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[ Source - Infrastructure Today, Dated - jan. 2008 ]
The Outlook for the Construction / Infrastructure Industry will be the same as of 2007 excepting, possibly for the Ports and Shipping sector.
This is because, 12 major ports have engaged International consultants for preparing their business plans for 20 years, including an action plan for the next 7 years, as part of the National Maritime Development Programme (NMDP). It appears the year 2008 would witness implementation of these plans, as well as implementation of the model concession agreement for Ports.
However the Highways sector scenario for 2008 would not witness considerable growth. The National Development Programme (NHDP) has been moving sluggishly for the last 3 years. Although the Prime Minister's Office urged the Highways Ministry to mandate to start the 6 laning of Highways and also development 1000 KM Expressways during the year 2008, the progress of implementation of highways by the Ministry continues to be slow. The Ministry is also confronted with number of claims and disputes with its existing contractors in the first phase of NHDP called Golden Quadrilateral corridor and second phase called North South East West (NSEW) corridor. It appears a number of policy initiatives from the Highways Ministry are required to speed up the Highways programme.
Hopefully the Railways would commence the dedicated rail freight corridor project during the start of 2008. However, the current alignments for the Delhi - Kolkata and Delhi - Mumbai corridors may have to be altered as the SPV set up for the implementing the project observed certain constrain in the existing alignments,
28 INFRASTRUCTURE TODAY JANUARY 2008
COVER STORY
decided by the Railways. Also many of the projects in this sector would be implemented in the Public Private Participation route. The Ministry has to finalize its model concession agreement, which is the key requirement for the projects to take off in the dedicated rail freight corridor.
Although the gap in demand and supply in power sector is around 12 per cent and above, substantial work needs to be done by the Power Ministry, as the Government has not been able to implement many of its policies - particularly the power sector reforms. While there may not be any major jump in construction in this sector, there should be an impressive growth for the equipment manufacturers, who would see a growth of 25-30 per cent in their business in view of more orders for upcoming power projects.
The Oil & Gas sector looks very promising. However, most of the Indian companies have to acquire necessary skill sets before effectively
participating in the projects, particularly off-shore projects. During the last two years, the Cement prices have more than doubled without matching increase in the cost of inputs. We have a feeling that probably cement companies are acting in concert to determine the prices - region specific. The efforts of our Honorable Finance Minister to rein in the pricing have not borne fruit. It is true that the demand has gone up but capacities are available and/are eing built. None of this explains this exhorbitant increase in the price of Cement. In the preceding two y ears it was steel price, which was continuously increasing and in the last 1 ½ - 2 years it is cement whose prices are increasing. This kind of apparent artificial increase poses a real threat to the Construction Industry in terms of cost dynamics.
Notwithstanding all the above, the construction industry would continue to face challenges of spiraling prices in cement and steel items due to continuing demand supply gap which may ease only in 2009, acute shortage of skilled man power and increasing lead times tor procurement of equipment.
Fortunately, with an effective role-played by the Government, the issues related to funding stands substantially resolved. There is a possibility of loan funds, PE funds, public fund and investment in structured instruments. Therefore, at least, for now, funding is not foreseen as a challenge.
Another major problem area seems to be the taxation. While the VAT has been uniformly implemented in the country, the rules and procedures are State specific, which creates problem in implementation. Another issue on the taxation is irrational notices on excise on pre-cast girders and others. Further, the Government is not following up with proper notifications for projects of National Importance. Because of this the deemed export benefits otherwise available to the contractors are not available.
The construction Industry has taken number of initiatives - particularly in the area of training & development and up-gradation of salaries to meet its skilled manpower requirements. But the issue of resolution of disputes with the contractors continues to be a major problem, particularly because of vigilance / audit culture that is prevalent in all the Government organizations. Urgent initiatives are needed from the Government both with respect to Standardization of Contract document and Dispute Resolution Mechanism.
Since 2009 is going to be the year of elections, the budget for 2008-09 may not spell out any radical move, at best it would be a populist budget. Hence on an overall basis, it can be said that the year 2008 would continue to be the same as it was in 2007.
