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India Infrastructure Report Q1 2011
Business Monitor International, Jan 2011, Pages: 143
India Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on India's infrastructure industry.
Long running concerns over the level of investment filtering through to projects on the ground continues to be the major risk to India’s construction industry value real growth, which is languishing below the double digit range despite almost unmatched potential. For the financial year (FY) 2010/11 (running from1 April 2010 to 31 March 2011) we are maintaining our real growth forecast at 7.7%.
High growth over the medium term is inevitable based on the sheer number of projects in the pipeline and underway, however, we do not believe it will reach the double digit highs seen in the early 2000s, with annual average growth of 7.5% forecast between 2011/12 and 2015/16.
Shortcomings in India’s business environment are the primary reason for the construction industry’s failure to unlock potential, specifically:
- India’s business environment is so fraught with obstacles that it is virtually impenetrable for international investors working alone. For this reason we have seen some of the largest and most forthright construction companies forming local partnerships as well as funds and financiers taking equity stakes in companies already successfully operating in the sector. This has blocked a substantial portion of foreign direct investment, leading private investment to severely underwhelm and fall short of targets.
- The most pressing concern in India’s construction sector as a whole is land clearance issues;insufficient compensation, unclear regulations and erratic and changeable decisions have been the primary source of delays in construction projects.
- Another concern is access to financing. Due to the short term nature of deposits in India, banks are unable to lend for the period required for infrastructure projects. Although the government has been quick to announce plans to increase liquidity and access to financing, it remains a key bottleneck.
Throughout our forecast period, infrastructure (one of the two sub-sectors which form construction industry value according to BMI’s definition) will be the main driver of construction industry value,substantially outperforming its counterpart – residential and non-residential building.
Both transport and energy and utilities infrastructure are in line for vast improvement and upgrades,however, some sectors are outperforming others:
- Power plants and transmission grids will be the main driving force behind infrastructure strength over the coming years. According to BMI’s Key Projects Database, there are more than US$220bn projects underway and in the pipeline, which is driving our forecasts for annual average real growth in industry value of 15% between 2010/11 and 2015/16. Ambitious targets for solar, wind and nuclear are focusing investment in the sector.
- Airports have seen a substantial increase in investment over the past year, with both regional and international airport infrastructure being heavily invested in. Airports were one of the few sectors to have investment targets revised upwards following the mid-term appraisal of the 11th Five Year Plan (2007/08 - 2010/11), up from INR310bn (US$6.8bn) to INR361bn (US$7.9bn).We are forecast strong industry value growth of 11% between 2010/11 and 2015/16.
- Rail, specifically urban rail projects, have move to the forefront of transport investment due to inner city congestion. Metro projects are underway in Delhi, Hyderabad, Bangalore and Mumbai. This, combined with the Dedicated Freight Rail Corridor is driving our forecasts for annual average growth of 12% y-o-y between 2010/11 and 2015/16.
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