Asia Construct

INDIAN CONSTRUCTION INDUSTRY

2009-2010

PREPARED BY

CONSTRUCTION INDUSTRY DEVELOPMENT COUNCIL INDIA

Contents

1. 2. 3. 3.1 3.2 3.3 4. 4.1 5. 5.1 6. 6.1 7.

Introduction and Construction Industry Development Council Political, Social and Legal framework Economic Overview Main Macroeconomic Indicators Components of Construction Turnover. Economy in 2008-09 & the First Half of 2009-10 Tenth Five Year Plan and Construction Sector (2002 2007) 11th Five Year Plan (2007 2012) Union Budget 2008- 2009 Union Budget 2009-10 Administration and Regulation of Construction Industry Structure and Role of Construction Administration Construction Opportunity and Activity

Annex: A1 Average Construction Material Price as on 1st Aug, 2008; 1st June 2009 & 1st Jan 1998 A2 Classification of Contractors

1.

Introduction & Construction Industry Development Council Construction Industry Development Council (CIDC) has been jointly established by the Planning Commission, Government of India and the Indian Construction Industry. Since its inception in 1996, CIDC has initiated several activities for the benefit of construction industry. A notable few are: Advice the Government on policy formulation construction industry. Standardization of construction contracts and procedures. construction related to

Training manpower at skilled worker level and management level. Grading of construction entities Devise mechanisms for workers' welfare. Help evolve policies for financing. Dispute Resolution in Construction Contracts. Establishing construction equipment bank. Computation & publishing Construction Cost Indices Interaction and networking with international

organizations to

promote emerging technologies and best practices.

This report presents the overview of the Indian Economy & the Indian Construction Industry. Macro economic parameters pertaining to the Indian

Economy & the Construction Industry are also presented. Long term agenda for the Indian Construction Industry is highlighted through the 10th & 11the Five Year Plans. Further short term policy issues related to Construction Industry are highlighted through the Union Budgets. This report also highlights the administration & regulation of the Indian Construction Industry one of the fastest growing construction industry internationally. Key areas of construction opportunity are discussed

2.

Political, Social & Legal framework: Secular Constitution. Stable Democratic environment since 1947. Broad consensus on Economic policy across party lines. Independent multi-tier judicial system. Judicial systems in sync with international practices. Preferred language of domestic business & international interactions is English.

3.

Economic Overview India's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries and a multitude of support services and industries. Production, trade, and investment reforms have provided new opportunities for Indian businesspersons. India has an estimated 350 million middle class consumers. India is a young country with median age of population being 24.6 years and onethird of the population is below 14 years of age. An economic overview of the country would include the following:

India is the second fastest growing economy of the world at present. India has recorded one of the highest growth rates in the 1990s. The target GDP growth of the 10th Five Year Plan (2002-07) is 8% while the actual is 7.8%. The target growth rate for the 11th Five Year Plan (2007-12) is 9%. As the last two years of the 10th Plan has seen a growth of 9% it was argued to keep the growth of the 11th Plan period as 10 to 11%. However it is indeed a challenge to even maintain the 9% growth.

India's services sector growth of 7.9% over the period 1990-2001 is the

second highest in the world. The 10th Five Year Plan period (2002-07) witnessed an average annual growth of 12.9% in construction; 8.5% in trade & hotel; Transport & Communication, Financing, Real Estate & Housing 11.7%; Community services 7%. The Service sector recorded a growth of 10.8% in 2007-08 and 9.4% 2008-09.

The opportunities unfolding in India is as a result of reforms enacted from early 1990s as well as a result of India's increasing competitiveness and confidence.

Positive outlook to international investments and trade policies.

Fiscal incentives from Central Government and States support in physical and social infrastructure development.

Very large pool of educated, trained and skilled manpower.

Rapidly developing R&D, infrastructure, technical and marketing services.

Agricultural self-sufficiency, rich mineral base and abundance of other natural resources.

Large, diversified and geographically well distributed manufacturing capability.

Diversified infrastructure facilities available and under development.

Sound banking system with a network of 70,000 branches, among the largest in the world supported by national and state level financial institutions.

Leading international banks entrenched and expanding.

Vibrant capital market comprising 23 stock exchanges with over 9000 listed companies.

Large coastline with easy access to South Asian markets.

Third largest investor base in the world.

Table 1: Size of Indian Household by Profile (Millions) Class Effluent Middle Class Aspiring
Source: NCAER

2006-07 5.2 75.5 81.7

2001-02 2.6 46.4 74.4

1995-96 1.2 32.5 54.1

3.1

Main Macroeconomic Indicators Table 2: Macro Economic Indicators Unit Rs trillion 2004-05 23.8 7.5 28.7 2005-06 26.1 9.4 32.8 2006-07 28.7 9.6 37.2 2007-08 31.2** 8.7 43.2** 2008-09 33.3* 6.7 49.3*

1 GDP at factor cost: constant prices 1.1 GDP growth : % constant prices 2 GDP at factor cost: at Rs trillion current prices

Sub-Sectors of GDP 3 Agriculture, forestry & fishing. Mining & Rs trillion 5.3 5.6 5.9 6.1 na

quarrying 4 Manufacturing, construction, electricity, gas and water supply 5 Trade,hotel, transport & communication 6 Finance, real estate, insurance & business services. 7 Public administration, defense and other services. 8 Per Capita Net National Product 9 Gross Domestic Capital Formation as % of GDP at current market prices 10 Gross Domestic Saving as % of GDP at current market prices 11 Index of Agricultural Production (base triennium ending 1981-82) 12 Index of Industrial production (Base 1993-94=100) 14 Wholesale Price Index average(Base 1993-94 = 100) 15 Consumer Price Index for Industrial Workers average (Base 1982=100) 16 Construction Cost Index average (base Jan 1998=100.00) 18 Construction Industry Turnover OUTPUT Rs trillion 5.7 6.3 7 7.6 na

Rs trillion Rs trillion

6.1 3.2

6.9 3.5

7.7 4

8.7 4.5

na na

Rs trillion

3.4

3.6

3.8

4.1

na

Rs % of GDP

19331 32.1

20868 35.5

22580 36.9

24295** 39.1**

25494* na

% of GDP

31.7

34.2

35.7

37.7**

na

177.3

191.9

200.7

207.1

188.7

204.8

221.5

274.1

268

274.3

187.3

195.6

206.2

215.8

234

520

542

124

133

145

130

135

138

147

154

Rs trillion

2.75

4.12

4.46

5.32

16 Food grains 17 Finished Steel 18 Cement 18.1 % growth 19 Coal & Lignite 20 Crude Oil 21 Electricity Generated(Utilities only) 22 Plan outlays FOREIGN TRADE 23 Exports 24 Imports 25 Foreign exchange reserves SOCIAL INDICATORS 26 Population Birth Rate Death Rate Life Expectancy at birth Education: Literacy rate OTHER INDICATORS Total Labour force in construction Short term interest rates Long term interest rate Base lending

million tonnes million tonnes million tonnes million tonnes million tonnes million tonnes Billion KWH

198.4 41.3 125.3

208.6 44.4 140.5 12.2

217.3 50.2 154.7 10.1 462.1 34 663

230.8 53.3 167.6 8.3 491.1 34.1 704

229.9 53.5 181.4 8.2 na 33.5 724

413 34 587

437.1 32.2 617

Rs trillion

1.93

2.47

2.44

2.92

3.75

US$ billion US$ billion US$ billion

83.5 111.5 135.5

103 149.1 145.1

126.3 185.7 191.9

162.9 251.4 299.2

168.7 287.7 241.4

billion per 1000 per 1000 Years %

1.089 23.8 7.6 na na

1.106 23.5 7.5 na 67.6

1.122 23.1 7.4 63.5 na

1.138 na na na na

1.154 na na na na

Million % % %

32.5 11 6-11 10.25

32.85 11 6-11 10.25

32.9 11 6-11 10.25

33.2 11 6-11 12

33.2 10 8-11 12

rate(Commercial Banks) Base lending rate(Financial Institutions)

11.5

12

Notes: *= Revised estimates **= Quick estimates n.a = data not available. Source: Economic Survey 2009; CIDC Survey

Figure 1
% Growth of GDP (Constant Prices)
12 10 8 6 4 2 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Year 4.5 5.8 3.8 8.5 7.5 6.7 9.6 8.7 Growth of GDP

9.4

% Growth

Figure 2

GDP at factor cost(constant prices)

GDP at factor cost

2007-08

2008-09

3.2

Components of Construction Turnover & Stratified Employment

Quantum:

Table : 3 (all figures in Rs Billion) Category Residentail (A) Public Private Commercial (B) Public Private Industrial (C) Public Private 2005-06 150 60 90 150 45 105 1080 756 324 2006-07 206 82.4 123.6 206 61.8 144.2 1483.2 1038.24 444.96 2007-08 223 89.2 133.8 223 66.9 156.1 1605.6 1123.92 481.68 2008-09 266 106.4 1782.2 266 79.8 186.2 1915.2 1340.64 574.56

Infrastructure (D) Public Private Total Public Total Private Grand Total

1620 1134 486 1995 1005 3000

2224.8 1557.36 667.44 2739.8 1380.2 4120

2408.4 1685.88 722.52 2965.9 1494.1 4460

2872.8 2010.96 861.84 3537.8 1782.2 5320

Table 4: Stratified Employment Quantum Category Number (in 000s) in 2005 Engineers 822 2.65 1.85 % age

Technicians & Foreman 573 etc. Clerical Skilled Workers Unskilled Workers 738 3267 25600 TOTAL

2.38 10.57 82.45 100.00

3.3

Economy in 2008-09 & during the First Half of 2009-10

Economic growth decelerated in 2008-09 to 6.7%. This represented a decline of 2.1% from the average growth rate of 8.8% during the previous five years.

Despite the slowdown investment remained relatively buoyant, growing at a rate higher than the GDP. However exports suffered during the period. The Whole Sale Price Index (WPI) saw a sharp rise followed by an equally sharp fall. This was driven by rapid rise and followed by equally rapid fall in global commodity prices during the January 2008 to March 2009 period. However Domestic food price inflation, though declining, remained much higher than the overall inflation. The global financial meltdown and the consequent recession have clearly been major factor in Indias economic slowdown. The Agriculture sector comprises 4.9% of GDP in 2007-08 and 1.6% of GDP in 2008-09. Industry comprises 19.2% of GDP in 2007-08 and 18.5% of GDP in 2008-09. The Services comprises 63% of GDP in 2007-08 and 64.5% of GDP in 2008-09.

A new Union Government took office in May 2009 which was re-elected for the 2nd term. The new government soon announced the Union Budget 2009-10. The provisions in the budget were to boost infrastructure spending giving a boost to the construction industry. The signs of economic recovery were soon visible with the consumption of both finished steel & cement shooting up in the 1st Quarter of 2009-10. The consumption of cement & steel are indeed indicators of economic activity. If this pattern continues then it shall not be difficult to realize 9% growth a target set in the Union Budget.

The capacity creation in infrastructure sector presented a mixed picture in 200809 (see table 5). The telecom & petroleum sectors did well in 2008-09 when compared to recent years, the power sector exhibited considerable shortfall. Table 5 Indicators of infrastructure capacity creation Item Power capacity addition (MW) Addition to refining capacity petroleum (MT) Road length upgraded NHAI Road works completed under PMGSY RKMs electrified (railways) Addition to port capacity (MTPA) Addition to switch capacity telecom (000 lines) 960 636 30710 361 1683 41231 502 27.3 7159 2203 52405 797 23.6 14392 2006-07 6853 7.34 2007-08 9263 11.72 2008-09 3454 29

4.

Tenth Five Year Plan and Construction Sector (2002 - 2007)

The 10th Five Year Plan brought by the Planning Commission, Government of India, which is a policy paper for the economy for the period 2002 - 2007 has for the first time incorporated a chapter on Construction. This shows the importance given by the Government of India to the Construction Industry. The plan encourages 8% growth in GDP for which total development outlay is Rs 15,25,639 crore allocated for the 2002-07 period. The investment in construction is about 40% to 50% of the same which is Rs 1,22,051 crore annual additional (for new development) investment in construction.

For the 11th Five Year Plan (for the period 2007-2012) it is proposed to enhance the investment in infrastructure two folds.

4.1

11th Five Year Plan (2007 2012)

For the 11th five-year plan (for the period 2007-2012) it is proposed to enhance the investment in infrastructure two folds. The estimate of additional investment for the 11th Plan period is given as follows: -

Table 5: ADDITIONAL INVESTMENT IN SECTORS Sl 1 2 Item Private investment in Roads Amount 34,000

Expressway development (Modernization / Up 220,000 gradation)

3 4 5 6 7 8 9

Railways (Public) Railways (Private) Civil Aviation Ports (Private) Freight Corridors for railways Power Generation JNNURM

180,000 120,000 40,000 50,000 22,000 420,000 60,000 150,000 160,000 14,50,000

10 Housing 11 Others TOTAL

Comparison of 11th (Period: 2007-12) & 10th (Period: 2002-07) Plan Development Outlay In Rs crore Head 2007-12 11th Plan 136381 301069 26329 210325 854123 153600 572443 95380 87933 62523 2002-07 10th Plan 58933 121928 20879 103315 403927 58939 225977 98968 30424 38630 % Change 131% 147 26 104 111 161 153 -4 189 62 217 159

Agriculture Rural Development Special Area Programme Irrigation & Flood Control Energy Industry & Minerals Transport Communication Science tech. & Env. Gen. Economic Services Social Services Gen. Services TOTAL

1102327 347391 42283 16328

3644718 1525639 139

5.

Union Budget 2008 09 and Construction Industry

The Government of India announces the Union Budget every year on 28/29 February. The Budget is introduced as a Finance Bill in the parliament and passed by the Parliament . The Budget announces several policy issues as well and provides an insight into the Governments thrust area. The issues related to construction / infrastructure in the Union Budget 2008-09 announced on 29th February 2008 is highlighted below:

Impact of Union Budget 2008 to 2009 on Construction Industry Sl. Item Impact on Construction Industry 1. Bharat Nirman Programme The increased allocation will

The Bharat Nirman has shown impressive increase the turnover of the progress. The programme is providing each Construction Industry while day of the year drinking water to 290 habitation providing the much needed and 17 habitations are provided with all rural infrastructure. weather road. On each day 52 village are provided telephones, 42 villages electrified and 4113 rural houses completed. The allocation for this programme in this budget is Rs. 31, 280 crore as against Rs. 24, 603 Cr. in 2007-08.

2.

Nation (NREGS)

Rural

Employment

Guarantee The number of districts has been doubled where NREGS

NREGS has been extended to 596 rural shall be applicable. This will districts with an initial allocation of Rs. 16,000 boost Crores. the turnover Industry of as

Construction under construction executed development. this

scheme works for are rural

3.

Other Social Schemes Other Schemes such as Rajiv

This will boost the turnover of Gandhi the Construction Industry as have and new been and

Drinking Water Mission (allocation Rs. 7,300 allocations Cr from Rs. 6,500 Cr in 2007-08); Total increased Sanitation Campaign; setting up of more innovative Navodaya Schools; new Institutes of Higher launched. education and new Central Universities;

schemes

special development allocation for North Eastern Region (Rs. 16,447 Cr up from Rs. 14, 365 Cr in 2007-08); Accelerated Irrigation

Benefit Programme (Rs. 20,000 Cr up from Rs. 11,000 Cr in 2007-08); CSS on micro irrigation project; setting up of Water

Resource Finance Corporation (WRFC) with an initial capital outlay of Rs. 100 Cr etc.

4.

Corpus of Road Infrastructure Development This streamlining initiative will Fund (RIDF) has been increased to Rs. boost the construction of

14,000 Cr and further a separate window Rural roads. made under RIDF for rural roads with a corpus of Rs. 4000 Cr.

5.

JNNURM

Boost

turnover

of

Allocation Rs. 6,866 Cr. (up from Rs. 5,482 Cr. Construction Industry while In 2007-08) facilitating up-gradation of

urban centres.

6.

National (NHDP)

Highway

Development

Project Increased allocation will help the much of needed National

Allocation Rs. 13,966 Cr. (up from Rs. 10,867 upgradation Cr. In 2007-08) Highways.

7.

Power Sector

Increased

allocation

and

The Honble Finance Minister has urged to innovative schemes will boost award the 4th Ultra Mega Power Project construction (UMPPs) soon and also to explore the possibility to set up 5 new UMPPs.

Rs. 5000 Cr. allocated for Rajiv Gandhi Grameen Vidyutikaran Yojna

Rs. 800 Cr to Accelerated Power Development & Reforms Project.

8.

National Housing Bank (NHB) & Housing Boost for Poor enhance

rural

housing turnover

& of

Rs. 1200 Cr allocated to NHB to enhance construction industry. refinancing of rural housing sector. Subsidy on housing for poor has been enhanced to Rs. 35,000 (from Rs. 25,000) and for upgradation make Rs. 15,000 (up from 12,500)

9.

Import duty on melting scrap on steel and Help moderate price of steel aluminium made nil and aluminium & reduce cost

10.

Parity on Excise duty on bulk cement and Help rationalization. packed cement.

11.

Excise duty on Clinker proposed to be Rs. Increase cost of cement 450/- per tone (from Rs. 350/- per tone)

12.

Excise duty on Flush Doors brought down to Reduce cost of flush doors 8% from 16%.

13.

Five Year Tax holding for Hospitals Boost under Section 80IB development

infrastructure

Five Year Income tax holding for two, three & four star hotels that are set in World Heritage site

14.

Reverse Mortgage The Finance Minister has

Clarifications are positive and provided will make the scheme

clarifications related to Income Tax on reverse popular. mortgage as follows: (i) Reverse Mortgage will not be treated as transfer.

(ii)

The revenue received by Senior Citizen is not income.

15.

Personal Income Tax

More money in peoples hand

New structure of personnel income tax regime will boost spending and also has been recommended and threshold limit of boost construction income tax enhances. Senior citizens & women provided with more concessions.

16.

Import duty on Project Imports reduced Cost will reduce in case of to 5% from 7.5%. Projects Imports & hence

impact is +ev However CVD of 4% imposed on specialized projects in power sector

17.

Climate Change

Help Construction Industry to

The FM has proposed to set up a permanent be more eco-friendly institutional mechanism that will play a

development & coordination role for clean and green technology.

18.

Skill Development Mission

Shall

enable

skill

Objective to garner Rs. 15,000 Cr as capital development for Construction from Public & Private Sectors, multilateral & Industry. Better productivity bilateral agencies & Govt. Sources with quality & availability of skilled manpower. To setup a not for profit corporation for the mission with a corpus of Rs. 1000 cr.

19.

Industrial Training Institute (ITI)

Skill

development

and

Rs. 750 cr set aside for development of 300 enhance availability of skilled ITIs workers

5.1

Union Budget 2009-10 and Construction Industry

The Government of India announced the Union Budget for the period 2009-10 on 7th July 2009. The issues related to construction/infrastructure in the Budget are given as follows:

Sl

Item

Impact on Construction Industry

Economic Revival Short-term Measures

This will enhance the turnover of construction

To counter the negative fallout of the global slowdown on the Indian economy, the Government provided three focused fiscal stimulus packages. This also included increased spending on public projects. 2 Infrastructure Financing

industry while building the much need infrastructure of the Nation.

This will facilitate infrastructure financing

Indian Infrastructure Finance Company Ltd (IIFCL) to evolve a Takeout financing scheme

which will in turn facilitate infrastructure

to facilitate incremental lending to infrastructure development. sector.

IIFCL to refinance 50% of commercial bank loans for PPP projects in critical sectors over next 15 to 18 months.

IIFCL & Banks now can support projects involving total investment of 1,00,000 crore. 3 Highways This shall boost the NHDP which has slowed Allocation to National Highways Authority of India (NHAI) for its National Highway Development Programme (NHDP) increased by 23%. 4 Railways This will facilitate infrastructure Allocation this year is Rs 15,800 crore up from Rs 10,800 crore last year. development in the railways and shall equally enhance the turnover of down in the recent past.

the construction industry. 5 Urban Infrastructure: Shall substantially boost the JNNRUM programme Allocation to Jwaharlal Nehru National Urban and will equally enhance

Renewal Mission (JNNURM) increased by 87% the turnover of the to Rs 12,887 crore. 6 Basic Amenities to Urban Poor construction industry. Shall build the basic urban infrastructure & Allocation for housing & basic amenities for uraban poor enhance to Rs 3,973 crore which includes the new scheme Rajiv Awas Yojna equally enhance the turnover of the construction industry.

Power.

This shall boost the reforms programme in

Allocation under Accelerated Power Development & Reform Programme (APDRP) increased by 160% 8 Gas.

the Power sector which is the need of the hour.

An excellent planning exercise in the Gas

Blueprint to be developed for long distance gas pipelines across the length & breadth of the country leading to a National Gas Grid.

sector has been introduced in this budget. This lays the foundation of construction work of laying pipelines for the Gas Grid.

National Rural Employment guarantee Scheme (NREGS)

Building of assets in rural area will receive a big boost from this. This shall

Allocation under NREGS increased by 144% to Rs 39,100 crore.

also equally enhance the turnover of the construction industry as

Further to increase productivity of assets & resources convergence with other rural development schemes has been initiated. 10 Bharat Nirman

most of the works under this scheme shall be construction works. Shall facilitate building of rural infrastructure and

Allocation for Bharat Nirman increased by 45%.

equally enhance the turnover of the construction industry.

Allocation of Pradhan Mantri Gram Sarak Yojna increased by 59%

Rajiv Gandhi Grameen Vidyuttikaran Yojna increased by 27%

Allocation under Indira Awas Yojna increased by 63%

Allocation of Rs 2000 crore to Rural Housing Fund in NHB to boost refinancing in rural housing sector. 11 Welfare of Workers in Unorganized Sector Construction workers shall be benefited. Social security scheme for the workers in the unorganized sector shall receive allocation for implementation.

12

Commonwealth Games 2010

Shall equally enhance the turnover of the

Outlay stepped up from Rs 2,112 cr in Interim Budget to Rs 3,472 cr in the regular budget 13 Goods & Service Tax (GST)

construction industry.

This will streamline the

taxation structure & shall GST to be introduced from 2010. benefit the industry while increasing Government revenue.

6.

Administration and Regulations of Construction Industry

Construction Projects are subject to a host of Central and State laws simultaneously. Administratively and in terms of regulation, Central & State Governments have their own roles to play in Construction.

6.1

Structure and Role of Construction Administration

Structure and Role of Construction Administration of Central Government &

Structure

and

Role

of

Construction

Administration

of

Local

Government There is focussed central machinery or structure of administration for the Construction Industry. As this sectors activities are involved with every sector of the economy, at the Central Government level, the issues related to Construction are taken up by the Planning Commission. In fact Construction was given the Identity of an Industry only two years ago.

Housing & Real Estate, constituting around 10.3% of total Construction, is the only one segment of the Construction Industry which has a Ministry called the Ministry of Urban Affairs. Equivalent Ministries exist at State level and at Municipal/local levels. Activity at any site is governed by the State or a combination of State and Central administration, depending on the location.

Administratively

the

following

Ministries/Departments/Organisations

have

operating influence over Construction Industry: Central Government Ministries Ministry of Commerce Ministry of Finance Ministry of Urban Affairs and Employment
Ministry of Industries

Ministry of Home Affairs

Central Government Departments Cabinet Committee on Foreign Investment Secretariat of Industrial Assistance Foreign Investment Promotion Board MRTP Commission Registrar of Companies Central Excise and Customs Department

State Government

Revenue Department Urban Development Authorities Sales Tax Town and Country Planning Autonomous Statutory Bodies Reserve Bank of India Security and Exchange Board of India Municipal Committee

7.

CONSTRUCTION OPPORTUNITY & ACTIVITY

The scope of investment as envisaged by the Investment Commission in is given in the following figure:-

Scope of investment required in different sectors (5 to 7 yerars)

FDI Infrastructure Equity Ceiling

Real Estate(townships) Roads Power Airlines Airports Banks(Private) Mining

100% 100% 100% 74% 74% 74% 74%

Telecom Defence Insurance

74% 26% 26%

7.1

Civil Aviation

Domestic and international passenger traffic in India has grown annually at the rate of 9.1%(CAGR) and 29% (CAGR) respectively over the period 2004-07. The domestic & international cargo traffic has grown at the rate of 13%(CAGR) and 11%(CAGR) during the period 2004-07. The volume of traffic nearly doubled in international & domestic air passengers(combined). However in 2008 the growth was 5% less as compared to 2007 due to high cost of fuel & global economic slowdown.

The Airport Authority of India (Amendment) Bill, 2003 has been passed by the Parliament. The Bill provides a legal framework for operational and

managerial independence to private operators. It also seeks to ensure a level playing field to private sector green field airports by lifting control of AAI except in certain respects. The Amendment Bill defines a private airport-one that is 'owned, developed or managed' by any agency or person other than AAI or a state government, or managed jointly by AAI, a state government, and a private player, where the latter's share is more than 50 percent - and allows leasing of existing airports to private operators.

Two major airports of the country at Mumbai and Delhi have been handed over to private parties for extensive development and operation. Proposals for upgrading Kolkata airport by 2010 have been take-up where in an integrated terminal to handle 20 million passengers per annum is to be created by an investment of Rs 1942 crore. Similarly a proposal to upgrade the Chennai airport with an

investment of Rs 1808 crore that will facilitate in augmenting the capacity by 13 millions per annum is being taken up by the government. Airport Authority of

India (AAI) has taken-up the task to modernize 24 non-metro airports by March 2009 & further 11 non-metro airports by 2010. The 11th Five Year Plan (20072012) has the main objective to create world class infrastructure facilities, safe, reliable & affordable air services to facilitate growth in passenger & cargo traffic, and air connectivity to remote & inaccessible parts of the country. It has been decided to setup an Airport Economic Regulatory Authority (AERA) An Appellant Tribunal is also proposed to adjudicate any disputes between (i) two & more service provider (ii) a service provider & a group of consumers and (iii) hear and dispose of appeals against any direction, decisions or orders of AERA. Proper regulatory framework would help in fostering healthy competition by creating level playing field & encourage investment in airport facilities.

7.2

Cement

The cement output has been 100 million tones in 2000-01 & has grown to 154.7 million tones in 2006-07 (CAGR growth rate of 7.5% per annum). Cement Manufacturers' Association (CMA) is the apex representative body of large cement manufacturers in India. It is a unique body with the private as well as the public sector cement units as its members. To promote Indian cement industry's growth To protect consumer interests To identify newer usages of cement To establish contacts with similar bodies abroad for exchange of information data, publications, etc. India has excellent deposit of lime stone which can be used for cement production. As the construction industry has been growing the cement industry has been enhancing its capacity to meet the demand. With the doubling of

investment in construction during the 11th Five Year Plan Period (2007-12) it is estimated that 381 million tones of additional cement shall be required during the five year period.

7.3

Ports

India enjoys a strategic location in the Indian Ocean and has a vast coastline of 7517 km having 12 major ports & 200 non-major ports (as per the last information available). However, due to the conscious policy the country followed for over four decades self-reliance through import substitution rather than exportled growth-its share in international trade was not significant. India's economic strategy has, however, been changed radically in the last few years. As India globalises its economy fast, it will need to handle a growing volume of international trade. Thus, upgrading and expansion of its ports will be a key success factor for India's economic development programme.

In order to encourage Private investment in Ports as per global trends adequate policies has been laid by the Government. A Private operator can enter into a service contract, a management contract, a concession agreement or a divestiture depending on the nature of facility/service. Private sector can enter on BOT basis for construction of cargo handling berths & dry docks, container terminals and warehousing and ship-repair facility.

The five year period ending 2006-07(Xth Plan) registered a growth in container traffic of 13.9% annually. The period 2007-08 registered a growth of 13.9% as compared to 9.5% in 2006-07.

The average turn around time in Indian ports is 3.6 days as compared to 10 hours in Hong Kong. The prime reason for this is poor connectivity and lack of efficiency in Port connectivity. Thus all the major ports have setup groups with NHAI, State Government & the railways to prepare a plan for to improve port

connectivity. NHDP is already having port connectivity projects as major component. The 4 major ports-Jawaharlal Nehru Port Trust (JNPT), Mumbai Port Trust, Cochin Port Trust, and Kandla Port Trust have drawn plans to add a container terminal each. The government is following the 'landlord port model' where

private parties will operate terminals and other services while the ownership of land, waterfront, and security would remain under government control.

Opportunities in Ports:

Growth in merchandise exports projected at over 13% p.a. underlines the need for large investments in port infrastructure

Investment need of $13.5 billion (Rs.60,750 crores) in the major ports under National Maritime Development Program (NMDP) to boost infrastructure at these ports in the next 7 years

Under NMDP, 276 projects have been identified for the development of Major ports PublicPrivate partnership is seen by the Government as the key to improve Major and Minor ports * 64% of the proposed investment in major ports envisaged from private players

The plan proposes an additional port handling capacity of 530 MMTA in Major Ports through: Projects related to port development (construction of jetties, berths etc.) Procurement, replacement and/or up-gradation of port equipment Deepening of channels to improve draft Projects related to port connectivity

Investment need of $4.5 billion (Rs.20,250 crores) for improving minor ports

7.4

Roads

Industrialisation in India has brought in its wake considerable demand for more and better roads. A better road network will result in enormous savings, estimated to be between Rs. 200 and 300 billion (US$5.7-8.6 billion) per annum. Improvement of the road network will also enable commercial vehicles to run 500-600 km per day, which is the average distance covered by them in the developed world, as opposed to the 200-300 km per day average in India currently.

Roads in India are categorised as Expressways, National Highways, State Highways, Major District Roads, Other District Roads and Village Roads. Annual growth projected at 12-15% for passenger traffic, and 15-18% for cargo traffic. Over $5060 billion investment is required over the next 5 years to improve road infrastructure. An ambitious National Highway Development Programme (NHDP), involving a total investment of Rs.2,20,000 crore upto 2012, has been established. The main elements of the programme are as follows: Four-laning of the Golden Quadrilateral and NS-EW Corridors (NHDP I & II) The NHDP Phase I and Phase II comprise of the Golden Quadrilateral (GQ) linking the four metropolitan cities in India i.e. Delhi-Mumbai-Chennai-Kolkata, the North-South corridor connecting Srinagar to Kanyakumari including the Kochi-Salem spur and the East-West Corridor connecting Silchar to Porbandar besides port connectivity and some other projects on National Highways. Fourlaning of the Golden Quadrilateral is nearing completion. The contracts for projects forming part of NS-EW corridors are being awarded rapidly for completion by December 2009.

Four-laning of 10,000 kms (NHDP-III) The Union Cabinet has approved the four-laning of 10,000 km of high density national highways, through the Build, Operation & Transfer (BOT) mode. The programme consists of stretches of National Highways carrying high volume of traffic, connecting state capitals with the NHDP Phases I and II network and providing connectivity to places of economic, commercial and tourist importance. Two laning of 20,000 km (NHDP-IV) With a view to providing balanced and equitable distribution of the improved/widened highways network throughout the country, NHDP-IV

envisages upgradation of 20,000 kms of such highways into two-lane highways, at an indicative cost of Rs.25,000 crore. This will ensure that their capacity, speed and safety match minimum benchmarks for national highways. Six-laning of 6,500 kms (NHDP-V) Under NHDP-V, the Committee on Infrastructure has approved the six-laning of the four-lane highways comprising the Golden Quadrilateral and certain other high density stretches, through PPPs on BOT basis. These corridors have been four-laned under the first phase of NHDP, and the programme for their six-laning will commence in 2006, to be completed by 2012. Of the 6,500 kms proposed under NHDP-V, about 5,700 kms shall be taken up in the GQ and the balance 800 kms would be selected on the basis of approved eligibility criteria. Development of 1000 km of expressways (NHDP-VI) With the growing importance of certain urban centres of India, particularly those located within a few hundred kilometers of each other, expressways would be both viable and beneficial. The Committee on Infrastructure has approved 1000 k.m. of expressways to be developed on a BOT basis, at an indicative cost of Rs.15,000 crore. These expressways would be constructed on new alignments.

Other Highway Projects (NHDP-VII) The development of ring roads, bypasses, grade separators and service roads is considered necessary for full utilization of highway capacity as well as for enhanced safety and efficiency. For this, a programme for development of such features at an indicative cost of Rs.15,000 crore, has been mandated. Accelerated Road Development Programme for the North East Region The Accelerated North-East Road Development Project is under consideration, which will mainly provide connectivity to all the State capitals and district headquarters in the north-east. The proposal would include upgrading other stretches on NH and state highways considered critical for economic development of the north-east region. Institutional Initiatives Steps are being taken for restructuring and strengthening of National Highways Authority of India (NHAI), which is the implementing agency for the National Highways programme. Institutional mechanisms have been established to address bottlenecks arising from delays in environmental clearance, land acquisition etc. A special focus is being provided for traffic management and safety related issues through the proposed Directorate of Safety and Traffic Management. It is expected that the sum total of these initiatives should be able to deliver an efficient and safe highway network across the country. In order to specify the policy and regulatory framework on a fair and transparent basis, a Model Concession Agreement(MCA) for PPPs in national highways has been mandated. It is expected that this common framework, based on international best practices, will significantly increase the pace of project award as well as ensure an optimal balance of risk and reward among all project participants.

The World Bank has approved a US$ 348 million loan to improve the quality of 750 km of state highways in Tamil Nadu road sector project. In addition, 14 bypasses will be upgraded to two lanes with or without paved shoulders and 2000 km of roads will be taken up for major maintenance. International

consultants have carried out the road segment designs. The scheme is to be implemented by the state highways department. The government on its part will provide US$ 102 million to the US$450 million project. The World Bank loan is payable in 20 years and has a 5 year grace period. The government of Madhya Pradesh has taken up upgrading of state highways and major district roads covering a distance of about 1900 km in two phases. An investment of US$ 341.4 million is being entailed and this will be met by loans from the Asian Development Bank (ADB) (US$ 180 million) and with state government funding. The Phase I scheme involves strengthening and widening of 6 state highways for a total distance of 353 km at a cost of Rs. 2610 million under 4 packages.

7.5

Power:

As on March 2002 India had around 104,000 MW of installed power generation capacity. About 80% of this is from Thermal Power Plants & 16% from hydroelectric plants. Nuclear plants account for the remaining generation capacity. According to Planning Commission India need additional 47,000 MW of generation capacity in the near future requiring an investment of USD 73 billion.

Overall Generation in Public Utilities

Year 1990-91 2000-01 2004-05 2005-06 2006-07 2007-08 2008-09

Generation (billion units) 264.3 499.6 587.4 617.5 650.2 704.46 724

The Power Supply Position Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Energy Shortage (%) 7.8 7.5 8.8 7.1 7.3 8.4 9.3 9.9

7.6

Railways

Demand for rail services has grown in tandem with economic expansion, quickly outstripping the supply capacity of existing assets (GOI 2002). Pricing anomalies and different priorities assigned to the Indian Railways (IR) stretched the internal resources to the extent that regular maintenance of fixed assets was accorded low priority. As a result, important infrastructure deficits have appeared. These deficits have created serious bottlenecks that hamper further growth on certain sections of IR. The need to increase investment in infrastructure was recognized in the late 1990s. Government is seriously considering building dedicated freight corridors with the help of private participations. In order to meet competition from other modes of transportation on the most congested routes of IR and to make the transport sector competitive, the Prime Minister announced the National Rail Vikas Yojana (NRVY) in December 2002. Under this scheme, IR envisages to increase capacity of the rail golden quadrilateral, provide better connectivity of the network to major ports, and build a few critical bridges over the rivers Ganga, Brahmaputra, and Kosi. An SPVRail Vikas Nigam Limited (RVNL) - has been incorporated to carry out the specific projects under the NRVY. Funds required for the NRVY are Rs. 15,000 crore. Out of this approximately Rs. 4500 crore has been promised by the ADB. The funds are to be disbursed over a 10-year period. It is estimated that Rs 8000 crore would be required to enhance the capacity of the rail golden quadrilateral. IR is working on a proposal to offer projects under the NRVY to private operators on BOT basis using annuity payment scheme on the lines of road projects. Initiatives at a glance: The rapid rise in international trade and domestic cargo has placed a great strain on the Delhi-Mumbai and Delhi-Kolkata rail track. Government has,

therefore, decided to build dedicated freight corridors in the Western and Eastern high-density routes. The investment is expected to be about Rs. 22,000 crore (US $ 5 bn). Requisite surveys and project reports are in progress and work is expected to commence within a year. With increasing containerization of cargo, the demand for its movement by rail has grown rapidly. So far, container movement by rail was the monopoly of a public sector entity, CONCOR. The container movement has been thrown open to competition and private sector entities have been made eligible for running container trains. 14 applicants have submitted the application seeking permission for container train operation, which have been approved.

Tariff rationalization and effective cost allocation mechanism are also on the anvil. This includes a methodology for indexing the fare structure to line haul costs. Efforts aimed at introducing commercial accounting and information technology systems are also underway Technological upgradation and modernisation for higher operating efficiency Transformation from bulk transporter to multi-modal transporter PPP envisaged in new routes, railway stations, logistics parks, cargo aggregation and warehouses etc Earnings of Indian Railways (Rs billion)

Item

2004-05

2005-06

2006-07

2007-08

Goods Passenger Others TOTAL

307.78 141.13 24.79 473.7

362.87 151.26 30.78 544.91

422.99 174 35.21 632.2

477.43 200.75 48.37 726.55

% growth 2006-07 14.9 13.80 11.30 14.4

% growth 2007-08 14.4 16.50 41.10 16.50

Earnings

7.7

Rapid Mass Transport System

Delhi Metro's first section from Shahdara-Tis Hazari was inaugurated on 24 December 2002. Phase-I of the project has three lines: Shahdara-Tri NagarBarwala (28 km), Vishwa Vidyalaya-Central Secretariat (11 km), and

Barakhamba Road-Connaught Place-Dwarka (23 km). This phase of the project is completed. Doubts have been raised about the long term viability of the Delhi Metro project, costs for which not discounting for inflation - are 60 percent higher than Kolkata's and 113 percent cost of around Rs. 160 crore (expenditure was Rs. 10,571 crore for the 66 km first phase, including an 11 km underground stretch) was much higher than the per-km cost of around Rs. 100 crore for the Kolkata Metro and Rs. 75 crore for the Singapore Metro. Delhi Metro Rail Corporation (DMRC) has clarified that the higher project costs were largely due to the use of imported technology, but the matter needs investigation. To reduce overall project cost, the DMRC has projected raising around 6 percent of its total project cost by way of property development and is aiming to generate around Rs. 600 crore through real-estate projects by the year 2005.

7.8

Urban Infrastructure

India today faces the problems which most economies have faced at some point of their evolution: the problems associated with urbanisation. In 1951, 83 per cent of the Indian population lived in rural areas. The figure has since then reduced to 74 per cent of a population which has doubled in the last 46 years.

Much of the investments flowing into India since the economic reforms began in 1991 has been and will continue to be in the urban centres. Naturally, India's cities and their infrastructure services find themselves under tremendous pressure.

The Government of India recognises that a large portion of these investment and service needs must be met by the private sector, and welcomes domestic and international investors in urban infrastructure. The latest ongoing programme of Government of India is Jawaharlal Nehru National Urban Renewal Mission (JNURM) where the urban infrastructure of 63 select cities is being renewed at a cost of US $ 28 billion. Urban infrastructure projects are eminently suitable for public-private

partnerships. Arrangements such as Build-Own-Operate (BOO), Build-OwnOperate-Transfer (BOOT), Build-Own-Lease-Transfer (BOLT), are promising options. The Central and state governments welcome private initiatives and public-private participation in sectors like water supply, sanitation, public transport, and township and land development. The Indian Government stands committed to provide support in the form of equity contribution, a package of concessions, dedicated levies to repay loans, and a transparent regulatory framework. Private investors are encouraged to negotiate the concessions required to make their investments safe and paying. One significant fact that investors should consider is that local agencies in India have shown phenomenal progress in the recovery of costs of services and some have achieved full cost recovery. The city of Visakhapatnam in Andhra Pradesh offers a good example of how cross-subsidisation between consumer groups can make water supply systems run on commercial principles. The municipal corporation of Ahmedabad in Gujarat has performed a remarkable turnaround from a perennially loss-making body to a highly profitable organisation and has already launched the country's first Municipal Bond. 7.9 Water Supply

Privatisation could be introduced in case of new townships and projects for planning, designing, source development, execution of works, operation and maintenance including billing and collection. In case of metros and mega cities, water supply augmentation schemes for source development, conveyance of raw water, its treatment and bulk supply to the city water supply authorities, maintenance of pumping stations, water treatment plants and city distribution systems can be undertaken by private agencies.

Water scenarios are city-dependent. If there is an opportunity to jointly promote decentralized techniques, decentralized management, and delegation of management, even in limited respects to the local private entrepreneurs and communities, one should consider the initial situation, and adopt a more dynamic approach. Indeed, the Chennai example shows both governance and a

technical-cum-managerial solidity of the system that allows capacity building through delegation and technical decentralization.

The traditional question of giving water to the private sphere as a concession versus leaving it within the public sphere can be examined in this very framework. There are no credible projects for a large (international) private water companies. On the contrary, and despite the doubts and hesitations on its possible implementation, Mumbai seems to mostly focus on schemes supported by large international organisations. Chennai at the moment is in the intermediary

position, as it simultaneously considers local outsourcing for the water supply and sanitation operation, and large private companies as far as waste disposal is concerned. 7.10 River Linking Project

Linking of Rivers is of great importance, the project is of such a magnitude that it can happen once in the lifetime of a nation, it is Rs.560,000 crore project of water linking rivers and is stipulated to be completed by 2016, and the project would benefit the nation as a whole by integrating all of them together for irrigation, drinking water, navigation, fisheries, recreation and power generation. The

primary objective remains drought and food relief, employment generation and increase in food production, which can easily go up to 450 million tonnes through increased irrigation. Thus it is a multi-purpose project and the country's GDP itself can go up by about four to five percentage points.

7.11

Sewerage

Similarly, in case of sewerage and sewage treatment, works such as maintenance of pumping stations, sewage treatment plants and city sewerage systems could also be taken up. Keeping in view the ever-increasing demands for fresh water, the private agencies may also install tertiary treatment plants for reuse and recycling of sewage and industrial effluents for various non-domestic uses. 7.12 Solid Waste Management

Solid Waste Management is another activity which could be taken over profitably by the private sector provided resources recovery is contemplated to make the system self-sufficient and financially viable. In addition, efforts should be made to manufacture various equipment and machinery such as pipes, pumps, quality control equipment and machinery required in the water and wastewater treatment plants etc. within the country by various foreign manufacturing concerns in collaboration with the Indian companies as joint ventures for the Indian market.

7.13

Urban Public Transport

India has 63 metropolitan cities(as identified by JNNRUM). All offer attractive investment opportunities in public transport. City-wise studies have been carried out for Delhi, Bangalore, Calcutta, Chennai, Hyderabad, Mumbai, Ahmedabad,

Jaipur,

Surat,

Jammu,

Nagpur,

Vijayawada,

Lucknow,

Cuttack

and

Bhubaneshwar and for the other cities as identified by JNNRUM. India welcomes private investment in Mass Rapid Transit Systems (MRTS) and Light Rail Transit Systems (LRTS). Governmental support for such projects may include rights for development of property, foregoing returns/ dividends on any investments made by the Government, the availability of budgetary sources for part-repayment of loans and tariff agreements. The proposed Mass Rapid Transit System for Delhi offers good potential for public-private partnerships and the project is already in an advanced stage of planning. Bangalore and Hyderabad are also planning rail-based public transit systems.

7.14

Roads, Bridges & Flyovers

Bypasses to large cities and bridges are investment opportunities. There exists tremendous potential for private investment in construction and maintenance of ring roads, arterial and sub-arterial roads, bridges, flyovers and other facilities in cities.

7.15

Housing

The National Housing Policy, 1998 has been formulated to address the issue of sustainable development of infrastructure and for strong public-private

partnership for shelter delivery. Private investment in the sector is brisk and the opportunities are unlimited. The Government would provide fiscal concession to carry out legal and regulatory reforms and create an enabling environment.

As per the action plan under the 2 million Housing Programme, Ministry of Urban Affairs and Employment has embarked upon facilitating construction of 7 lakh additional housing units in urban areas every year. HUDCO is entrusted with

financing 4 lakh units and balance 3 lakh units per year will be met by other HFIs recognised by National Housing Bank, Cooperative Sector and Corporate Sector.

The Urban Land (Ceiling and Regulation) Act, 1976 was repealed through an ordinance notified on 11.01.99. This has since been approved by parliament and the Repeal Act notified on 22.03.99. Government has issued detailed guidelines to all State Governments and Union Territories to protect the interests of people belonging to economically weaker section and lower income group.

The Ministry of Urban Affairs and Employment offers incentives to non-resident Indians and foreigners of Indian origin as well as overseas corporate bodies that are predominantly owned by them, for investment in housing and real estate sector. 7.16 Land & Township Infrastructure Development

Returns on projects for development of land in extended areas of large cities and new townships can be well above 20 per cent. A package of concessions is being worked out.

Appendix I Average Construction Material Price as on 1st August, 2008 Sl. NO. 1. 2. Cement OPC Reinforcement Steel TMT 12 mm dia 3. Burnt Clay Bricks (9 x 4.5 x 3) 4. 5. Sand (coarse local) Stone aggregates (20 mm normal size) 6. Timber (Mango country wood round) 7. 8. 9. Petrol Lubricant Grease Paint Synthetic Enamel White 10. Bitumen Grade 60/70 Bulk Daily wages of Labour 1. 2. Unskilled Semi Skilled Rs. 120 day Rs. 130 day Kg Rs. 31.4 Ltr Kg Ltr Rs. 53 Rs. 120 Rs. 120/Cft Rs. 450/Cum Cum Rs. 1000/Rs. 1000/Each Rs. 3.50 50 kg bag 1000 kg Rs. 255 Rs. 38,000 Item Unit Price

3. Salary 1. 2.

Skilled

Rs. 200 day

Sr. Engineer (Civil) Jr. Engineer (Civil)

Rs. 40,000 pm Rs. 25,000 pm

Average Construction Material Price as on 1st June, 2009 Sl. NO. 1 2 Cement OPC Reinforcement Steel TMT 12 mm dia 3 Burnt Clay Bricks (9 x 4.5 x 3) 4 5 Sand (coarse local) Stone aggregates (20 mm normal size) 6 Timber (Mango country wood round) 7 8 9 Petrol Lubricant Grease Paint Synthetic Enamel White Ltr Kg Ltr Rs. 53 Rs. 120 Rs. 135/Cft Rs. 450/Cum Cum Rs. 1000/Rs. 1000/Each Rs. 3.70 50 kg bag 1000 kg Rs. 220 Rs. 36,000 Item Unit Price

10 Bitumen Grade 60/70 Bulk Daily wages of Labour 1 2 3 Salary 1 2 Sr. Engineer (Civil) Jr. Engineer (Civil) Unskilled Semi Skilled Skilled

Kg

Rs. 31.4

Rs. 120 day Rs. 160 day Rs. 220 day

Rs. 40,000 pm Rs. 25,000 pm

Average Construction Material Price as on Jan, 1998 (Base Year for Construction Cost Indices) Sl. NO. 1 2 Cement OPC Reinforcement Steel TMT 12 mm dia 3 Burnt Clay Bricks (9 x 4.5 x 3) 4 5 Sand (coarse local) Stone aggregates (20 mm normal size) 6 Timber (Mango country Cft Rs. 250 Cum Cum Rs. 250 Rs. 450 Each Rs. 1.50 50 kg bag 1000 kg Rs. 146 Rs. 14,000 Item Unit Price

wood round) 7 8 9 Petrol Lubricant Grease Paint Synthetic Enamel White 10 Bitumen Grade 60/70 Bulk Daily wages of Labour 1 2 3 Salary 1 2 Sr. Engineer (Civil) Jr. Engineer (Civil) Rs. 10,000 pm Rs. 6000 pm Unskilled Semi Skilled Skilled Rs. 75 day Rs. 85 day Rs. 100 day Kg Rs. 10 Ltr Kg Ltr Rs. 23 Rs. 105 Rs. 122

Note: Rs. 49 = 1 US$

Appendix - II CLASSIFICATION OF CONTRACTORS Table below gives the categorization of contractors by the size of men they employ:S.N No. of people employed by the agency 1 1 to 200 persons No. of Agency /contractors 27,000 %age Category

96.4%

Small

200 to 500 persons

800

2.86%

Medium

500 persons and above

200

0.74%

Major

Classification of Contractors
No. of contractors (as % of total) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Small Medium Category Major 2.86% 0.74% 96.40%

Safety Record of Indian Construction Industry

Year

Accident

frequency

rate

(accidents / million manhours worked)