by SEZs - Special Economic Zones. These offer multiple special benefits to industries and infrastructure set up here. The benefits attract and retain a large number of plants, factories, offices and IT-parks. As a result, these and the surrounding areas experience a concentration of people and economic activity. Large neighborhoods thus see a hike in land-value and the demand of built-up space, both residential and commercial.
Financial Hub: Prominent financial institutions, including the World Bank, HSBC, Citi bank have back office operations in the city. Chennai is home to three large national level commercial banks and many state level co-operative banks, finance and insurance companies.
Stock Exchange: Chennai has a fully computerised stock exchange called the Madras Stock Exchange.
Airport: Chennai serves as a major gateway to South India and the Chennai International Airport, comprising the Anna international terminal and the Kamaraj domestic terminal, is the third busiest airport in India. The existing airport is undergoing further modernization and expansion, and a new Greenfield airport is to be constructed at an estimated cost of Rs 2,000 crore in Sriperumbudur
Ports: The city is served by two major ports, Chennai Port, one of the largest artificial ports, and Ennore Port. The Ennore Port is underway for a complete overhaul or redevelopment to handle more traffic. A smaller harbour at Royapuram is used by local fishing boats and trawlers. A new karaikal port from marg group would also be a stepping stone for chennai in handling sea traffic.
MRTS/ Metro: Chennai also boasts of an elevated Mass Rapid Transit System (MRTS) which links Chennai Beach to Velachery and is interlinked with the remaining rail network. Plans are underway for an underground Metro. Sports: The M.A. Chidambaram Stadium (MAC) in Chepauk is one of the oldest cricket stadiums in India. The Chemplast Cricket Ground on the IIT Madras campus is another important venue hosting first class matches. Plans are also underway to build an ultra modern cricket stadium, near Chennai, which would be ready for the 2011 Cricket World Cup will give way for massive development in that region.
Administration and utility services: The metropolitan region of Chennai covers many suburbs that are part of Kanchipuram and Thiruvallur districts. The larger suburbs are governed by town municipalities, and the smaller ones are governed by town councils called panchayats. While the city covers an area of 174 km² (67 mi²), the metropolitan area is spread over 1,189 km² (458 mi²). The Chennai Metropolitan Development Authority (CMDA) has drafted a Second Master Plan that aims to develop satellite townships around the city. Contiguous satellite towns include Mahabalipuram to the south, Chengalpattu and Maraimalai Nagar to the southwest, and Kanchipuram town, Sriperumpudur, Tiruvallur and Arakkonam to the west. Water supply and sewage treatment are handled by the Chennai Metropolitan Water Supply and Sewage Board, popularly referred to as CMWSSB. Electricity is supplied by the Tamil Nadu Electricity Board. Next: Chennai is a stones' throw from the II-Tier cities of Coimbatore, Madurai and Thiruchy. Developing the passageways to these cities has become imperative, what with the high demand for land throughout this region. This opens up a whole new arena for real-estate development, all along the routes to these mushrooming II-Tier cities.
Conclusion
Construction activities have gained momentum. The Government has issued contracts worth Rs 1,861 crore relating to projects in mining, railway, infrastructure, commercial buildings, and some of the construction companies are also coasting along with a steady flow of contracts. About 90% of these contracts are from the Government agencies and this is going to be the mainstay of business in construction sector for some time to come till such orders start flowing from the private sector.
Expectation are that sooner rather than later, the sleepy construction project sites would pulsate with construction work once again and one would see trucks loads of men, materials and machinery moving to and fro with men and women working on a war footing to translate country’s development vision into a concrete reality.
Shedding its initial pessimism, the construction equipment sector is also getting into optimistic mode and is busy in giving final touches to their expansion plans to add new manufacturing facilities sensing a demand pull in the next 6-8 months. All in all, the construction industry was no doubt down but not out.
The next 2-3 years are going to be the moment of reckoning for the construction industry to demonstrate its managerial, financial and technical prowess to establish new benchmarks in construction management, construction quality, imparting value addition to its products and services in critical construction equipment product line.
To resist such like present global meltdown, the industry has to look within to develop its competitiveness across segments through enhancing their capabilities in R&D to leverage innovation through indigenous capability and expertise. They need to exploit and build on their own inherent labor and material cost advantage and resource savings to manage crisis. The present time is the best time to revisit some of these and other strategies and explore new growth avenues not only to mere recover from such situations, but also to prepare itself for new global shocks.
With or without stimulus packages, the best means for the well being and growth come from within. What matters most is to put one’s best foot forward in recession, recover fast and emerge stronger than ever.
The current scenario of chennai and the complementing growth plans of infrastructure facilities of India would lead to proportional increase in investment and subsequently the return on investment and capital.
The next 2-3 years are going to be the moment of reckoning for the construction industry to demonstrate its managerial, financial and technical prowess to establish new benchmarks in construction management, construction quality, imparting value addition to its products and services in critical construction equipment product line.
To resist such like present global meltdown, the industry has to look within to develop its competitiveness across segments through enhancing their capabilities in R&D to leverage innovation through indigenous capability and expertise. They need to exploit and build on their own inherent labor and material cost advantage and resource savings to manage crisis. The present time is the best time to revisit some of these and other strategies and explore new growth avenues not only to mere recover from such situations, but also to prepare itself for new global shocks.
With or without stimulus packages, the best means for the well being and growth come from within. What matters most is to put one’s best foot forward in recession, recover fast and emerge stronger than ever.
The current scenario of chennai and the complementing growth plans of infrastructure facilities of India would lead to proportional increase in investment and subsequently the return on investment and capital.
A special tip: property experts are betting on two areas in Chennai to benefit the most from the construction of the airport, and those two are Guindy and its surrounding areas, and Velachery and its surrounding areas. Since the hotel industry is also likely to benefit from the airport construction because of the inflow of more travelers to the area, land and built-up spaces suitable for hospitality purposes are a great investment option at the moment!
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