Construction infra industry

BKT Dominates Off-highway Tyres Segment

Balkrishna Tyres
Balkrishna Tyres Limited or rather BKT, as it is fondly propounded among the industry stakeholders, flagged off its journey in the late 80s, and never looked back since then. Unlike others, it embarked upon doing things differently instead of doing different things. Getting off the league from 'highway tyres', BKT directed its focus on Off-Highway Tyres (OHTs) and moved on carve out a niche for itself. Today, having established its presence in 130 countries across five continents in the industrial, construction, and agricultural tyre segments; the company generates 90% of its revenue from the overseas markets.

Arvind Poddar
According to Mr. Arvind Poddar, Managing Director, BKT, all BKT tyres are known and appreciated by BKT customers for their extremely functional features and productivity potential. Manufactured with state-of-the-art technology, these specialty tyres are qualitative, tough, and durable; attributes that made them instant hit among the quality-conscious European and American users, who only value performance. "All thank to our robust R&D wing wherein we have stringent quality control mechanisms in place, which facilitates a qualitative offering at a constant pace. Moreover, we use only high quality raw materials (Natural Rubber), processed through the most advanced and developed technology. Each of our products passes over 450 stages of tests. The result of this rigorous practice is that BKT products are known for their reliability and have the lowest claim ratio in the industry," asserts Mr. Poddar.

As one-stop solution for all off-highway tyre solutions, BKT caters to the emerging needs of its customers in agricultural, industrial, material handling, construction, earthmoving (OTR), forestry, lawn and garden equipment and all terrain vehicles (ATV) segments. "We are one of the world's leading manufacturers of 'Off-Highway Tyres' with more than 2000 SKU's (Stock Keeping Units)," informs Mr Poddar adding that on an average, the company develops around 160 new SKUs every year in response to the ever changing requirements of its burgeoning clientele. "Significant innovation is enriching and enhancing the BKT's tyre line-up as a response to, and often anticipating, final users' needs," avers Mr Poddar.

The latest in BKT's portfolio are Ridemax FL 693 M and Ridemax FL 698. Ridemax FL 693 M, featuring a D speed rating and a low rolling resistance, is designed for those who frequently travel on the road with trailers or tank trucks. The Ridemax FL 698 is designed for dumpers traveling from pits to sites, for tank trucks and manure spreaders. According to BKT, the all-steel radial tire can achieve speeds up to 80 km/h (approximately 50 mph). What's more, BKT's Airomax AM 27 is a product for on- and off-the-road high-speed cranes suitable for applications on road and highway surfaces as well as on more aggressive construction site grounds.

Agrimax Spargo Tyre
Besides, the company has also added a few new models to its agriculture product line that include radial tyre Agrimax Force in the size IF 710/75 R 42 for high-powered tractors and the Agrimax Spargo tyre in the size VF 380/90 R 46, for sprayers and row crop applications.

"At BKT, we are committed to offer the best possible solutions for all Off-Highway Tyre requirements to feed the ever-growing demand of our customers across the globe," says Mr Poddar adding that the company is continuously expanding its production base. With three state-of-the-art manufacturing plants – one each at Chopanki-Bhiwadi in Rajasthan, Waluj-Aurangabad in Maharashtra, Bhuj in Gujarat – the company is confident to soon attain 100% capacity utilization to reach 2,70,000 MT. Besides, BKT also has one in-house hi-tech mould-manufacturing facility at Dombivali, near Mumbai that allows frequent changes of moulds. "Eight to ten moulds are changed everyday in our plants based on the requirement of the tyres to be produced. Production flexibility is supported by our prompt R&D team in producing the required tyre variant within a span of 10-12 weeks," informs Mr Poddar adding that.

Mr Poddar said that BKT was created with a vision to attain global leadership in a niche developed by the company itself. "At BKT, it is our constant endeavor to offer best quality product & services to highest level of customer satisfaction; through total quality management, product development and product customization techniques & services by implementing process safety and environment protection. And, today we are slowly but steadily marching towards our goal."

NBMCW December 2014

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Off-highway Tyres: Makers Foresee Growi...

Off-Highway Tyres
Projected jump in fresh off-take of tyre mounted mobile units by big project developers together with gradual growth in the rental sector is expected to be one of the major drivers of volume based demand for off highway tyres in the near future. P.P. Basistha takes a look.

Buoyed by the increased focus of the government towards infrastructure development, off-highway tyre manufacturers expect demand to rise. However, future demand will be characterised by requirements of valued product and services from construction equipment owners, so as to have higher equipment uptime and minimal cost of operations.

Tyre makers see increment in volumes on account of positive projected growth in infrastructure projects across construction equipment value chain, requiring deployment of tyre mounted mobile equipment in larger proportions. Volumes based demand is also expected, as OEM manufacture and position products across class and variants to fit the fast emerging heterogenous demand of the Indian construction sector, resultantly creating market share. There has been a notable development during the past few years with manufacturers widening their product portfolio in backhoe loaders, tractor trailers, wheel loaders, transit mixers and tipper trucks.

According to Mr. Farid Ahmed, Group Manager Marketing, Off-highway, Apollo Tyre, "India's CE industry is evolving with higher mechanization of applications and is moving towards more sophisticated and application specific machines. We at Apollo Tyres are ready to cater to the new requirements of the OEMs. Our focus on international markets has helped us to be ahead of the requirements in India and we already have a complete range of products for tipper trucks, multi-axle trailers, backhoe loaders, skid steer loaders, wheeled excavators, motor graders, tele-handlers etc. Our products are tested in the various international markets and provide us a strong platform to offer them off the shelf to the OEMs." He adds, "We also foresee launch of many new models and products in India triggering requirements of new sizes and specific application products."

Apollo has been supplying its off-highway tyres to BEML, JCB, Tata Motors, Ashok Leyland, Caterpillar, and Leyland Deere. The company is in the process of expanding its business share in the off-highway tyre segments.

To meet the growing volumes, Apollo will be banking on its two off highway tyre manufacturing facilities at Kochi and one at Vadodara. Mr. Ahmed mentions, "We have sufficient capacity available and also have expansion plans in place to cater to future industry growth. One of our plants in Cochin is going to be completely dedicated to produce off-highway Tyres."

Based on the growing requirements of lower tyre unit replacements and commensurate higher equipment uptime, the Ahmed says, "We continuously strive towards providing application based solutions to the customers. Our R&D team and the advance research wing keep working towards new designs and compounds for specific value added propositions in the market. We have a strong capability of in-house simulations and testing for off highway products. We are closely working with the OEMs on their new projects, where the tyres are put through their in-house testing and field testing to create the right solution for the customers before introducing in the market."

Ensuring brand recall via timely delivery of its tyres at sites, he informs, "We have a strong network of 150 Apollo offices and over 2000 business partners across the country to ensure availability of our products in the markets. In addition, we also have specialized off highway distributors in each state to reach out to customer. Further, Apollo is only company in tyre industry to have OHT specialists in all major states to provide complete service solution to large fleet owners and construction companies."

Arvind Sharma
Ceat Tyres is carrying out expansion of its production facilities for off highway tyres at Nashik and Mumbai. According to Mr. Arvind Sharma, GM-Specialist Ceat Tyres, "The expansion shall augment the existing capacities in a big way to help take care of the growth as planned for near future."

CEAT Grader XL
Timely product availability and support is key for Ceat to avoid brand substitution by the customers. Mr. Sharma mentions, "Our existing set up of stock keeping locations covers the length and breadth of the country which is amply supported by our service back up as well. These points are fed by a strategically placed feeder stock keeping unit which not only carries buffer stock but also addresses the transit period. This network addresses the adherence to the delivery schedules thereby avoiding downtime. Pilots to improve upon the said system are underway at a couple of locations and are at the decisive stage. Once reviewed, the same would be implemented with the required changes. The service aspect is of paramount importance. The existing network of service personnel with an active involvement of the R&D has helped to cater to the customers' demand, much to his satisfaction. Models to further augment the same are at an advanced trial level." Ceat claims to supply its off-highway tyres to major original equipment manufacturers in India.

To address the emerging requirements of the construction equipments owners characterizing lower replacements and higher uptime, Ceat claims carrying out commensurate research and development to suit the requirements. Mr. Sharma informs, "To meet lower replacements across equipment class, we are undertaking consistent R&D by compounding new recipes specific to application.

He explains, "Backed by necessary R&D support, notably through numerous controlled and comparative tests, we are positioning our off highway tyres to diverse application, load, designs, and overall equipment build."

While there are indications of growing demand of off highway tyre units, the key challenge for tyre makers will be to introduce dynamism in their R&D for catering to various applications and sizes. This would require to be backed by timely distribution of products and support, so as to leverage the brand presence in the highly price sensitive market of off-highway construction equipment owners.

NBMCW December 2014

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Infrastructure & Construction Equip...

Rajesh Nath
Mr. Rajesh Nath, Managing Director, VDMA India
Ajmal Fawad
Mr. Ajmal Fawad, Business Analyst, VDMA India

Introduction

A well-developed infrastructure is a foundation for growth in any country, paving the way for a better quality of life and a rapid rise in gross domestic product (GDP), especially for developing countries such as India.

Construction sector in India is considered to be the second largest employer and contributor to economic activity, after agriculture sector. Construction sector also accounts for most inflow of Foreign Direct Investment (FDI) after the services sector and employs more than 35 million people in the country. 50% of the demand for construction activities in India comes from the Infrastructure sector, while the rest comes from Industrial activities, residential and commercial development etc. Indian Construction Industry value is estimated to be more than $126 billion.

Infrastructure Construction
$1 trillion earmarked for investment in the 12th Five Year Plan

Infrastructure growth holds the key to the industry realizing its potential in India. In the 12th Five Year Plan, the government has earmarked approximately $1 trillion for infrastructure investment, with 40% of the funds to come from the private sector. In order to attract such investment, the Indian government has eased FDI norms for quite a few sectors of infrastructure development. This is likely to spur the demand for the earthmoving and construction equipment, and if the industry's full potential is realized, the result could be a $16 billion to $21 billion industry by 2020.

The 12th Five Year Plan

India's need for infrastructure development is also well supported by the government's intentions as outlined in the 12 Five Year Plan (FYP). Infrastructure is one of the plan's primary areas for spending, with about $1 trillion (Rs.55 lakh crores) earmarked for investment. Five sectors account for more than 80% of total planned spending: electricity, telecom, roads and bridges, irrigation, and railways, including mass rapid transit systems.

Infrastructure Development
Investments in Indian roads are expected to jump

Overall, infrastructure spending is expected to grow from 7.2% of GDP in the 11th FYP to 9% by fiscal year 2017. Private investment in infrastructure is expected to increase from Rs.8.8 lakh crores in the 11th FYP to Rs.26.8 lakh crores in the 12th FYP, with the last year alone of the 12th FYP period (fiscal year 2017) attracting private investment of Rs.8.7 lakh crores. More than 80% of private-sector spending will continue to focus on four sectors: telecom, electricity, roads & bridges, and renewable energy. Private investment in infrastructure is expected to increase from 37% in the 11th FYP to 48% in the 12th FYP. This growth is expected to be spurred by private players' expected capacity expansion and their ability to provide good quality, timely service while keeping costs low.

Indian Urban Infrastructure

Over the next 20 years, it is estimated that US$ 650 billion investment is required in urban infrastructure. Of this, almost 45% is required for development of urban roads.

To boost urban infrastructure across the country, the government has initiated numerous measures and has allocated almost US$ 2 billion under Jawaharlal Nehru National Urban Renewal Mission (JNNURM). The government has also launched the Urban Infrastructure Development Scheme for Small and Medium Towns with an outlay of US$ 1 billion to address infrastructure needs of small towns and cities.

Additionally, there is a renewed push towards Public Private Partnerships (PPP) in the sector. Delhi - Mumbai Industrial Corridor (DMIC) is an ambitious Infrastructure programme conceptualized with Japanese government and aiming at developing new industrial cities as "Smart Cities" and converging next generation technologies across infrastructure sectors. Projects worth investment of US$ 200 Billion have already been approved under DMIC. Success of DMIC has prompted many similar corridors including Bangalore Chennai corridor etc.

Roads

India has one of the largest road networks in the world, behind only the United States and China. And to improve the country's road infrastructure, the Indian Government estimates that over US$ 27 billion private investment is required during the 12th FYP (FY12-17).

So far under NHDP (which started in early 2000s), 33,500 kms are developed or are under the implementation phase with balance 21,000 kms are yet to be awarded. Extensive contribution of the private sector is being utilized for implementation of NHDP through contracting and Public Private Partnership (PPP).

The 12th FYP outlays an increase in planned investments by more than 100% from the 11th FYP achievements, driven by higher targets across national highways, state highways and rural roads. The FYP has plans for about 13,000 kilometers of new national highways and 1,58,000 kilometers of new roads in rural areas. Apart from government spending, private funding has increased from 5 percent in the 10th FYP to 20% in the 11th FYP, primarily driven by factors such as 100% foreign direct investment in road infrastructure, 10- to 20-year tax breaks during concession periods and duty exemptions for importing road equipment. The ongoing 12th FYP targets about 33% of the investment to be fulfilled by the private sector. So far, 3928 kms of National Highways and 39,144 kms of Rural Roads, have been created till December 2013 to give a big boost to infrastructure industries.

Indian Urban Infrastructure
Investments in Indian roads are expected to jump

The value of total roads and bridges infrastructure in India is anticipated to grow at a CAGR of 17.4% over FY12-17. The country's roads and bridges infrastructure, which was valued at US$ 6.9 billion in 2009, is projected to touch US$ 19.2 billion by 2017.

Airports

There are a total of 454 airports in India, out of which around 90 are open for commercial services and 16 are designated as international airports. Delhi and Mumbai are by far the busiest airports in India, carrying almost 2.5 times traffic as the next busiest airport.

The growth so achieved has put tremendous pressure on current airport infrastructure in the country. The Indian Government has projected that an investment of around US$ 12 billion in the next five year plan will be needed to help cope with additional demand, and private sector participation is expected to play a key role. 75% of the investment envisaged in the next five year plan is expected to be contributed by private sector.

Railways

Railways have continued to be another large focus area for developing transportation infrastructure. The Government has earmarked about Rs.5,19,000 crores for railways during the 12th FYP, of which about Rs.95,000 crores are targeted for investment in dedicated freight corridors on eastern and western routes. In the current five year plan, 3,343 kms of New Railway track have been created till December 2013 to give a big boost to infrastructure industries.

One major programme intended to attract private investment is the Dedicated Freight Corridor project. The project is intended to decongest the routes between Delhi & Mumbai and Delhi & Kolkata by building dedicated cargo lines at an estimated cost of US$ 6–7 billion.

Ports

For ports, the 12th FYP budgets investment worth Rs.1,98,000 crores, of which around 85% is expected to be fulfilled by private players. Till December 2013, 217.5 milliion tonnes of capacity per annum in our ports have been created to give a big boost to infrastructure industries. The capacity of ports in India by the end of the 12th Five-Year Plan is targeted to touch 2,493.10 million tonnes per annum (MTPA) as against 1,245.30 MTPA at the end of the 11th Five-Year Plan (2007-12).

Indian Earthmoving & Construction Equipment Industry

Investments in infrastructure are the main growth drivers of the construction equipment industry. The Planning Commission estimates total infrastructure spending to be about 10% of gross domestic product (GDP) during the 12th Five-Year Plan (2012–17), up from 7.6% during the previous plan (2007–12).

Construction Equipment Market
Construction equipment market share by segment
The Indian construction equipment sector is made up of five main segments: earthmoving equipment, road construction equipment, concrete equipment, material handling equipment, and material processing equipment. Earthmoving equipment and road construction equipment account for close to 70% of India's construction equipment market. Backhoe loaders account for 65% of the earthmoving equipment and road construction segment.

In FY12, backhoe loaders is estimated to comprise over 50% of the earthmoving equipment sales based on units, followed by crawlers (about 23%). Clawer excavators is expected to be the fastest growing segment, with sales to double to 28,000 units by 2016, mainly on demand for mid-size crawlers (20T) from the construction segment and their versatile usage. Backhoe loaders and crawlers excavators are expected to account for over 70% of total sales by 2016. The share of crawler excavators is estimated to increase to 35% by 2016 from the current 23%, mainly on demand for medium-sized crawlers (20 tonnes) from the construction segment. Demand for larger excavators (30 tonnes) used in the mining segment is also expected to increase in the years to come.

Concrete equipment is the second largest segment with a market share of approximately 14%. It comprises asphalt finishers, transit mixers, concrete pumps and batching plants. Material handling equipment and material processing equipment account for 10% and 6% of the market respectively. Cranes are the largest category within the material handling equipment.

In terms of growth, the global earthmoving equipment market recorded a review period (2008-2012) CAGR of 1.67%. The growth was subdued by a 34.1% decline in the market in 2009, due to the financial crisis. Construction activity slowed and demand for earthmoving equipment declined in 2009, the worst year in the economic crisis. The global earthmoving equipment market is expected to record a forecast period CAGR of 5.59% due to the construction industry growth, infrastructure and residential development in emerging economies, and the easing of the financial crisis in Europe.

CE market contracted in 2013

Construction Equipment Market 2013

The global construction equipment market was estimated at Rs.5,551 billion (US$ 90.5 billion) last year and is expected to reach Rs.7310 billion by 2016, representing CAGR of 7.7%. Emerging markets such as China and India are becoming increasingly important on the global stage as key players shift their production bases to Asia to drive revenue by benefitting from region's growing infrastructure investment, favourable government policies and mass-scale domestic markets.

India's construction equipment market meanwhile, outpaced global growth trends with the market estimated at Rs.208.4 billion at the end of last year.

Revenues increased at a CAGR of 6.6% during FY07-12 and are further estimated to rise at a CAGR of 24.8% on rapid infrastructure development undertaken by the Government of India. Out of the total exports of Construction Equipment to India, South Korea and USA take the highest share of 21% each followed by China Japan & Germany 16%, 11% and 9% respectively.

The construction equipment industry's revenues are expected to reach US$ 22.7 billion by 2020 from US$ 5.1 billion in FY 12. Unit sale of construction equipment is expected to grow to 82,000 by 2016 from 61,745 in FY 12.

Exports of Construction Equipment
Exports of Construction Equipment to India

Increasing impetus to develop infrastructure in the country is attracting the major global players. There has been cumulative FDI inflow of $175.0 million in earth- moving machinery between 2000 and 2013. The Government of India has de-licensed the material handling equipment industry and allowed 100 % foreign direct investment (FDI) under the direct route. The government has also given approval to some financial institutions to raise money through tax-free bonds.

Equipment Financing and Renting in India

As with any product that requires a large one-time capital expense, financing is a good way for the construction equipment industry to spark demand and acquire new customers. India's earthmoving and construction equipment (ECE) financing industry was valued at Rs.23,000 crores. Financing accounts for about 80% of the equipment purchased. For imported machinery, it's even higher, with 90% of equipment purchased being financed.

Over the next few years, the ECE financing industry is expected to grow by a compound annual growth rate of about 22%. Most financing is through loans, with leasing as a distant second option. About 80% of ECE users that opt to finance are micro, small, and medium-sized enterprises. With ticket sizes varying from Rs.20 lakh for a backhoe loader purchased by an individual user to Rs.20 crores for a construction firm's bulk equipment purchase, the variety of players offering equipment financing has grown. Non Banking Financial Companies handle 75 to 80% of ECE financing.

Penetration of financial intermediaries in the market is high – over 80% of all CE bought in India are financed. Main buyers of non-financed equipment include government and public sector undertakings. These are percentage of capital investment across sectors, but in CE alone the penetration is far higher. The market is dominated by First Time Buyers (FTBs) with 60% of the market share indicates a broad based market with easy access to financing. FTB and Mid segment (small retail buyers) together constitute the retail segment of the market which accounts for a large market.

Construction companies are under a lot of pressure to trim capital outlay and hence they increasingly rent equipment on a monthly or hourly basis, or where possible, on the amount of material handled. Again, the current rental penetration in India at around 7 to 8% remains low as compared to the global standards of 50 to 80%. Leasing/rental of construction equipment is still a very fragmented industry in India, but is expected to show strong growth, possibly higher than 30% annually over the mid- term. Several OEMs have already constituted dedicated teams for the rental/leasing services.

A robust rental market enables reduction in investments in projects by outsourcing the equipment requirement (including spares and services) and improving capacity utilisation of equipment. The key equipment in the rental fleet in India currently are backhoe loaders, pick-n- carry (PNC) cranes, excavators, motor graders, and vibratory compactors. The equipment rental and leasing business in India is smaller compared to Japan, USA and China. Demand for rental equipment is set to witness strong growth in the mid-term due to large investments in infrastructure. New players can also explore opportunities in the equipment finance business.

The limited presence of large organized players is restricting the growth of rental financing. Given the industry's narrow focus today and the tremendous opportunities for growth, better access to financing will help broaden the market.

Key Challenges for Infrastructure and Construction Equipment Industry

Land acquisition delays: Across infrastructure projects, delays as a result of land not being acquired by the time projects are awarded have affected many projects both before and after they start. For example, land clearance issues held up the Trivandrum-TamilNadu border road project, though the tender was awarded in 2010. Country-wide regulations on land acquisition have been enforced in a non-uniform fashion, causing delays. Even lenders are unwilling to support projects unless clearances are available and 100% right of way has been secured.

Clearance delays: Delays related to forest and environment clearance are also impacting many infrastructure projects. Clearance policies are often not used objectively, providing different rationale for clearances on different occasions. Not only does this impact the speed of clearances, it also sends uncertain signals to investors—and often leads to pullback of investments. For example, the contractor for the Kishangarh-Udaipur-Ahmedabad six-lane highway has terminated the project because environmental clearance failed to materialize. Similarly, lack of clearance from the state water department held up the Chennai Port-Maduravoyal road project.

In addition to addressing infrastructure challenges, the ECE industry achieving its full potential will hinge on addressing challenges in three areas of the ECE ecosystem:

Financing

  • Original equipment manufacturers (OEMs) in India offer limited financing options, and payment terms for first-time users are often unfavorable. The result is that access to financing prevents many prospective users from buying.
  • Renting is a good option for users with an eye on limiting their large capital expenditures. However, renting penetration in India is much lower (7 to 8%) than in other large ECE markets (65% in the United States and 35% in China) because of a tax regime that makes moving equipment across states unviable.
  • India's secondary market for used equipment is underdeveloped.
  • Recovery is a big challenge for non-bank finance companies, the major providers of ECE financing for whom regulations pertaining to defaulters and bad debts are not very favorable.

Unavailability of Skilled Manpower

  • As the ECE industry rapidly grows, the need for trained operators and mechanics will increase proportionately. Availability of skilled workers is likely to be an issue. Multiple entities from the government, ECE companies and industry bodies are working to solve the skill gap issue, but coordination among these agencies can be improved.
  • Most construction-equipment users are small players who prefer on-the-job training for operators and mechanics and are unwilling to pay a premium for qualified workers.
  • Specialized courses on construction equipment operations are not a part of vocational training at industrial training institutes because the high cost of equipment makes hands-on training expensive. ECE training institutes run by OEMs tend to be expensive for low-income groups.
  • There is a lack of uniform national guidelines for safety and quality. On-the-ground enforcement is a challenge because of the fragmented nature of the industry. (Small contractors make up about three-fourths of the industry.)

Components

  • There is a high variability in OEM demand owing to market fluctuations, which makes capacity planning difficult for component providers.
  • India is a market where component suppliers tend to focus on items at the lower end of the technology spectrum, while relying on imports for high-tech items. Consequently, there is a gap in terms of technology adoption at the supplier end, where the market demand for higher connectivity and compliance to fuel economy regulations is not met with indigenously manufactured components.
  • Suppliers are also constrained for operating margins because the market is very price and value conscious.

The Road Ahead: India is poised to be world's 3rd largest construction market by 2025

All signs point to a country that would be wise to focus on developing its infrastructure. And when it does, demand for earthmoving and construction equipment (ECE) will surge. Growth in a country's fleet-size ECE stock is highly correlated to the growth of the construction industry (a proxy for infrastructure growth), with a high correlation coefficient (more than 0.99). In the near future in India, the bulk of construction growth is likely to come from growth in transportation infrastructure (roads, rail, airports, ports), urban infrastructure (mass rail transit systems, water supply and sanitation, urban housing) and rural infrastructure (rural roads, irrigation, rural housing)—three important sectors for driving ECE demand. With significant infrastructure investment and growth expected in India, it is expected that ECE stock will exhibit robust growth in the near future.

The ECE market is expected to grow by a healthy 20 to 25% over the next few years to reach 3,30,000 to 4,50,000 units sold in 2020, from current levels of about 76,000 units. This would imply a $16 billion to $21 billion market, up from today's $3 billion. The sector will continue to be dominated by backhoe loaders (more than 40% of total demand), but broad-based growth is expected across products, with each segment expected to see double-digit growth. A rise in the use of concrete will also create demand for concrete equipment in infrastructure and housing projects.

Bibliography

  • Website of India Brand Equity Foundation (IBEF): www.ibef.org
  • Website of Indian Construction Equipment Manufacturers' Association (Icema): www.i-cema.in
  • Website of Government of India Planning Commission: www.planningcommission.gov.in
  • Website for Indian Union Budget 2014-15: www.indiabudget.nic.in
  • VDMA statistics on "Construction Equipment and Building Material Machinery"
  • Deloitte report on "Infrastructure & Construction Sector"
  • AT Kearney report on "ECE Industry"
  • BDB report on "Indian Construction Equipment Sector"
  • Specific inputs from Mr. Faridi, Editor, New Building Materials & Construction World

NBMCW December 2014

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Road Sector Signals Green Shoots of Rec...

By Jeet Singh

National Highway Chittode Junction

With strong political stability equally supported by the investor–friendly policy initiatives and sufficient funds earmarked in the current Budget, the country's road sector is opening up huge business vistas for road builders in coming months. On this score, tackling the dwindling interest of contractors and investors in the PPP model, the government is currently focusing on the EPC model under which it will fund the road projects of 8,500 km entailing an investment worth Rs.37,880 crore during the current fiscal, besides committing to fast track the road project clearance and delivery mechanism. For bringing the PPP model back to its pristine glory, the government has set up 3P India with a corpus of Rs.500 crore to resolve issues derailing the PPP projects.

Policy Initiatives

The Infrastructure Investment Trusts (InvITs), has been created by the new government to ensure sufficient funding flow to the sector by investing in a project either directly or through special-purpose vehicles. In case of public private partnership (PPP) projects, such investments have only been allowed via SPVs. Alongside it has empowered banking sector to generate funds for the investment in the core sector projects on better banking terms for a long duration exactly matching to the long gestation period of the road projects. The initiative would help fuel growth in loans to core sector and will bring down the ratio of bad loans. The World Bank has agreed to invest a staggering sum worth $500 million in the National Highways Inter-connectivity Improvement Project (NHIIP). The funding initiative has been aimed at improving the National Highway network connectivity to less developed states and will also enhance institutional capacity of Ministry of Road Transport and Highways to better manage the highway network across the country. The funds would be invested in upgrading about 1120 km of existing single or intermediate lanes of the highways in three low income States (Bihar, Orissa, and Rajasthan) and in less developed regions of two middle income States (Karnataka and West Bengal) and that the ministry, government of India, is the implementing agency for the projects.

In its entirety ensuring smooth functioning of the InvITs trust, it has drawn borrowing directions for the trust with the rider that the aggregated consolidated borrowings of a trust and underlying SPVs shall never exceed 49% of the value of the assets of the trust. For any borrowing exceeding 25% of the value of InvIT assets, credit rating and unit holders' approval is required and that the norms identified different set of conditions to be met by InvITS, depending on the nature of the underlying investment and investment limits. Quoting an instance it said that an InvIT that proposes to invest at least 80% of the values of the assets in the completed and revenue generating infrastructure assets is required to raise funds only through a public issue with a minimum 25% public float and at least 20 investors. The decision also contains the rider that the minimum investment size for this type of InvIT is Rs.10 lakh crore with a trading lot of Rs.5 lakh crore thereon. Apart from this, the government has also decided to set up a financing corp with a crpus of Rs.1 lakh crore in partnership with Japanese investors to finance road projects. It is currently in the process of rolling out a proposal to kick start the stalled road projects where the promoters are facing fund crunch. The underlining idea is to complete the project, recover funds and transfer the same to the builders of these projects and they would be run for few years to recover the funds infused before handing them over to the promoters. In a mega move, Hinduja Group, has recently unveiled a plan to invest a staggering sum worth $10 billion amounting to Rs.60,000 crore in reviving installed infrastructure projects in the road and power sectors. The projects in which the group wants to invest are largely sitting on bank books as non-performing assets and the player is keen to invest in such ventures so that investment and trade can grow on the expected lines in the near future.

Road Sector Recovery

Eliminating procedural logjam and bottlenecks, the road ministry has recently been empowered allowing it the expenditure of up to Rs.1,000 crore at the ministry-level without taking additional approvals and has been authorized enough flexibility in awarding projects on either public-private partnerships or engineering procurement contract basis. These among other initiatives are expected to ensure road construction cheaper and make the entire process quicker and simpler. The first is a clarification that road construction machinery that is imported duty-free can be sold within five years of import, subject to payment of Customs Duty on depreciated value. Also, individual constituents of the consortium whose names appear in the contract can import goods without paying duty. The second is that the road developers will not have to secure certification from the Road Ministry or NHAI for availing Customs Duty exemption on specified goods. According to Vinayak Chatterjee, Chairman, Feedback Infrastructure, the announcement of new infra lending format — 25 year loan with five-year resets — by commercial banks will remove, at one stroke, many ills affecting bank lending to the road sector.

Projects on anvil

Shortly after taking over the reins at the Centre, the ministry of road transport and highways has approved highway projects worth over Rs.40,000 crore to be implemented with immediate effect in states like Jammu & Kashmir, Himachal Pradesh, Uttarakhand, and in the Northeastern region. It has already approved projects worth Rs.20,000 crore for Jammu & Kashmir covering 2-laning and 4-laning of National Highways in the state and also scores of roads projects for Leh and Ladakh regions. Fast tracking the road building process in the Kargil and Leh through a 14 km long tunnel across Zojila, the highest mountain passes of the country to the government has proposed, construct Rs.900 crore tunnel project with another 6.5 km long tunnel at Z-Morh in Sonmarg to provide round the year road connectivity to these hilly areas. In a recent mega move, ensuring their execution the ministry will co-ordinate with the PWD of the states concerned and all these projects would be completed in the next half decade. Injecting a major infra booster to states of north eastern region, the ministry has announced projects worth Rs.15,000 crore for states including Assam, Manipur, Meghalaya, Mizoram, Arunachal Pradesh, Nagaland, and Tripura where it is all set to start the construction work very shortly as the "preparation of DPRs (detailed project reports), is currently in full swing.

Similarly, in hilly states like Himachal Pradesh where it is tough to widen the existing roads, specifically between Kullu and Manali areas, it has decided to build world class one-way roads. The ministry, which recently reviewed over 250 road projects entailing an investment worth Rs.60,000 crore which had got stuck mainly due to land acquisition and environment and forest clearance issues, would be up and running in the next three months. Besides, it has readied a list of 11 projects to be awarded very shortly at an investment worth over Rs.18,000 crore. The appraisal process for most of these projects is complete and the concerned wing of the ministry is presenting these projects for the approval of the minister. The total length of these projects is 1,300 km and as the ministry has set an internal target of awarding 8,500 km of roads in the fiscal of which 3,500 km of roads projects are expected to be awarded through the public private partnership (PPP) mode and the remaining under the engineering, procurement and construction (EPC) model. That apart, ensuring smooth road connectivity to the neighboring countries, the new regime at the centre has fast tracked the Imphal Myanmar road project connecting two countries covering a distance of 579 km between Imphal and Mandalay in about 14 hours. The mega project is likely to be commissioned by the end of this year. In addition, the Indian government is also assisting Myanmar to upgrade a 70 km stretch of road which becomes non-negotiable during the rainy seasons.

Imphal Myanmar Road Project

Concluding remarks

As a matter of fact, the road ministry is going all out to start work on the stalled highway projects by clearing hurdles like delays in land acquisition and green nods and relentless efforts are currently on to launch new projects worth 2 lakh crore very shortly. In swift and significant move the public private partnership (PPP) model, which is currently not feasible due to multiple issues, has been put on the back burner and projects are being bid out largely on engineering, procurement and construction (EPC) model. The government has also delivered a well-defined and prudent Budget with specific focus on road infrastructure and this again indicates that the entire picture in the road sector is going to witness a sea change in coming days.

NBMCW September 2014

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Budget 2014-15 : A Strong Stimulator an...

Arun Jaitley
While acknowledging the fact that perform or perish is the message from the Indian electorates to the recently held Parliamentary elections, the new BJP-led NDA government at the Centre in its Budget proposals for the current fiscal, has attempted to roll out an ambitious infrastructure blueprint targeted to pull the economy out of its current recessionary slumber. While doing so, it not just practiced extreme fiscal prudence in fixing finances to build world class infrastructure, boosting manufacturing, pushing the pace of real estate and construction sectors but also extended tax and excise concessions to manufacturers, entrepreneurs, small and medium enterprises and working class, besides promising to build roofs on the heads of those belonging to the lowest strata of society. That apart, the increased pace of tax incentives for REITs and Infrastructure Investment Trusts will help attract long-term finance from foreign and domestic sources for real estate and big infrastructure projects. The support for the national highway program, tax incentives on home loans and development of smart cities, setting up 16 new port projects and simplification of investments, clarity on retrospective taxation and implementation of the Goods and Services Tax and Direct Taxes Code. All these initiatives are expected to have a multiplier impact on the pace of inclusive growth resulting in placing the country's economy back on the higher growth trajectory.

Stats and Facets

In its Budget the government has earmarked a plan expenditure worth Rs.5,75,000 crore for the fiscal by effecting a hike of 20.9% for the current fiscal as compared to the actual estimate of the preceding financial year and 3.5 per cent more than in the interim Budget. The Budget numbers show the growth in capital Plan expenditure had been somewhat better than that for revenue expenditure. The Plan expenditure on capital account is estimated at Rs.11,497 crore, around 7.5 per cent more than the interim and revenue account has been pegged at Rs.4,53,503 crore, only 2.6 per cent more than the interim Budget. This is also tactical shift from the previous NDA government when capital Plan expenditure was largely used to create durable assets like roads and highways. Out of the total planned expenditure, the Gross Budgetary Support (GBS) has been pegged at Rs.2,36,592 crore - much lower than the total central assistance to state and Union Territory Plans, at Rs.3,38,408 crore. While the central assistance to state Plans was estimated at Rs.3,38,562 in the interim Budget, it has been scaled down to Rs.3,38,408 crore. The 12th Five-Year Plan had fixed a target of Rs.35,68,626 crore of Plan expenditure of which Rs.13,64,157 crore has been allocated in the first three years. This means the NDA government will have to allocate more than Rs.11,00,000 crore in the next two financial years to meet the target. The Gross Budgetary Support for the 12th Five-Year Plan was targeted at Rs.27,10,840 crore of which only Rs.8,97,824 crore has been allocated in the first three years of the Plan period. It has earmarked a sum of Rs.7,060 crore for developing 100 smart cities and set up a Rs.500-crore price stabilization fund to curb fluctuation in commodity prices and control food inflation besides setting aside Rs.5,000 crore to boost warehousing and improve the shelf-life of farm produce. To boost investment in these cities, the government has liberalized FDI and PPP norms. In its entirety, the PPP model will be put to use to upgrade infrastructure in about 500 urban areas across the country.

Roads & Highways

In view of the multiple pitfalls of the public-private partnership (PPP) model, the government in its budgetary proposals has allocated Rs.37,880 crore for road and highway sector to build 8,000 km of roads in the current fiscal during which most of the road projects will be awarded on the EPC model. In an attempt to place the PPP model back on the track, it has also announced a new entity, 3P India—with a corpus of Rs.500 crore to help resolve issues de-railing PPP projects, besides empowered banking sector to raise funds for investment in the core sector projects on better banking terms. Alongside it also allowed banks to issue long- term bonds without subjecting them to cash reserve and statutory liquidity ratios for financing infrastructure projects. “As a matter of fact, allowing infrastructure loans to be sanctioned on easier terms for longer periods exactly matching the life of the asset is a big positive as it will prevent undue stress on repayment of infrastructure loans and will also reduce user charges", Chairman, State Bank of India, Arundhati Bhattacharya, said, adding that while growth in loans to core sector would help bring down the ratio of bad loans, banks have been provided support to recover from their existing stock of bad loans with the creation of six new debt recovery tribunals. In totality, the Finance Minister has delivered a well-defined and prudent Budget with specific focus on infrastructure, manufacturing and rural schemes.

Road Highways

Real Estate

The new government at the Centre in its maiden budget has given special focus to the real estate and construction sector and has sanctioned a staggering sum worth Rs.12,000 crore to support low cost, rural and affordable housing for poor and also extended additional tax incentives on home loans. In totality, the real estate sector appears to be the key beneficiary of the budget as the government has initiated many key proposals boosting the prospects of property builders. The incentives included easier access to funds, which is the key bottleneck as developers have been burdened with huge debt and high interest rates at times when sales have slowed down. Firstly, introducing Real Estate Investment Trusts (REITs) should help attract new funding. Tax structure was a major hurdle in REIT structures and the proposal to allow pass-through status is positive. REITs will increase liquidity as developers and private equity funds can exit their commercial investments. The Finance Minister has attempted to channel funds into the infrastructure and realty sectors by easing the tax treatment of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (Invits).

Real Estate

As a matter of fact, real estate developers also stand to benefit as they can sell completed projects to REITs and deploy this money in new projects. Invits gives investors a similar opportunity in infrastructure projects. Industry estimate suggests funds worth Rs.63,000 crore can be raised by real estate companies by selling completed projects to REITs. Irrespective of scores of challenges, REITs and Invits are going to become a part of the investor portfolio and will considerably ease the liquidity constraints of the realty and infrastructure companies. Also, the liberalization of FDI norms in building new cities should bring in more funds. The limit is now extended to projects with a built-up area of 20,000 square meters (from 50,000 square metres) and capital of $5 million (from $10 million) respectively with a three-year post-completion lock-in period. The lower threshold limit, along with more favorable terms for low-cost housing will aid township developments. The main proposal that will boost home buyer enthusiasm is the increase in interest deduction limit on self- occupied homes from Rs.1.5 lakh to Rs.2 lakh.

Power Sector & Green Energy

Considering that the power sector is the main growth driver of the economy, in the current budget, the government has focused on two key areas of power reforms including the revival of the distribution sector and clean-energy generation - inspired from the Gujarat model. The reforms also include tax breaks and duty benefits for fresh capacity addition. The FM announced the replication of Gujarat's Feeder Segregation Program, which divides rural transmission lines into two parts, through the Deendayal Upadhyaya Gram Jyoti Yojna and allocated Rs.500 crore to the scheme. In addition, he also extended the ten-year tax holiday, under the Income Tax Act, for all power projects to be set up by March 2017. The incentive allows companies to claim deduction up to 100% on profits for 10 years. This means companies will pay only 18.5% minimum alternate tax (MAT) on recorded profits, instead of corporate tax, a 100% deduction would bring the tax to a level lower than MAT in almost all cases.

thermal power plant

In regards to green energy generation, the FM sought to give a push to solar power setting aside Rs.500 crore for developing four ultra mega solar power projects in Rajasthan, Gujarat, Tamil Nadu and Ladakh. Work on one such 4,000-megawatt project, near the Sambhar Salt Lake in Rajasthan, is on with an estimated investment of Rs.7,500 crore. In addition, he also allocated Rs.400 crore for installing 100,000 solar-power driven agricultural pumps. Apart from this, the Budget also provides for a green-energy-corridor project this year under which alternative transmission infrastructure for renewable energy will be set up at an estimated cost of Rs.43,000 crore. He also announced incentives to solar power equipment manufacturing with a concessional Basic Customs Duty (BCD) of five per cent and reduced the BCD on steel rings used in wind-energy generators from 10 to five per cent and raised the clean energy cess on coal from Rs.50 to Rs.100 per tonne. The proceeds are to be channelized to the National Clean Energy Fund, used for research. According to ratings agency ICRA, the rise in coal cess and a marginal increase in customs duty on steam coal (from nil to 2.5 per cent) would lead to a rise in the cost of power generation by 2.5 paise a unit, which pressure retail rates.

Metro & Rail Sector

In an attempt to make Railways the main growth engine of the economy, the rail minister has committed to generate funds through FDI and PPP routes for building the requisite infrastructure. The government has sanctioned immediate funding worth Rs.6,500 crore for the Dedicated Freight Corridor and also cleared initial funds worth Rs.100 crore for setting up Diamond Quadrilateral network for bullet trains connecting major metros. In fact, the FDI in the sector, except in rail operations, is also going to be the main focus of the new government. In a paradigm shift, the Railways is keen to push the PPP mode in 2014-15 and has targeted 20 power sector and port connectivity projects covering ports including Jaigarh, Dighi, Rewas, Hazira, Tuna, Dholera, and Astranga at an investment of Rs.4,000 crore. In this connection, it will interact with industry and take further steps to attract investment under PPP through build-operate-transfer and annuity routes; eight-10 capacity-augmentation projects on congested routes will be identified for the purpose. Private investment will also be encouraged to fuel the growth of a network of freight terminals and that the policy for private freight terminals was being restructured further. In order to decongest urban roads, the budget also made provisions for the introduction of new metro rail projects in cities housing a population of over 200 million and funds worth Rs.100cr have been sanctioned for the Lucknow and Ahmedabad metro projects. The new and innovative initiatives to boost metro and rail network across the country will not only address problems of urban transport but also provide large orders to equipment suppliers in the long run. The building of new and smart cities and in case they are able to attract finances, larger volumes of orders could start coming up in the near future.

Indian Rail Sector

Special Economic Zones

In the budgetary proposals in regards to the Special Economic Zones (SEZ), the government has taken multiple initiatives to revive the interest of investors boosting the prospects of business in these tax-free enclaves. In the case of FTP proposals, which includes incentives and trade facilitating measures to boost exports, the commerce ministry had asked the finance ministry to do away with the Minimum Alternate Tax (MAT) of 18.5% and Dividend Distribution Tax (DDT) of 15% imposed on SEZs as the Act also promises these units a five-year tax holiday on profits, while developers are promised a tax holiday for 10 consecutive years. In addition, the Commerce Ministry is also exploring if SEZ units can be given benefits under the Focus Product and Focus Market schemes available to units in rest of the country for exporting identified products and selling in specific markets. The FM has promised that effective steps would be initiated to make all the SEZ units operative by building better infrastructure. In this connection, the commerce ministry officials will hold talks with their counterparts in the finance ministry very shortly as investments into the zones have dried up since the taxes were introduced three years ago.

unitech sez

Port, Shipping & Waterways

Apart from sanctioning as many as 16 new port projects to be completed this year to improve port connectivity, in the current budget the government has also sanctioned funds worth Rs.11,635 crore for the development of Outer Harbour Project in Tuticorin for phase-I and this is in fact a welcome step since it can be an alternative to the Chennai port, which is currently saturated. In addition, the government has also announced several steps to promote coastal and inland water transport sector, which has the potential to emerge as one of the cheapest and most environment-friendly modes of transport. Development of inland waterways can improve vastly the capacity for the transportation of goods and so a project on the river Ganga called 'Jal Marg Vikas, National Waterways-I will be developed between Allahabad and Haldia to cover a distance of 1,620 km enabling commercial navigation of at least 1,500 tons vessels. Transportation via inland waterways, which is a cheaper mode of transportation, can in fact bring down cost of logistics to a great extent. To provide relief to the recession-hit shipping firms, the government exempted short-term shipping contracts (less than 30 days) from the purview of Service Tax and cut the tax incidence to coastal shipping. Customs duty on ships imported for breaking was lowered to 2.5 per cent from 5 per cent. If Indian lines are allowed to operate foreign flag vessels, their earnings will come directly to India as the vessels will be a part of Indian tonnage (though not eligible for coastal cargo) thereby helping domestic ship owners to raise funds on the offshore shores at comparatively lower rates.

Paradip Port

Industrial Corridors

In the budget proposals, the stress on the Visakhapatnam-Chennai industrial corridor project, which has the potential to fetch over Rs.1,00,000 crore investment has generated interest among investors and raised the hopes of the public in view of the fact that given the tax incentives more and more investment will flow into the remaining parts of Andhra Pradesh. The FM's specific commitment to the project has triggered hopes as this corridor, running through the seven coastal districts of AP — Visakhapatnam, East Godavari, West Godavari, Krishna, Guntur, Prakasam and Nellore — and culminating in Chennai, is expected to be of immense benefit to the State. Similarly, other industrial corridor — Chennai-Bangalore — will also cover Nellore and two Rayalaseema districts but its impact will be limited as Krishnapatnam in Nellore district will be developed as an industrial smart city as part of the Chennai-Bangalore corridor. That apart, several industrial clusters are likely to come up in those seven coastal districts of AP as part of the project. The Finance Minister specifically mentioned the development of Kakinada port and a hardware cluster in the region based on the port.

Cold Chain and Warehousing

Warehousing

In its unfailing quest to set up cold chain, create new warehousing facilities and increase the storing capacities of existing ones, the government has allocated a staggering sum worth Rs.5,000 crore and the move will inject a significant booster to the construction and infrastructure sector. As a matter of fact, creating warehousing capacities and concomitant supply chain infrastructure can be an effective weapon to combat food inflation. For, government estimates indicate that about Rs.50,000 crore is lost annually due to post-harvest losses due to inadequate storage and transportation facilities. Apart from this, good quality warehouses can improve the quality of agri products, besides check hoarding, both of which could be used to tame inflationary pressures.

According to experts in the field, the allocation together with the steps to allow Nabard to finance warehousing projects directly from last year itself instead of playing the role of a re-financer to banks, could spur fresh private investments in the sector.

Conclusion

Targeting Plan expenditure on infrastructure development, particularly rural roads, national highways, infrastructure and railway network, is expected to revive the investment cycle at a faster pace. However, availability of long-term funds to the private sector still remained a major challenge. The initiatives like encouraging banks to extend long-term loans to infra projects with flexible structuring to absorb potential adverse contingencies and authorizing banks to generate long-term funds for infra lending with minimum regulatory preemption such as CRR, SLR and priority sector lending (PSL) will facilitate availability of long-term funds for infrastructure projects. Alongside, instruments such as Infrastructure Investment Trusts (INVITS) along with existing Real Estate Investment Trusts (REITS) will attract long-term finance from foreign and domestic sources including NRIs into the sector. But the valuation of real estate or infrastructure projects could prove a challenge, despite the regulator proposing value monitors to provide periodic reports. The risk will be even bigger in the case of investments in partially completed infrastructure projects that are vulnerable to regulatory risk and the government must address this concern on priority. Similarly, though supply of adequate coal to power plants has been assured but there is still a huge shortage of domestic coal for both steel and power sectors and the increase in Customs duty for coking coal from nil to 2.5% and for steam and bituminous coal from 2% to 2.5% requires to be reconsidered. Likewise, in view of the fact that the entire networks of smart cities are connected using a technology platform and controlled at an integrated centre and this may help in better urban planning and in the usage of available resources intelligently. But there are apprehensions in various quarters that these cities are likely to be ring-fenced through closed circuit cameras and lots of equipment in homes and offices will contain electronic chips to transmit information jeopardizing individuals' personal privacy. In this regard, every precaution should be taken to restore the privacy of the people.

Industry's reactions on Budget:

Neel Ratan, Executive Director, Government and Public Sector, PwC India

With the urban migration trend, the only way for us to sustain as a society is to invest in new cities. These new cities need to focus on leveraging technology to improve service delivery, quality of life and at the same time optimize the usage of resources. Although actual creation of 100 new cities will require large financial outlays, however the current budget allocation is a step in the right direction.

Vipin Sondhi, MD & CEO, JCB India Ltd, India's largest Construction Equipment Manufacturer

In view of the fact that this government has been in office for less than 2 months, no big bang reforms were anticipated. The Union Government recognizing the need for revival of investment cycle had already extended the Excise Duty Cut on Capital Goods for another 6 months in June, 2014 itself. The budget's focus on infrastructure sector, encouraging banks to lend long-term funds to infra projects, extending the benefit of investment allowance to Small and Medium Enterprises and emphasis on manufacturing growth should help revive the capital goods sector. While PPP in relation to many new projects has been announced, however, a roadmap for execution of existing stalled projects could have helped turn things quickly.

Anshuman Magazine, Chairman and Managing Director of CBRE South Asia Pvt. Ltd.

The biggest announcement for the real estate sector was that SEBI was being directed to introduce REITs in India. We expect the entry of the much-awaited investment instrument to provide alternative funding channels to the realty sector. Going forward, it will also act as a key enabler for capital markets in the country and provide investors with exit options. I perceive this announcement as the single most consequential reform witnessed in the sector in recent times.

A.M.Muralidharan – President, Volvo Construction

Considering that we have a new government at the centre, expectations from the Union Budget 2014-15 were quite high specially with regards to segments like infrastructure but there were no major infrastructure policies including that of land acquisition announced in the Budget to kick start the process . However, the government's plan to allocate Rs.2,037cr to clean up Ganga; Rs.50,000 cr for urban infra projects and announcement of metro projects in cities with 20 lakh people is very encouraging for construction equipment manufacturers. Further, the government's plan to allocate Rs.14,389 cr for rural road development, Rs.8,000 cr for rural housing scheme and Rs.7,060 cr towards development of 100 smart cities is a boost to the infrastructure segment. It will also be allocating Rs.37,850 cr for road building plan via NHAI and will soon initiate work on selective highways along with corridors.

Pradeep Jain, Chairman – Parsvnath Developers

We hail the maiden budget speech by Hon Finance Minister, Mr. Arun Jaitly, this clearly suggests the development flank taken by the NDA govt. Real Estate sector for long time and was blatantly ignored with no significant proposals made to spur growth in this sector. For the first time after the slowdown the Union Budget 2014 gives a boost to the real estate sector. We thank Hon'ble Minister for paying attention through legislations like REIT, promoting affordable housing and allocating over $50,000 cr towards urban infrastructure.

Anand Sundaresan, Vice Chairman & Managing Director, SCHWING Stetter

Huge investment earmarked for the road sector, Port Connectivity, Smart City Development, North East Road Development Project and the 16 new ports and road and rail connectivity are some of the initiatives which will definitely create market for the construction equipment industry, which is something the industry has been eagerly waiting for quite some time. We only hope that these projects are implemented quickly so that the construction equipment industry will get benefits at the earliest.

V.G.Sakthi Kumar, Whole-time Director, SCHWING Stetter Sales & Services Private Limited

The First Budget of the new government looks very positive with many new road projects have been announced, which are to be executed by NHAI, Power (Conventional & Non-Conventional), Housing, Ports & Airports, Commitments for supplies to Thermal Plant and extension Tax Holiday to Power Companies will encourage more investments in this area. Allowing banks to decide on Long-term Financing in Infrastructure Projects is a welcome move which will benefit companies engaged in building infrastructure across sectors.

T.T. Ram Mohan, IIM, Ahmedabad

The budget has plenty of incentives and boosters for infrastructure: a tax holiday for power companies until 2017; waiver of statutory requirements of banks on long-term liabilities raised for infrastructure (in which the RBI has since included housing loans upto a certain limit); the creation infrastructure investment trusts whose interest income will not be subject to tax, etc. That apart, there are provisions for enhanced investment of government investment in infrastructure of nearly 25%. This is significant in percentage terms but in value terms, the level of government investment falls way short of requirements. In any case, government's role in infrastructure is pared back to around 15%, down from 25% a few years ago.

What the incentives in the budget miss is that the problem in infrastructure today is not the level of returns. The problem is uncertainty or risk because projects simply cannot get completed as planned. The Economic Survey mentions that there are over 100 projects with investment of Rs.1000 crore that have got delayed, with an average cost over-run of around 23%.

The reasons for these delays are well-known: lack of clearances of various kinds, absence of fuel linkages, inability to get additional finance to take care of overruns etc. Banks are not in a position to provide finance because of the high level of NPAs on existing exposures and also because their levels of capital are not high enough to create appetite for the risk that goes with infrastructure finance. Many infrastructure companies are neck deep in debt. They need their existing debt to be restructured and to bring in equity by monetising their assets. Neither of this can happen quickly. We need to sort out problems in existing projects. Until then, we cannot expect fresh investment to come.

The most basic problem, which remains unaddressed, is that the PPP model is broken. How do we rework contracts when, say, revenue projections do not come up to expectations and if government does not wish to rework contracts, how does it go in for fresh bidding?

The necessary institutions either do not exist or they are quite new and will take time in order to get their acts together. There is a more fundamental question that needs to be asked: in which developed countries or even developing countries (such as China or Malaysia) has the private sector been given the overwhelming role for driving infrastructure? Is it a realistic proposition at all? Will FDI enter in a big way without conditions that expose the government to serious criticism and even accusations of 'scams'?


Anil Chaudhry, Country President and Managing Director, Schneider Electric India

Smart Cities are at the heart of the Union Budget of the new government. The allocations and the measures announced now give shape to Mr. Narendra Modi's initial idea of 100 smart cities. The government has made an allocation of Rs.7060cr - an enabling factor that will boost the planning and development of the smart cities. And to complement it, the government has incisively identified 7 corridors. Overall, these are very promising preamble to the realization of the smart city concept. It now needs to be seen how the details are worked out by the government.

Tushar Mehendale, Managing Director, ElectroMech Material Handling Systems

The focus on setting up newer industrial clusters is a step in the right direction. The government has also promised to review all the retrospective tax imposition cases. This coupled with overall increase in investments in highways and tax holidays for power plants will definitely contribute in kick starting the capex cycle in various industries."

NBMCW August 2014

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Urban Transport planning to be customiz...

Urban Transport Planning – Future Imperative

".....It is not so much the cost of doing, but rather the cost of not doing ....."

Urban Transport Planning
The 5 tier System Fairwood Concept design for GIFT

Sanjaya Varma
Sanjaya Varma, Advisor– Urban Transport Planning, Fairwood Green Transport
Urban Transport Planning (UTP) has a lot of solutions but many of them don't seem to work .....always! How else would you explain the situation of Chandigarh, a city designed by Le Corbusier maybe over 65 years ago, in physical existence for over 60 years and still relatively free from the evils of urban congestion and collapse of civil infrastructure? On the other hand we have other totally new cities like Noida which are about 35 years old, and already starting to reel under urban degradation despite having relatively broad well surfaced roads !

As Shakespeare said "the fault dear Brutus, lies in ourselves and not in our stars....." The fault in this case is not so simple; it is a combination of improper planning (possibly aggravated by socio-political & economic considerations) with considerably imperfect implem- entation of plans.

UTP is imperative for Urban Planning! It is estimated that by 2050, possibly 75% of people will be living in cities compared to 50% now. One estimate showed that India alone will need 500 - 800 new urban satellite cities by 2050!! Transit Oriented development (TOD) has been hailed as an effective solution to curb vehicular congestion. TOD tells one to keep the home, recreation and work place close together, conveniently connected through corridors of communication thereby reducing the need for people to use private transportation to fulfil basic needs of community living. But how effectively are we able to implement TOD in India? Where are the new cities in which TOD can be incorporated? Trying to do a retrofit of TOD in existing urban centres is a herculean task, but not one which cannot be achieved in significant proportions. It is not just about money or resources! Do we, as a nation, have the will to do and sustain it ?

Ancient India had UTP and this can be seen in the broad avenues, robust river transportation, segregated towns etc. that marked the great cities of the ancient world. Modern India seems to have woken up to the problem only after it hit us in the face and we started to suffer economically. Roads and other channels of movement are corridors of economic growth. Most of the Great Civilisations on the Earth, developed along rivers. From ancient Egypt along the Nile to the Indus Valley Civilisation, The Ganges, Amazon, Tigris Euphrates, Yangtze & Yellow Rivers... the list goes on. In the absence of free movement, there is economic and environmental degradation. History proves it !

NBMCW August 2014

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Value addition to public transport thro...

Value Addition to Public Transport

Public Transport

J.B.Kshirsagar, Chief Planner and Dr. Pawan Kumar Associate TCP, Town and Country Planning Organization, New Delhi.

Introduction

Traditionally, Indian cities especially their core areas are characterized by confusion and chaos. Urbanization and its prolonged effects have had a direct impact on intra-urban, sub-urban and inter-urban mobility. A city can function efficiently if both people and goods are transported through optimal utilization of transport systems, infrastructure and services at minimal investment and operating cost. Passenger mobility is predominantly based on road and rail based transport. In Kolkata, in addition to bus services, tramways, suburban rail and metro services are used but there is still lack of planned integration of metro with other modes. Mumbai has a combination of bus services, ferry services, suburban rail, and metro network, though railway stations are not integrated with other modes but the use of suburban railway is extensive due to the linear structure of the city. In Chennai, bus services and suburban rail are used as major modes of public transport but no common facilities are available to integrate different modes. Delhi Metro fails to achieve its full efficiency in the absence of synergy with other modes. Delhi ring rail is still under-utilized (less than 25% of its designed capacity) due to most of the stations having low travel demand. Therefore, need for value addition to public transport through integration and improvement of both road and rail based systems to meet travel demand and quality of services, is required.

Mobility Pattern in Indian Cities

Early Indian cities were designed for walk, bicycles, cycle rickshaws and public transport (bus). Gradually, road based transport in cities became saturated and was not able to cope with the increasing transport demand. Further, a single mode of transport is neither viable nor economical and efficient due to extension and expansion of city boundaries. In a linear city like Mumbai, and a ring and radial city like Delhi, the normal trip length from home to work may be 25-30 km or more, whereas in a relatively compact city like Chennai or Hyderabad such a trip length may be 15-20 km or more. Similarly, a typical home to work trip for a male office goer in Mumbai from a northern residential suburb to the Central Business District (CBD) in the southern part may comprise the following modes:
  1. Home to Intermediate Para Transit (IPT) Stand by walk
  2. IPT stand to suburban railway station by IPT mode
  3. Railway station to CBD by suburban rail and
  4. CBD to office by walk
In the return direction however, the suburban railway station to home trip may be performed by bus on account of time availability, cost and the need to shop for daily essential in the vicinity of the suburban railway station. For a female office goer performing the same trip, the home to bus stop trip may be performed by walk and upto suburban railway station by bus on account of cost and security issues.

A typical student trip from a home (South Delhi) to the University Campus (North Delhi) may be performed as follows:
  1. Home to bus stop by walk
  2. Bus stop to metro station by feeder bus
  3. Metro Station to University Station by Delhi Metro
  4. University Station to College / Department by walk primarily on account of cost considerations.
Sydney Circular Quay
Figure 1: Sydney’s Circular Quay: Rail and Boat Integration defining Urban-Mobility Identity
(source : http://good-trips.com/australia/sydney_circular_quay/eng)

Based on these facts, mobility by the public transport is supplemented and complimented by non-motorized, intermediate para transit and feeder modes which enable performing a complete trip from origin to destination depending on time, cost, weather conditions and the level of comfort desired. In this context, integration and improvements with the broader objective of efficient mobility, has multi-dimensional effects for value additions to public transport.

Concept of Integrated and Improved Public Transport

Modern Bus Stop
Figure 2: Modern Bus Stops with Signage and other Amenities
A study on "Traffic and Transportation" conducted by M/s Wilbur Smith Associates across 30 cities in India shows that the public transport share has decreased from 78% (1994) to 54% (2007) in cities having 8 million plus population. The average journey speed has reduced to 17 kmph (2007) which will further reduce to 6 kmph by 2031, if corrective steps are not taken. Therefore, the share of public transport needs to be improved to promote for environmental and sustainable transport in Indian cities. The concept of integration is defined as measures for improving the overall quality of services to the commuters which attracts more people to use public transport. The integrated system through modal, physical, and network, institutional and financial integration as a whole provides seamless journey to the commuter.

An integrated public transport system also needs improvement in demand and supply side management measures. A commuter while choosing a bus route/metro corridor prefers minimum travel time, maximum comfort and proper connections to reach the desired destination and ensure all safety and security. The options may be either a direct bus route from origin to destination or integrated route comprising both metro and bus. Commuters always prefers a route and mode which connects the destination directly and completely. Commuters may prefer metro if the trip requires minimum effort for interchange and shorter travel time and provides maximum comfort, even if its composite fare is high.

An integrated public transport connects education, health, housing sector, etc to achieve harmonious and inclusive society. Public transport not only provides accessibility to school going children, patients and disabled persons but also promotes development along the transit corridor. In fact, it enhances the socio-economic characteristics of the areas served.

Public transport requires improvements in terms of reliability and attractiveness so that the commuter shifts to public transport. It should also meet the needs of the weaker sections of the society by providing affordable fare and covering outskirts of the city. Further, public transport should be available from origin to destination with the least transfer options.

Urban Transportation
Figure 3: Integration of Underground RT Platform, Pedestrian Underpass and Bus Stand at Oval Bus Island, Hamburg
(Source: Vuchic and Kikuchi (1974) Design of Outlying of RRT Station Areas, pp 31-32)

Improved integration among various modes of public transport helps people to move around easily and reduces cost and inconvenience of travel. Thus, it brings reduced congestion on the road, convenience to commuters, efficiency and cost efficacy. The information regarding parking facilities near interchange station, unified ticket, coordinated time tables, real time display and public awareness plays an important role.

Integration and Improvement Measures

'Urban transport' is a 'State Subject' as defined and enlisted under the List – II of the Seventh Schedule of the Constitution of India, which forms the exclusive domain of the State Government for framing laws under these subjects. Hence, the responsibility for management of urban transport comes under the preview of the State Government. Therefore, multiplicity of agencies, jurisdictions, operators and disciplines become responsible for planning, design, construction, operation, administration and maintenance of urban transport. These seem independent but are highly interdependent. In Delhi, multiple agencies and authorities are playing various roles and responsibilities in transport sector.

It is therefore imperative to achieve institutional integration at State and city level. Recently, the Ministry of Urban Development, Govt. of India has asked all States having cities with million plus population to speed up the process of setting up a Unified Metropolitan Transport Authority (UMTA). To streamline public transport, the Ministry has directed the states to nominate a single department to deal with all urban transport issues. The states have also been asked to set up a traffic information management control centre and to frame parking policies. The Ministry has suggested the setting up of a regulatory and institutional mechanism to periodically revise fares for all public and intermediate public transport.

Under 'Economic Stimulus Package' funding for procurement of buses for urban transport under JnNURM has been a remarkable achievement. The modern buses numbering 15,260 have been sanctioned under economic stimulus package at a cost of $1020 million for improvement of public transport in cities. The efforts for operation of buses in good conditions and maintenance need long-term contract system to be followed.

Sometimes, improvement measures are subject to conflicts among the users, operators, and investors. All stakeholders have different preferences and priorities. Therefore, the formulation of short- and long-term strategies are required which include dedicated commitment to improve coordination among transport authorities, accelerate use of advanced technologies, enhance mass transit and encourage non-motorized transport etc.

Commuter satisfaction is a prime concern of public transport. Modal integration in a journey chain must bring ease, comfort, and convenience. Hence travel behaviour of the commuter and preferences are required to be considered in the planning process. Similarly, multiple modes are running with different frequencies, capacities, fares, etc. The effective plan for managing transport requires all modes to be brought under one authority responsible for planning and operation. However, each mode is a subset of the whole system and plays an important role in mobility. Each mode requires well defined good route-set to provide transport to the large portion of commuters effectively. The route planning of various modes must have the following characteristics as reflected in Table 1.

Route Planning

Connectivity of main trunk of transit corridor with bus rail, CBD, residential areas needs special improvement measures through route planning. Terminals and Interchanges are the place of commuters for changing of modes at various levels to undertake further journey. These are also part of infrastructure which involves multi modal activities. Table 2 suggests improvement measures at each stage of journey at the interchange points.

Concluding Remarks

The purpose of any integration and improvement measure is to provide maximum comfort and satisfaction to the commuters and overall value additions to public transport. There is a close relation between commuter satisfaction and transit quality and hence, transit quality evaluation is required to assess commuter satisfaction. The improvement in commuter satisfaction retains the riders, increases usage of the system, attracts new commuters and improves image of public transport. Further, there is need for transport authorities and operators to be more rigorous in performance measurement of 'integration' and 'seamlessness'. Changes in perceptions of commuters with respect to transit accessibility and ease of use need to be addressed for further improvement at/around bus stops/metro stations.

There is need of "Co-ordination" and Co-operation" among the transport authorities, operators, etc. Co-ordination between operators of different modes enhances ridership and revenue generation. Similarly, co-operation between transport authorities is mutual agreement to distribute or accept each other's tickets, provide timetable information and common route maps, coordinate departure times at interchange points.

Interchange Points

Generally, access and egress are the weakest links in public transport chain. The various initiatives aimed at improving access and egresses have potential to reduce journey time significantly. Further such improvements are less expensive options compared to the expensive systems infrastructure creation and vehicle enhancement alternatives.

The impact of route planning/corridor planning on city profile in short-term such as reduced road congestion, less noise & air pollution, aesthetics along transit corridors, etc and long-term such as change in land values, skyline, economical activities along the corridor, development controls, etc should be studied. Furthermore, capital and operation cost components of transport in different parts of the city should be examined with the economic viability of the project and fare affordability of the commuters.

The integration and improvement of public transport needs a recognition of "Transit Station" as a mirror of "City Image" as it is blended with different building form, colours, materials, texture, facade, form, etc. Therefore, all stimulating, convenient, enjoyable amenities should be provided to the commuters. Such stations may also include provisions of green buildings such as conservation of energy and water, waste management, minimization of carbon di-oxide emission, etc. Further, whole transit station should be designed for various commercial activities for both commuters and non-commuters in order to develop vibrant spaces which are safe and provide accessibility to all in promotion of value added public transport.

NBMCW August 2014

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Importance of Urban Infrastructure for ...

Urban Infrastructure – Essential for the Growth of India

Hotel Blocks in GIFT City

Nitin Kumar
Mr. Nitin Kumar,
Director & CEO, Fairwood.
India, the largest democracy in the world, a vibrant nation full of resources, on the path of improving literacy rates has a great tendency to adopt and compete with the best of international trends and technologies. The key for the development of India as a nation will solely be dependent on striking the right balance of urban development alongside the infrastructure growth. While cities in India are full of vibrant activity and energy, they are also becoming disordered, complex, and too often congested.

India's urban population is larger than the entire United States, and is second only to China's. It is clear that India's urban population will continue to grow, probably doubling in the next couple of decades. The scale and potential is enormous. To meet the challenges of this inevitable and rapid urbanization, India needs well-performing cities and the integrated infrastructure development will be the key.

It has now become imperative that helping the Indian cities to function efficiently is mandatory for the better future of the country. At the same time, we need to be extra cautious while designing the new cities so that the mess that we are witnessing now can better be avoided.

It has been recorded since several years that a rapid urbanization is happening across states of India. Please have a look at figure 1.

Urban India
To meet the demand of developing / upgrading the infrastructure which is generated out of rapid urbanization as per statistics above and otherwise, we will have to take the following steps:
  1. We will have to build new cities to accommodate the surge and shift of population. The basic premise of the design of these new cities must be that these new city projects are considered as Infrastructure projects and not real estate projects. Infrastructure shall be the key. These cities shall be green, sustainable, livable and a well planned integrated development
  2. Improve infrastructural facilities and help create durable public assets and quality oriented services in existing cities & towns.
  3. We will have to create conducive working environment to give a boost to private investment under PPP model for sustainable development
Issues with the existing model of city development:
  • Unplanned Expansion within Cities
  • Planned Traditional Expansion within Cities
  • (Semi) Planned Traditional expansion via Satellites

We Need to Get Serious about The Issue of City Development and Integrated Infrastructure Development

This traditional approach will not work because new challenges call for new and innovative solutions.

Infrastructure Potential

Infrastructure Share in GDP

India is the fourth largest economy in the world. However, one factor which is a drag on its development is the lack of world class infrastructure. Infact, estimates suggest that the lack of proper infrastructure pulls down India's GDP growth by 1-2 per cent every year.

Inadequate infrastructure was recognized in the Eleventh Plan as a major constraint for rapid growth. The Plan had, therefore, emphasized on the need for massive expansion on investment in infrastructure based on a combination of public and private investment, the latter through various forms of PPPs. The total investment as a percentage of GDP is also expected to be in the range of 7-9% (see figure 1).

Challenges in Achieving Infrastructural Goals

There are various factors which are responsible for poor infrastructure growth. Major ones are enumerated below:

Financing: The infrastructure projects are highly capital intensive and funding had been one of the major impediments in achieving the infrastructure goals. The infrastructure broadly can be divided into two types, one which is very essential for the public at large and have no or very little revenue potential and other which has handsome revenue potential. The first kind of infrastructure must be totally government financed whereas the later can be developed on PPP mode. Since resource constraints will continue to limit public investment in infrastructure, PPP-based development needs to be encouraged wherever feasible. In view of this, one can say that there is an over dependence on the private sector for developing and maintaining the infrastructure. The private sector, however, needs funds to develop infrastructure projects that are capital intensive and have a large gestation period. Typically, private investments in infrastructure projects are mainly in the form of debt raised by developers.

Fact of the matter is that many PPP projects are waiting for the financial closure to happen and are inordinately getting delayed.

Blue Ridge
Land Acquisition: One of the significant challenges in achieving the infrastructure goal is the way land acquisition is done for infrastructure projects. Compensation fixed in terms of registered value is always the bone of contention. There is always a substantial difference between the compensation offered and the actual value of the land. The land owners always feel aggrieved which results in dispute and litigation. The Land Acquisition and Rehabilitation & Resettlement Bill (LARR) which came into force from 1st June 2014, though defines the process of land acquisition and will lead to systematic settlement yet it makes the land acquisition costlier. This could be detrimental to private investments in the long term, since viability of projects may be affected.

Another major source of delays is the need for clearances from numerous agencies: Most of the infrastructure projects in India suffer from delays in completion. This is mainly due to an inadequate regulatory framework and inefficiency in the approval process. Infrastructure projects require multiple sequential clearances at various levels of government. As an illustration, more than two years were needed for the Gujarat Pipavav port project to receive the necessary clearances after achieving financial closure. Moreover, most of the large projects involve dealings with various ministries. Often, the perspectives of the different ministries/departments vary and co-ordination remains inefficient (World Bank, 2006).

The various categories of approvals are required across the project cycle at every stage, right from the pre-tendering stage to post construction. While it is important to have a rigorous procedure that ensure transparency and quality, bureaucratic complexities and the protracted procedure for securing approvals are often considered serious disincentives for developers and contractors. Environmental safeguards and guidelines have proven to be one of the major reasons for delay in infrastructure projects, especially in the power sector. While new projects need to comply with these regulations, even a project under construction may need to comply with revised standards midway through the execution stage. While the concerned Ministry states that the delays are primarily due to non-compliance with the procedures of Environment Impact Assessment (EIA) notifications and circulars issued, the terms of compliance involve a complex and time consuming procedure.

Poor pre-construction planning

Due to the adverse effect of various impediments like land acquisition, statutory approvals, delayed financial closure, etc. the pre-construction phase of infrastructure projects is pretty long drawn. In spite of having substantial time for meticulous planning, we often do not focus on this most important aspect of the project which led to the suffering during execution phase and hence delayed commissioning/completion. Tendering/bidding are also an important part of pre-construction phase, which is invariably found to be mishandled and often non-transparent. The tenders for the selection of PPP developers/ partners are also prepared in a routine manner as if we are hiring some execution agency meaning thereby they are largely one-sided (major risk are allocated to potential PPP agency) favoring the government.

Way to surpass these challenges

We have seen that India's Infrastructure, which is an essential and most important component of Urban Development, is in a poor shape and needs an immediate attention and redress both from Government and Industry. Following are the suggestive ways to surpass the challenges faced by infrastructure development:
  1. Land acquisition being a sensitive issue cannot be handled by the private investors and it must be exclusively handled by government and the project either as cash contract (EPC) or PPP should not be awarded unless the land acquisition (>90%) is done.
  2. More conducive environment for potential concessionaire. Improvements in the investment climate are vital. India needs to expand dramatically the sources and volume of available infrastructure financing. This will not be possible without private-sector participation, which in turn requires a business environment that ensures adequate return on investment, transparency in procurement, and high-quality governance and regulation. The termination of agreement by the private developer for the country's largest highway project, Kishangarh-Udaipur-Ahmedabad route of 555 km, has raised serious concerns over the other on-going projects in Rajasthan. Concessionaires and authorities concerned claim that clearances even for small issues are now getting stuck in the bureaucratic cycle.
  3. We all know that there is rapid urbanization which is posing many challenges. Migration of large population to urban centres is causing new cities to emerge and existing ones to expand. India must seize the opportunity to adopt green urban planning early on: mass-transport systems should link satellite cities to ports and megacities, and new cities should be eco-friendly and energy-conserving. The Indian government's recent promotion of dynamic economic corridors between major cities is a step in the right direction but its moving at snail pace. Government needs to expedite the process by cutting short the long bureaucratic cycle.
  4. By boosting the credit ratings of infrastructure projects via credit enhancements, this facility will allow pension funds and insurers to invest in infrastructure projects. ADB and IIFCL are already jointly working on it.
  5. Implementable regulations with regard to sustainable infrastructure. We need not make the long drawn bureaucratic regulatory routes but to make it extremely friendly. The agencies which are resorted to something like this must be incentivised.
  6. More grant to state/city authorities through JNNURM along with better regulatory system to avoid any possible misuse.
  7. Single window statutory clearance (inclusive of MoEF) to projects.
  8. There are good competent people working in different departments of government, however they are working in silos, we need better and effective coordination for a fast project roll out.
  9. The government has targeted to attract at least half of the $1-trillion investment envisaged in the infrastructure sector during the 12th plan period (2012-17) from the private sector. To achieve the same, government has to provide the provision in PPP contract for re-negotiation in case of drastic change in the ground situation due to unforeseen factors. Private developers have been demanding a renegotiation provision in PPP contracts because they cannot foresee all the events and contingencies during the entire contract period, which is typically 20 years or more. The time has come to give a heed to these demands to boost the private participation. There is a need to spell out a clear and well-defined treatment of contingent liabilities, including the extent to which they can be undertaken and the process of authorising the same.
Godavari Riverfront in Nanded

The rationale of such a provision can be explained by the following examples. A large number of existing infrastructure projects in sectors such as highways, power, airports and ports had run into rough weather because of unforeseen circumstances, and the lack of provision for renegotiating the contracts has made them unviable for investors. Last year GMR and GVK walked out of mega-highway projects worth Rs.10,700 crore, while most recently Reliance Infrastructure pulled out of the Rs.5,800-crore Airport Express line of the Delhi Metro. We witnessed the problems in Gurgaon expressway. There are problems brewing in the Delhi-Noida-Delhi (DND) Expressway project, while Tata Power and Reliance Power are struggling to transform their ultra-mega power projects powered by imported coal into profit-making ventures due to changes in input costs. This could signal the end of Public Private Partnerships (PPP) in India, with some even changing the definition of PPP to perennially posing problems.

Conclusion

The largest democracy of the world had recently voted for the change and we have a new government, which everyone has high hope from. They need to now bring in lots of confidence in private sector to invest in Infrastructure and also at the same time make the process simpler by tightening the noose of officials responsible for posing the hurdle for vested interests.

The development of India's infrastructure presents a huge task as well as a huge opportunity. The previous sections have raised some of the key issues that will need to be addressed for a major step-up in infrastructure development. But there are other challenges too. It is important to draw attention to some of them in particular. The first concerns the environment. Building good quality infrastructure is integral to the development of a competitive Indian economy that is expected to play a larger role in the world economy. And building it rapidly with the least damage to the environment is important. How the huge growth in power generation, transportation and urbanization can be managed is therefore especially important. A second issue is the importance of transparent processes of bidding and procurement if a PPP is to play a major role. Fairness and a level playing field must be firmly established and not perceived to be compromised at any stage. There is no doubt that India's infrastructure is a growth sector: it is clearly recognized as a national priority. The infrastructure will be built. The question is how well will the process be managed: how sustainable, transparent and fair will it be?

With the Twelfth Plan focusing on attracting private sector to fund about 50% of the total infrastructure investment target, there is need to start both short-term actions and long-term measures at the earliest. Fiscal support will continue to be dominant for infrastructure development but equally important would be the enabling policies that could lead to streamlining of procedures and protecting interests of both investors and consumers. If we put some of the recommendation above into practice, infrastructure dream can be realized and place India's economy on a high growth trajectory.

NBMCW July 2014

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Hospitality sector is going eco-friendl...

Smart Hospitality

Smart Hospitality

The hospitality sector is smartening up with eco-friendly innovations. Varsha Trehan checks in.

The idea that luxury hospitality can be environment-friendly was once seen as a non-starter. The attitude of 'if you need to ask the price, you can't afford it' was common and extravagant offerings in opulent surroundings, got the star grading. However, responsible customers are encouraging service providers, to review practices to shift towards environmental consciousness. Backstage, there is growing motivation as sustainability practices are cutting running costs, thereby extending sustainability in account ledgers too!

The Indian hospitality experience

The hospitality sector in India is a major customer for real estate development, ahead of commercial developments like malls and office spaces. The push comes from the mission to attract tourists for entertainment, business and for medical tourism too. In the backdrop of the global slowdown, the dipping of the Indian Rupee and several natural disasters, the industry discovered the potential of the domestic traveler market. The expectations, according to the Planning Commission, are that by 2016, the country may be handling 11.24 million foreign tourists and 1,450.46 million domestic tourists; room requirement is expected to be close to 50,00,000, which translates into a 45% growth on 2010 requirements. Prioritizing meeting accommodation requirements and promoting growth, the government policies are offering Hotel and Tourism sector several tax incentives, for the new star graded budget accommodation. Interest rates have also been tailored for the sector by separating it from other commercial real estate. Foreign Direct Investment inroads have also been cleared of several speed breakers.

Indian hospitality

While all these incentives paint a rosy picture, the ground reality is that the sector has to deal with several operating clearances and tax commitments. These are often mitigated by lean and green measures incorporated right from the design stage.

green architecture

Building for energy conservation

leela palace delhi
The concern for green architecture starts with the use of sustainable materials and carries over through best practices in the facility operation. The inclusion of green design has entered hotels before laying the foundation stone. Several projects benefit from the involvement of architects with global or international exposure, while others score with the use of domestic skills and materials. Architects would also like to design for preserving the natural characteristics of the region. This comes with the inclusion of natural materials and local culture elements in the design.

That said the extent to which hotel architecture and design is actually based on green principles, is doubtful. Owners are concerned about the additional costs and the perceived lowering of quality of guest experience, when compared to traditional definitions of luxury. Many hotels are self-declared green as they take in superficial modifications in fixtures or furnishings.

Sharing benefits

Most luxury properties have now incorporated these practices, as they opt for the Ecotel status or LEED certification in the building design. Though the initial costs are likely to be higher with the choice of materials and addition of waste recycling equipment, the operating costs are estimated to see reductions of 20-25%. Most ethical conscious businesses share these benefits with their customers.

Besides getting better room rates, ecofriendly hotels offer an involved experience to visitors as they are designed to safeguard neighborhood environment. So the walking green, bird sanctuary, lake or reserve forest sets the atmosphere for the stay. So the D Caves boutique hotel in Hyderabad designed by Sanjay Puri Architects, has developed itself around large boulders from the natural landscape. City based hotels like The Orchid at Mumbai is a zero garbage hotel that keeps the neighborhood clean too. In a metro, that is a huge relief. The hotel is Asia's first certified eco-friendly five star and the world's only Ecotel to be certified as ISO: 14001 (Environmental Management Standard).

hotel Claridges New Delhi

Lighter on the pocket

The fresh design trends are cutting on utility costs by offering a wide scope for natural lighting and climate control. Glass facades and walls are the easiest tools to light up areas. These glass products have addressed the challenge with innovations for color lighting, solar energy capture and other conveniences. Using the roof space for solar panels is almost a norm. Power consumption is remodeled for solar lighting and heating. Choosing energy efficient luminaries like LED and CFL with sensor technology and compact lighting products show the way. The ITC Group is a leader in adapting green architecture for its constructions across the country. Their ITC Hotels are credited with pioneering 'Responsible Luxury' in the country. Projects like ITC Royal Gardenia, with its LEED India Platinum Rating, have gone on to actually build its own wind farm for renewable electricity.

Water, another precious commodity, is both conserved and recycled. Plumbing fixtures efficiently cut water use, while preserving the experience for guests. Separating black water and grey water, rainwater harvesting and recycling water are practices that sanitize the area and the environment too. Use of ozone over chlorine additives in areas like swimming pools keeps the water safe and makes recycling more effective. Keeping out the Indian summer are vertical gardens and other foliage covers that thrive on recycled water. That they pretty up the facades, keep interiors cool and fresh works for all involved.

Other initiatives include CFC free air conditioners, minimizing use of stationery and plastic, linen reuse and due diligence for product sourcing. Garbage management concerns work backwards to dropping the usage of foil and plastic. Business hotels like the Ginger brand have included several measures to reduce consumption. Their spaces are easy to clean as are their furnishings. Opulence is substituted with efficient services to keep guests comfortable.

The new face of hospitality is accessed by technology from booking to checkout. Operations are designed to work for ensuring minimum wastage of food and material. These are the small touches that the hotel industry is applying to extend their hospitality to the environment.

Ecotel® Certification for Environmentally Sensitive Hotels

Ecotel® Certification or the 5 Globes is based on five areas of environment responsibility. A hotel must earn at least 2 Globes for certification.

The Five Globes:

  • Energy efficiency
  • Water conservation
  • Employee education and community involvement
  • Solid waste management
  • Environmental commitment

NBMCW June 2014

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Prime office market trends for 2014 in ...

Prime Office Market Trends for 2014

Prime Office Market Trends

India's Occupier Market & Capital Market Trends for the Year

Anshuman Magazine, CMD, CBRE South Asia Pvt. Ltd.

Investment-grade office space demand slowed down in the first quarter of 2014, with around 6.3 million sqft of Grade A office space getting absorbed across leading cities of the country. Transaction activity was dominated by the National Capital Region (NCR), Bangalore and Chennai. Special Economic Zone (SEZ) developments in Gurgaon, Bangalore, Hyderabad and Pune also saw traction during Q1 2014. The market saw slow transaction activity and a low level of new completions in the first quarter; and leading cities continued to experience caution from corporate occupiers in the first three months of the year. Most investments by PE groups in the sector during the period were structured debt deals, with a preference for residential projects or well-leased commercial projects. Land and/or development sites for residential and mixed-use projects in the peripheral locations of leading cities also attracted investor attention.

office space demand

Prime Office Occupier Market Trends: 2014

Since business sentiment had recovered slightly towards the end of 2013, it is expected to improve further following the General Elections results. Market demand is likely to pick up gradually. Occupiers will remain focused on optimal space utilization and cost savings. Peripheral and decentralized locations such as the NCR's Gurgaon and Bangalore's Whitefield will continue to experience strong demand. Office space occupiers from selected sectors such as IT/ITeS will cautiously expand, but only in small to medium sized spaces. Larger size requirements will likely remain limited to a few back-office expansions and consolidations alone.

Occupiers in the IT/ITeS, financial services, engineering, manufacturing, telecommunications and pharmaceuticals sectors will drive office demand. Back office space will continue to see high demand, while front office take-up will remain comparatively limited. The bulk of leasing activity will likely take place in peripheral and secondary locations—such as Gurgaon in the NCR, Whitefield and the Outer Ring Road in Bangalore, Lower Parel in Mumbai, and the secondary business districts of Chennai and Hyderabad. Significant supply of fresh office space expected to reach completion in the coming months is likely to push up vacancy levels, however, keeping rental values range bound.

New Delhi CBD Office

About 6.6 million sq. ft. of office space was completed in the first quarter of 2014. Bangalore led these project completions, followed by Delhi NCR and Mumbai. New supply in 2014 for New Delhi, Mumbai and Bangalore will total 30 million sqft. net floor area (NFA) with another 21 million sqft. NFA in the pipeline for 2015—mostly concentrated in suburban markets. Rents across major micro-markets like Noida (NCR), Whitefield and Hitec City (Hyderabad) are likely to remain stable. With considerable supply lined up in the short to medium term, however, rental values in micro-markets such as the Bandra–Kurla Complex in Mumbai could witness marginal pressures from oversupply concerns.

Kolkata Office Market Rental Trends
While the Kolkata commercial real estate market attracted reduced demand for office space during the first quarter, enquiry levels from prospective corporate occupiers indicate that office transaction activity is likely to pick up in the coming months. On the supply front, the peripheral locations of the city are likely to witness significant supply addition by the end of 2014; and office space rental values are expected to remain stagnant across most micro-markets of Kolkata in the coming months.

During the first quarter of 2014, Kolkata's Central Business District (CBD) of Chowringhee, B.B.D Bagh, Park Street and Camac Sreet witnessed a low level of commercial leasing activity in the first quarter. On the supply front, around 30,000 sq. ft. of office space was added to the existing stock; resulting into a marginal increase in vacancy levels. Rental values remained largely stable in this micro-market.

The secondary micro-markets of EM Bypass, Kasba–Gariahat, Topsia and Sarat Bose Road saw sluggish transaction activity during the quarter. There was no addition to the office stock in this micro-market; and vacancy levels remained largely stable over the previous quarter.

The peripheral micro-markets of Salt Lake and Rajarhat observed a decrease in demand for office space, with office space absorption recorded at 37,000 sqft. in the first quarter of 2014, as compared to 55,000 sqft. in the previous quarter. There were no significant project completions in this micro-market during Q1 2014. Vacancy levels remained high, and were estimated in the range of 18–20%.

Capital Market Trends

Capital Market Trends: 2014

Investment activity in India is expected to pick up during the year, as market sentiment improves with a better economic outlook, following a new political dispensation after the General Elections. The central bank may relax its monetary policy, which could trigger more investments in the sector. The Rupee fluctuation, and the weak economy in 2013, had forced some foreign funds to exit the market. However, several new foreign funds have entered into the market in recent months as financial markets began to stabilize. Blackstone was among the most active private equity players in the country in 2013; while other significant players included the Xander Group and Red Fort Capital.

Mumbai CBD office

Oversupply is still a concern in many key markets. Investors will seek to lock in capital in well-leased office assets, including IT parks and SEZs in prominent locations. The price of such assets could either stand firm, or display some growth. Investment may also take the form of structured debt deals.

The introduction of Real Estate Investment Trusts (REITs) in 2014 is expected to be the single most consequential change in the country's investment climate. The fractured political climate before the General Elections, however, may sour the investment climate in the first half of the year.

NBMCW June 2014

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First Indian Monorail starts operations...

Monorails Redraw Travel Lines

Mumbai Monorail

Monorail with its shiny and swanky look has redrawn the Mumbai's travel lines and now has set the stage for long awaited ride. The trend is traversing in other parts of the country as well enabling people to move around economically, quickly, safely, and moreover sustainably, reports Maria R.

In keeping with the advancement and development in the transport technology, cities in the country are witnessing metamorphic changes in the way people travel from hand rickshaws, trams, double decker buses, trailer buses, CNG buses and present metro rails to more efficient mass rail based system of the future as envisages by monorail system.

If all goes well as per plans, India will soon see monorails functioning as the arteries and veins of cities. This light rail transport system has impressed almost all the major cities with its low cost, eco–friendly nature and also for easing traffic congestion, reducing pollution and ensuring pedestrian safety. It's gaining traction as a solution in areas where mass-transit needs are surging. Currently, when Mumbai is rolling from the beginning of this year, the other major cities are busy to streamline the process for their monorail projects too. Delhi, Bangalore and Kerala have already submitted their Detailed Project Reports (DPRs) and got approval for the same whereas Chennai has floated the technical and financial bids for its phase I to cover 57km at an estimated cost of Rs.8,500 crore. While Chennai's initial plan was to cover 111km of the city's periphery in the first phase, the government later dropped the plan of including the Vandalur-Puzhal (54 km) corridor. This would have been the longest monorail corridor in the world if it had been implemented along with the Vandalur-Velachery, Poonamallee - Kathipara and Poonamallee - Vadapalani sections. Moreover, the works on all the proposed monorail projects in India are likely to begin in few months.

Scaling Up Sustainable Transport Solution for Moving People

"You and I come by road or rail, but economists travel on infrastructure" - Margaret Thatcher

Indeed, the presence of a reliable and efficient transportation system plays a pivotal role in the sustained economic growth of a country. Currently, transport system of India comprises several modes including rail, road, coastal shipping, air transport, etc. which have recorded a substantial growth over the years both in spread of network and in output of the system. But growing population and traffic congestions have again become a matter of concern and create a dire need to come up with an alternate transport solution which occupies less space, provides lower capital and operating costs, should be environment–friendly and most importantly reduce traffic congestion.

Smart Monorails

The percentage of Indians living in urban areas has increased from 27.8% in 2001 to 31.16% in 2011. It is projected that the country will add another 497 million to its urban population between 2010 and 2050. This unprecedented increase in urban population would however, pose new challenges of providing job, housing and infrastructure etc for the migrating masses. This will put stress on an already-pressured urban infrastructure system, especially with regard to transportation which has become synonymous with congestion, noise, and air pollution.

Improving road transportation is not the only solution as there is scarcity of land. Now, the time has come to evolve with an idea of scaling up sustainable transport solution and simultaneously ensuring that it is integrated with land development. It is the need of the hour to improve public transport by starting various innovative and technologically advanced rapid transit systems with best suited approach that offers reliable and quality services.

Both states' government and urban planners' concern is to redevelop the Indian cities as modern urban centers by improving the quality of transportation for the region's economic growth. For this, authorities in different cities are trying to put together a comprehensive infrastructure makeover plan to include monorail as an integrated and diverse commuting system. Today when most of the cities in India are implementing various modes of MRTS along with expansion of conventional modes of transport to serve the huge influx from rural areas, monorails finds a way as the multimodal transport system that promises to shape up the infrastructure in an organized manner like never before sidelining the daily transport woes of the public. Though the Delhi Metro rail has caught the fancy of many state governments but that's a project most cities find difficult to afford.

Smart Monorails

"As the avenues and streets of a city are nothing less than its arteries and veins, we may well ask what doctor would venture to promise bodily health if he knew that the blood circulation was steadily growing more congested!" ― Hugh Ferriss, The Metropolis of Tomorrow

Thus considering the increase in population, increased travel demand and narrow road networks running through the congested areas which is also not possible to widen due to structures on either sides, there is a need of a system which will occupy less space as well as reduce travel time. With the objective, to support public rapid transit system Mono Rail system is proposed to be implemented.

A monorail is defined as a rail-based transportation system based on a single rail, which acts as its sole support and its guideway. The term is also used variously to describe the beam of the system, or the vehicles traveling on such a beam or track. This transit system is a technologically innovative entailing many advantages for optimum flow of passengers. It provides a smooth ride quality, higher passenger capacity, energy efficiency, lower capital and operating costs and environment–friendly transport needs.

The concept of monorail was introduced in India way back but final nod for country's first monorail in Mumbai was given in 2008. According to Mr Kanesan Velupillai, Chief Executive Officer - Scomi Engineering Bhd, there are several factors that make monorail a 'must have transport' in Indian urban cities. For instance, it is estimated that in Mumbai over 11 million people travel by public transport daily of which over 60% commute by the suburban railway networks. Besides, a huge chunk of masses travel by the state buses, across long routes from one comer to another. Similarly in New Delhi, though metro rail serve as an efficient commuting platform for bulks, considering the amount of people who migrate to these places, there is a crying need for better mobility.

Our urban development minister Kamal Nath and Transport expert Anil Chhikara who are the admirers of monorail believe that it's cheaper, requires less land and can take a sharper turn. They opine that a seamless integration of monorail with the Metro was the need of the hour and monorail was a must for last-mile connectivity for passengers. Mr. Chhikara stated that as Metro disgorges hundreds of passengers onto the roads and buses find it difficult to ferry them to their destinations but Monorail is best suited to carry them on elevated tracks without crowding the roads.

Metro Vs Mono

Urban Transit System
When we talk about mass rapid transit systems, metro and monorail are the two names which are always a topic of a debate to know which of the mass transit system is better. The promoters of mono argue that it is comparatively cheaper and takes up less space since the track is narrower than the train itself. However, when it comes to carrying capacity, metro beats the mono hands down. Monorail runs on a single track while the metro has a double track and its carrying capacity is estimated at four times more than the monorail per hour. The monorail can carry between 500 and 600 people at a time whereas Metro Rail can carry thousands of people.

From construction point of view, it is easier and cheaper to lay Monorail lines than Metro lines. Monorail costs around 140 crore per km while Metrorail costs 170 crore per km (according to 2012 survey).

The Monorail can also take sharp curves which the Metro cannot and can thus run in densely populated localities as it takes lesser area to operate. When both systems exist, the monorail has been the feeder system.

Projects in Progress and in the Pipeline

• Mumbai Monorail

After four years of labour, India's first monorail in Mumbai commenced its operation providing a much needed relief to those travelling in local trains. The commercial operations of 8.8 km long first phase of the 19.54 km long Chembur-Wadala-Jacob Circle monorail project has started in the beginning of February 2014.

The monorail has been commissioned under the Indian Tramways Act and will flaunt three colours i.e green, pink and sky blue. The Mumbai Monorail is being implemented by MMRDA while a consortium of Larsen & Toubro and Malaysia's infrastructure firm Scomi Engineering is executing the mega project which is being constructed at a cost of around Rs.3,000 crores. It is reported that the monorail will run at a maximum speed of 80 km per hour, average speed of 65 km per hour and the ticket fares will range between Rs.8 and Rs.20.

The MMRDA's effort is to ensure that the Mumbai monorail will be at its innovative best, fully equipped with state-of-the-art technology and features like advanced passenger-driver communication, CCTV cameras etc. On the operational front, the monorail would use regenerative braking system, which would enable about 25% saving in power consumption.

The Mumbai Monorail master plan proposed the development of 8 lines (135 km) from year 2011 to 2031 in phases at the total cost of Rs.202.96 billion (US$3.7 billion). The notification for construction of India's first monorail project got its clearance in 2008 and work on this was started in 2009. The MMRDA decided to put all plans for the expansion of the monorail on hold till the first route was commissioned.

Delhi Monorail

• Delhi Monorail

Delhi will soon roll in a light rail system as work on city's first monorail project is set to start within two-three months, bringing in the new-age public transport system for the congested areas of East Delhi. The rail system will be integrated with the Delhi Metro and the DTC bus network. Operational corridors for this mono rail system have been identified and the responsibility of implementing this light rail plan lies with the Delhi Integrated Multi-Modal Transit System (DIMTS) Ltd. The project is expected to be completed by 2017 at a cost of Rs.2,235 crore.

The detailed project report for the project was reviewed by Delhi Metro Rail Corporation (DMRC) and submitted to the Delhi government for implementation. RITES Ltd had carried out the techno-economic feasibility study for the project and drawn up the detailed project report.

The proposed 11-kilometre corridor from Shastri Park metro station to Trilokpuri will have 12 stations with three inter-change points to integrate it with three different Metro lines. The integration of monorail and Metro would be smooth and seamless and there will be a common payment counter for both (monorail and Metro) at the interchange stations.

It is reported that three-coach monorail trains will run at a frequency of 4.5 minutes in the initial stage. The frequency will be increased to 2.5 minutes later. The expected daily ridership on the corridor is around 1.5 lakh passengers.

Besides above mentioned lines, there are other lines too in the pipeline for the monorail such as: Badarpur to Mehrauli, Qutub Minar to Dwarka (via Vasant Kunj and IGI airport) and Saket to IG Stadium, via Siri Fort, South Extension, JLN Stadium and New Delhi Railway Station.

• Chennai Monorail

The first phase of Chennai monorail project is likely to begin soon and state government has floated the technical and financial bids (final request for proposal) for the same which is estimated to cost Rs.8,500 crore and cover 57km, of the project. While the initial plan was to cover 111km of the city's periphery in the first phase, the government later dropped the plan of including the Vandalur-Puzhal (54 km) corridor.

The monorail system is proposed on three corridors between Vandalur-Velachery (23 km); Poonamallee-Kathipara Junction (16 km); and Poonamallee-Vadapalani, (18 km). The detailed alignment survey, ridership forecast study and geotechnical studies have been completed; the manual of specifications and standard, which dictates the safety and service standards and functional requirements to be met by the developer, has also been prepared.

The stations have been identified for the project, keeping in mind their access to terminals of other modes of transport, including bus stops, MRTS and metro rail stations. The monorail infrastructure will augment the road-based and rail-based — Mass Rapid Transit System and the ongoing Metro Rail public transport infrastructure in the city.

The State Government has constituted a Chennai Unified Metropolitan Transport Authority to co-ordinate the various transport systems and the agencies including the Traffic Police, local bodies and the Chennai Metropolitan Development Authority.

Chennai Monorail

• Kerala monorail

Kerala is coming up with monorail projects in Thiruvananthapuram and Kozhikode at a cost of Rs.5,581 crore - Rs.3,590 crore for Thiruvananthapuram and Rs.1,991 crore for Kozhikode. The State government had set up Kerala Monorail Corporation Limited (KMCL), the special purpose vehicle to execute the project.

The DMRC, the general consultant for the projects, has prepared the Detailed Project Report for the projects in the two cities, and suggested a turn-key contractor for operation and maintenance of the project in the initial five years after commissioning. It is also responsible for the design, preparation of the bid document, short listing and selecting contractors, supervision of the work, and quality certification.

The monorail for the capital will run for 22.2 km from Technocity to Karamana while Kozhikode will have a 14.2-km project starting from Government Medical College hostel area to Meenchantha.

Now the herculean task before the authorities is only to identify the funding agency for the ambitious project and acquiring land. The Japan International Cooperation Agency (JICA) has already evinced 'keen interest' to fund the project.

While the Thiruvananthapuram project has been temporarily shelved with the monorail director board meeting observed that the basic infrastructure facilities will have to be improved before executing the project in the city. In the case of Kozhikode, the meeting decided not to delay this project as all preparatory works had begun and the feasibility and detailed project report has been completed. Its first phase will cover a distance of 14.2 km with 15 stations and work on the project could be completed by September 2015. The project will be extended from Meenchantha to Ramanattukara (10 km) in the second phase.

• Odisha Monorail

Odisha government has also decided to explore the possibility of monorail in the twin cities of Cuttack and Bhubaneswar after E Sreedharan, principal adviser of DMRC stated that it is difficult to run metro rails in Bhubaneswar given its small 1 million population as metro is expensive. Nevertheless, he mentioned that Metro rails are viable for the cities where the population is at least 2 million.

After this probe, Engineering Projects India Limited (EPI) has made presentation on monorail technology before chief secretary for efficient intra-city transportation. Delighted with the technology of light rail system, Chief Secretary has asked the Housing and Urban development department to have a pre-feasibility study of the proposed project. The department has also been asked to work out the viability of the projects, running expenditure per kilometre, the likely tariff that the passenger will have to pay and other related factors.

Odisha Monorail

It has been said that monorail option will be considered for areas where bus rapid transit (BRT) can't be undertaken due to space crunch and the old town areas of Bhubaneswar and major parts of Cuttack comes under this category.

Monorail is a good option for congested places as it occupies very little space. Not only aforementioned projects, discussions are going on with many other states also to come up with the monorails in their region which are economical, aesthetical, and most importantly, sustainable. Developing innovative and sustainable transportation will benefit not just the riders and environment, but can escalate economic growth too.

NBMCW February 2014

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Why Mixed Use Developments?

Mixed Use Development

Stephen Roberts, Chairman, Bentel Associates International (Pty) (Ltd)

Mixed-use development is in a broad sense — any urban, suburban or village development, or even a single building, that blends a combination of residential, commercial, cultural, institutional, or industrial uses, where those functions are physically and functionally integrated, and that provides pedestrian connections.

There is nothing new about mixed use developments; they have been around for a long time. Just walk around the streets of Mumbai, and you see them everywhere, shops on the ground floor and residential above. For years this has been the developer's way of maximising his land usage.

Nowadays of course we are concerned with, much larger pieces of land and therefore much bigger developments, but the principles are the same - how do I make most efficient use of my land and get better returns?

Mixed use developments today usually consist of retail centres coupled with offices, hotel or apartments, or even all three. Some developments go beyond this mix and include hospitals, libraries and schools, and thereby create a "village" scenario; but for the commercial developer, and for the purpose of this article, I shall confine myself to the commercial developments, specifically what to couple with a retail centre, and why.

Mixed use can be either horizontal mix or vertical, or a combination of both, depending on the size of the land. Horizontal mix means that each building would occupy its own envelope and would be spread across the site. Such developments require very large pieces of land, on which one is able to have the convenience of separate vehicular circulation, parking and entrances. But more common is the need to build vertically, then it becomes a question of how and what to put together and how to provide sufficient parking, efficient circulation, and the best configuration of services.

There is no question that to mix a hotel with a retail centre is a good combination as far as the retail centre is concerned, because it provides a ready supply of customers, assuming that the location demands the mix, and that each element is designed to suit the same socio/economic profile. It's no good putting a five star hotel above a B-grade shopping mall, or a two star hotel with an A-grade retail mall. It's also not good to put up a hotel with the retail if the demand is not there. For mixed use to be successful, each element needs to be alive and active.

Offices and retail also make good partners, given again that the demand is there and the level of design and finishes compliment each other. So it follows on quite naturally that a mixed use development of retail, hotel and offices all together make a good mix, but creates difficulties in planning. It is imperative that there is sufficient parking, clearly demarcated, and that the entrance to the offices and hotel are separate. In favour of the multi mixed-use developments is the fact that they help to mitigate the cyclical economic risks. In other words, when the retail sector is under pressure, the hospitality or commercial sector may be better.

Shared Parking
The question of mixed use with apartments directly above retail introduces a whole lot more difficulties. Whereas hotel and office occupants are transient, and therefore are more likely to put up with temporary inconveniences that may be a result of being located above a commercial centre, occupants of apartments are more permanent, and consequently more demanding. On the other hand, the economics of the development as a whole can assist in providing more affordable housing, by gearing off the finances of the commercial developments.

Let's face it, retail centres create a lot of noise, attract large populations of "outsiders" and also produce a lot of both noise and atmospheric pollution. On the other hand, residential blocks ensure that there is a 24/7 activity that can contribute to the life of the development.

In fact, one of the best arguments for mixing retail, offices and apartments is the live/work/play dynamic. Now, where I live in Johannesburg, the traffic congestion is bad enough, but compared to Mumbai it's a breeze. To live, shop and work in the same development has great time saving opportunities that give a person more free time and helps promote the use of both pedestrian and bicycle travel, which have lifestyle implications and environmental advantages by reducing traffic on the roads. Also on the live/work/play dynamic, I believe this is something that appeals to the new generation, where entertainment and restaurants are on their doorstep.

For the larger retailers, mixed use of retail and offices can permit them to locate a flagship shop in the same development as their head office.

To name few of the benefits of mixed-use development include:
  • greater housing variety and density, more affordable housing (smaller units), life-cycle housing (starter homes to larger homes to senior housing)
  • reduced distances between housing, workplaces, retail businesses, and other amenities and destinations
  • better access to fresh, healthy foods (as food retail and farmers markets can be accessed on foot/bike or by transit)
  • more compact development, land-use synergy (e.g. residents provide customers for retail which provide amenities for residents)
  • stronger neighborhood character, sense of place
  • walkable, bike-able neighborhoods, increased accessibility via transit, both resulting in reduced transportation costs
Although mix-use developments have many advantages but it also comes with some disadvantages as well such as:
  1. Land Size: The size of land must be able to accommodate a good critical mass in each of the different categories.
  2. Economies of scale: While many mixed-use development are enormous, a number of them are small and seem to have a little of everything. As an owner, or as a larger tenant, it may be difficult to get the economies of scale you need in a smaller mixed-use development.
  3. Difficulty of management: For many property managers, managing this kind of development can be a gargantuan task. Now consider the challenges that are faced daily by managing a large shopping complex, then imagine that on top of that there's a 250 bed hotel, 5 lak sq ft of office space and a 20 story apartment block...this can be problematic for both management and Tenants, unless the management structure is arranged to cater for this.

    Most property managers focus on office management or retail space management. Unless the development is enormous and justifies several property managers on one project, this can be a beast to manage. As a tenant, you will have to realize that your property manager may excel at dealing with office tenants, but not understand well how to manage retail tenants. Before leasing in a mixed-use location you may wish to investigate this further with your Landlord.
  4. Shared parking: Here is the real rub for most mixed-use tenants. Imagine if you will that you lease in a mixed-use complex that features office space, general retail space, restaurants, a movie theater, an exercise gym, apartments, and condominiums. Unless the developer has been extremely liberal with parking, many of these folks will be forced to park in the same parking garage as each other. As a tenant, it is highly recommended that you investigate the details of the parking situation before signing up. A solution that is often tried is on the basis of cyclical or floating parking, where the landlord relies on the different occupancies demanding parking at different times. In other words, the Landlord does not have enough bays for everyone in the complex, but they are banking on the fact that people using different parts of the development at different times allows them to float some extra parking out there. Tenants should investigate this before leasing or they may find their employees parking several blocks away from the office, or perhaps customers will be lost due to insufficient parking. Pre-planning of numbers is therefore absolutely essential otherwise this could lead to a major difficulty somewhere down the road.

NBMCW December 2013

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A Paradigm Shift SEZ Sector Shows Green...

SEZ sector

The recent policy initiatives of the government to boost the sagging interest of developers in special economic zones (SEZs) have started showing green shoots of a resounding revival. In a changed scenario, the developers who have put their SEZ projects either on the backburner or seeking de-notification, are currently busy in reworking their SEZ strategies and the trend is that the board of approval is not just receiving applications for setting up new SEZs but existing players are also applying for change of status to put their multi-product SEZ projects back on the developmental track. In fact, the SEZ sector has taken the revival route only after the reversal of over-all country's economic scenario including strong showing by the core sector, factory output, IIP production, exports and imports and also the implementation of 99 stalled infra projects worth Rs.3.5 lakh crore by the CCI. The import compression not just helped containing trade deficit and curtailing the current account deficit to $56 billion but also inflated foreign exchange reserve to $25bn and this in its entirety resulted in restoring the investors' confidence in the country's SEZ projects. Reports Jeet Singh.

Relax Rules

In a renewed attempt to boost the interest of investors in the SEZ project, the government has recently revisited the entire gamut of SEZ policy ensuring smooth land acquisition by relaxing the minimum area requirement and identifying agro-processing SEZs as the main thrust area and slashed minimum land requirement from 100 to 10 hectares for agro-processing SEZs. Among other policy initiatives recently introduced included halving of space requirement for setting up multi-services SEZs to 50 from 100 hectares earlier. Multi-services SEZs have been considered at par with single-product SEZs. As per the new changes, SEZ developers will also be able to add another sector on additional contiguous 50 hectares on multi-product SEZs. Apart from this, the government in its attempt to push exports also reduced the minimum area requirement for single-product SEZs to 50 hectares and that for multi-product SEZs to 500 hectares. While the minimum land requirement norm for IT SEZs was scrapped but left unchanged for multi-services SEZs.

SEZ Development

In addition, the government has recently granted upfront service tax exemption for all SEZ developers and units which in turn would mean an additional savings of Rs.1,500cr per annum for these units, as they no longer have to wait for refunds. The service tax incidence (the tax paid on input services) for SEZ developers and units is over Rs.8,000cr annually and the move would improve liquidity of the SEZ developers and units even more substantially as they don't have to pay the tax in the first place and wait for refunds. That apart, adding further luster to the smooth functioning of manufacturing units in SEZs, the government has recently allowed developer to sub-contract work for up to three years, instead of just one year earlier. The latest move will boost shipments from special economic zones. In this connection, the request for relaxation came from large manufacturing units which have stated that the move would help facilitate manufacturing processes and augment exports. New policy enables the sub-contracting of production or any production process by large manufacturing SEZ units to domestic tariff area (DTA) for a period of up to 3 years at a time but relaxation would apply to only those manufacturing units that have substantial exports with average annual shipments of Rs.1,000 crore or more in at least two out of four years. The units should have an annual average export of not less than 51% of its total turnover in the block of 5 years and they should have an un-blemished track record and incurred no penalties against the unit for any violations. The relaxation came with a rider that DTA unit outside SEZ to which the sub-contract is to be awarded should be registered with the central excise department.

Cascading Impact

The relaxation norms of governing the SEZ projects have not just put break on the developers planning to dispose off their SEZs projects, but also led global players to strike mega buyout deals with the local developers. In an instance, the US-based global infrastructure and real estate building giants, private equity firm Blackstone has recently sealed a buyout deal with Unitech for its Gurgaon SEZ project entailing an investment of Rs.2,700 crore. In another instance, the Singapore's sovereign wealth fund GIC, investor Xander group, Canada's pension fund CPPIB, Kotak Group and Maple Tree have also placed their bids to bag the mega project. Likewise, the US-based Aon Hewitt has recently signed an Rs.800-crore deal with Unitech for the acquisition of an 800,000 sqft plot located in the Gurgaon's Infospace Tikri special economic zone (SEZ). The offshore player, which offers human resources solutions and other consultancy services, has reportedly inked the lease for about 15 years. On completion of the SEZ, spread across 25 acres, the total leasable area would be 3.32 million sqft. It may be recalled that in the said SEZ about 700,000 sqft of area is already operational housing tenants including Genpact, Colt, Cognizant and NTT. Unitech's SEZ is located near its under-construction residential township Uniworld Resorts. That apart, the lax SEZ norms have also prompted property developer HDIL to scrap its plan to sell the 70-acre land parcel at Kochi Special Economic Zone, the player has decided to construct IT infrastructure itself. The renowned risk investor Xander is acquiring an IT SEZ in Chennai from the developer arm of Shriram Group involving an investment of Rs.690 crore.

In a related development, the board of approval (BoA) has already received applications from players including one for a multi-product zone by Adani Ports in Mundra District, Gujarat, IT/ITES SEZ by Transcendent Developers in Pune and an Electronics/ITES SEZ by iGate Global in Navi Mumbai. Shapporji Pallonji, which operates large number of SEZ projects including the information technology parks under the SP Infocity brand in IT and IT-enabled services (ITeS) at Software Technology Parks and Special Economic Zones. The player has SEZs projects in Chennai, Gurgaon, Manesar, Mohali, Nagpur and Pune, with 4.6 million sqft of space has started the process of taking up its SEZ projects. The company witnessing a revival of demand in its projects, said Chief Executive of Shapporji Pallonji Real Estate, Kekoo Colah, adding that as demand for SEZs space is improving the availability of such space is limited and if developers have taken permission, they have to launch such properties to avoid lapsing of approvals. Of the total demand for commercial properties, 80 to 85% consists of demand for IT/ITeS spaces. However, developers have expressed their resentment over the Government's refusal to reduce the Minimum Alternative Tax and Dividend Distribution Tax imposed on SEZs because it is making SEZ operations financially unviable.

SEZ Construction Sector

That apart, making the most out of the available sops and easier norms, more small and medium enterprises (SMEs) from countries like Japan, Korea, China, and the US are showing keen interest to invest in the country's SEZs to set up their manufacturing facilities for electronics and automobile components. While the US and Japan have no SEZs in their countries, South Korea has only six, set up between 2004 and 2008. These investors will benefit from the rupee's depreciation along with cheap land and labor availability in India, besides getting a 20% rebate on capital expenditure if the investments happen in electronics through the Modified Special Incentive Package Scheme (MSIPS). It may be recalled that India has approached offshore players to invest in hardcore manufacturing in the country as SEZs have a consolidated and well-developed policy for land and infrastructure besides a single-window approval mechanism and wants small companies to invest in these projects across the country. As per the existing policy 100% foreign direct investment (FDI) is allowed in manufacturing SEZ units under the automatic route and there is no cap on foreign investment for small-scale industries' reserved items. The MSIPS provides 25% of the capital investment in non-SEZ area and 20% in SEZ area as financial incentive for the electronics system's designing and manufacturing (ESDM).

A Boost to Construction Sector

The lax norms have also prompted certain SEZ developers to convert a part of their SEZ space to build residential and commercial buildings. In a recent move, Mukesh Ambani's Reliance Industries has decided to set up an Integrated Township Project (ITP) on 1,200 acres of prime land in its SEZ in Jhajar district of Haryana bordering Gurgaon. It has already secured a no-objection certificate from the state government, which has recently unveiled new policy for setting up the ITPs injecting a major booster to the real estate sector. In yet another initiative, the DDA is granting permission to building residential units in areas earmarked for industrial zones, a move that could help ease the national capital's housing supply pressure as the city is expanding at an alarming pace, which in turn injected major booster to the country's construction sector. The industrial zones like Okhla Industrial Estate, Mayapuri, Naraina and Mohan Cooperative, which were on the outskirts of national capital when they were set up in the 1950s, '60s and '70s, are now surrounded by prime residential areas. The DDA, which looks into realty development in the city, is considering allowing group housing on about 20% of the land set aside for such clusters. In yet another move, both the Urban Development Ministry and DDA agreed to set up an exhibition and commercial zone by the side of the Indira Gandhi International Airport entailing an investment of Rs.40,000cr. The complex, which will be linked to the Metro and will house hotels, a convention centre and a cargo hub, has been structured by the side of the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC). DDA has reportedly agreed to transfer land to the commerce and industry ministry and the project is being bid to private developers.

Conclusion

Unfolding trends indicated that sweeping changes are taking place in the entire SEZ sector. The government in its resolve to revive the segment is currently showering sops and has also announced innumerable relaxations. Developers are also responding with the same alacrity and are willing to revive their blocked (SEZ) projects. In an encouraging development as many as 29 developers have sought extended timelines to develop their projects and the Board of Approvals (BoA) readily granted extension to them. Going ahead, the government is also in the process of providing quicker grievance redress mechanism pertaining to complaints of special economic zones (SEZ) for which the commerce ministry is drafting orientation modules for officials in customs and allied departments to streamline the entire functioning of the department by imparting orientation training on the overall economy and the broad role of exports especially SEZs and export oriented unites (EOU). It is also working with the Export Promotion Council for EOUs and SEZs and preparing EPCES Online'system, where SEZ developers and units can post their operational grievances for quicker redressals. Alongside there is a ground swell of foreign investors in favor of Indian market on account of the current macro-economic pressures creating umpteen opportunities for foreign players vying for a greater role in the Indian economy. Sectors like automotive, technology, life sciences and consumer products have the highest level of anticipated deal-making potentials and the entire situation will improve very shortly. Indian companies also reflect a concerted focus on job creation as well as optimizing operations to deliver cost reduction, and after two years, European countries (UK and Germany) have made a comeback on the potential investment destinations list for Indian companies which again indicate that investors' outlook for India remains positive despite the challenges. In totality, the recent government policy initiatives like fast tracking project delivery and implementation of mechanism, relax FDI rules and easier financing norms have already resulted in the strong recovery of core, manufacturing and exports sectors. The developments further indicated that the SEZ sector is also getting set to bounce back on its growth trajectory bringing blooming buoyancy and ensuring brisk business in coming months.

NBMCW December 2013

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BKT: Builds Global Empire via Quality C...

OTR Tires
This OTR tire giant has achieved more than the thinkable, and there seems to be no end of the road!

Balkrishna Industries, or rather BKT, as we fondly prefer to call it! Well, the name evokes grandeur, quality, innovation, success, and above all, a long lasting legacy! However, when we delve into the script of this success story, the famous saying ‘Successful People Don't Do Different Things, They Do Things Differently' gets reaffirmed.

Around a quarter century back, the late 80s to be more precise, a majority of tire manufacturers in India were channelizing their expertise on Highway tires for mass use. But BKT had other ideas. The company directed its focus towards Off-Highway Tyres (OHTs) and soon embarked on a journey that made it a pioneer in this segment. BKT's OHT tires, manufactured with state-of-the-art technology, were qualitative, tough, and durable; attributes that made them an instant hit in overseas markets.

Today, 25 years later, BKT is undoubtedly a force to reckon with, having established its presence across five continents and 130 countries in the industrial, construction, and agricultural tire segments. What bears testimony to this fact is the acceptance that BKT's tires have found amongst high-quality conscious European and American users, who are keen on product performance. BKT is a vendor and collaborator with companies such as Coal India Ltd, which is among the world's largest OTR customers.

Rajiv Poddar
Just like every market leader, BKT possesses a robust R&D wing and has stringent quality control mechanisms in place which facilitate a qualitative offering at a constant pace. Moreover, the OTR tire giant uses only high quality raw materials (Natural Rubber) that are processed through the most advanced and developed technology. "Each product passes over 450 stages of tests. The result of this rigorous practice is that BKT products are known for their reliability and have the lowest claim ratio in the industry," informs Mr. Rajiv Poddar, Executive Director, BKT.

BKT chopanki

As a part of its strategy to ensure last mile connect with the OEMs, BKT is working extensively to cater to the emerging needs of its clients, and has the shortest response period amongst its competitors when it comes to delivering a new product. What's more, the products are delivered while keeping the costs low, are highly efficient and strictly adhere to the most stringent international standards.

Talking of infrastructure and production capacities, BKT has three functioning state of the art manufacturing plants spread across India; Bhiwadi and Chopanki in Rajasthan, Waluj in Maharashtra, and a fourth plant at Bhuj, Gujarat, which is of gigantic proportions in terms of area and production capacities, and is expected to start full production by the end of the year 2014.

The plant has been designed in such a manner that a considerable 25 acres is dedicated solely to R&D. The testing facility at the plant is equipped with indoor and outdoor testing areas and there is a special testing track constructed to provide for test runs and on field tests for the tires. Introducing the plant Mr. Rajiv Poddar, says, "We have invested over USD 375 million in this plant. This is a huge plant spread across 300 acres and with the most modern machinery ever used in production in India. The plant will enhance our total capacity by 75%."

Balkrishna Tyres

Once operational, the Bhuj plant will add about 120,000 tonnes per year in addition to its 180,000 tonnes obtained from the other three plants. "There are plans to modify the Bhuj plant and extend its production capacity to the level of 280,000 metric tones."

Talking of BKT's plans to achieve a 10% market share in the near future, he says "Today, our share in the global market is 5% and we are targeting 10% by 2015. We are confident of cementing a share of 7.5% by next year. Our current market share in the country is negligible but we are targeting 10% in the near future. Overall we believe that India is the future for BKT," says Mr. Rajiv Poddar.

It's anticipated that the decline in Rupee is giving BKT an advantage as it's an export oriented company. "Well, the constant decline in Rupee is a cause for concern for every business house as everyone wants certainty. The sentiment at BKT is no different as we also expect certainty and stability in the Forex market. There was a period in our lives when the Rupee maintained a constant rate, but that has surely become a thing of the past now. A higher dollar rate might give us some marginal advantage in the exports market but it is difficult to do business in this uneven scenario, as we rely quite considerably on import of raw materials."

"It's a Green Field project and will focus on developing a wide range of BKT's Radial and Bias tires. "This facility will also produce Ultra large and Giant OTR tires upto 51" rim diameter", says Mr. Dilip Vaidya, President & Director - Technology.

Top Products for Mining and Industry Needs

Currently, BKT provides over 2100 different SKUs (Stock Keeping Units) for various kinds of applications.

The company has tires that range from 5" rim – 54" rim diameter for vehicles ranging from trailers and forklifts, to technologically advanced machines like high horsepower tractors, combines, harvesters, GPS controlled vehicles, articulated dump trucks, high-speed cranes, sophisticated port vehicles and container handlers.

Well, BKT is the first tire company in India to produce the all-steel radial OTR tires. An All Steel Radial Plant at Chopanki, Rajasthan, India is now functioning on full throttle producing top of the line radial tires for OTR vehicles ranging from Rigid Dump Trucks to Snow maneuvering vehicles. This is a result of years of research and innovation by the company's R&D Department, which has developed tires that can encounter the toughest and the most hostile terrains faced during mining and industrial activities.

Notably, these tires have been highly appreciated in BKT's chain of suppliers all over the world. The tires under this segment range from a 20" diameter Tipper Truck size to a giant 51" Rigid Dump Truck Size, in both Bias & Radial versions, thus covering even the most demanding requirements in industrial use and mining. And very soon, the company will be augmenting its prowess by adding an enviable and capable range of sizes of OTR solutions to its repertoire. To aid these ambitions, BKT has recently opened up another state of the art, production plant in Bhuj, Gujarat, that will focus on producing top of the line OTR tires with special focus on the Radial segment.

Port and Agricultural Tires

When it comes to tires for ports and agriculture, BKT is once again the preferred brand. There is a gamut of tires available in this line, ranging from port Reach Stacker sizes to RTG sizes. BKT has been selling tires to major companies such as Kalmar Sweden, which is the world's leading Reach Stacker Machine manufacturer. Moving on to the Agricultural Segment, BKT's range of tractor tires is especially designed to carry higher loads on and off roads with minimal soil compaction in field. Their superior make ensures great road ability, traction and durability making them a fitting choice for today's high horse power tractors and trailer applications.

"Matching to the requirements of its customers in regard to demanding deadlines and strict time lines, BKT has also recently launched an ultra-advanced range of tires especially for High Speed cranes. The tire 445/95R25 enables heavy high speed cranes to journey at a very high speed, which the cranes need to operate of 80km/hr," claims Rajiv Poddar.

Robust R&D is a Way of Life Here!

Arvind Poddar
According to Mr. Arvind Poddar, Chairman and Managing Director, "We invest heavily every year into R&D, to upgrade our plant facilities and develop new products. Our competition is with global tire giants, so we always have to have an edge over technology if we have to compete with them. If you look at all steel OTR radial tires for mining, we are the pioneers from India." No wonder, R&D is not just an initiative at BKT; In-fact it is a norm.

Well, the dedicated R&D facility equipped with state of the art technology which can develop various types of rubber compounds required for manufacturing tires for various applications. The testing labs are one of the most advanced in the country and match up to the ones abroad. And yet, to ensure maximum assessment before its products are rolled out to the markets, BKT is also associated with various testing facilities across Europe.

Dilip Vaidaihy
Backed by a strong R&D, BKT develops about 150-160 new SKUs every year in response to the ever changing requirements of consumers. Exclusive facilities in R&D and production enable this OTR tire major to develop new compounds and technologies which results in new products being added regularly to the already gigantic range of solutions. Mr. Dilip Vaidya, President & Director - Technology says, "In addition to BKT's state of the art factories, we also possess an in-house mould design and a production plant which enables us to achieve production flexibility and frequent changeover in production cycles as per demand." This enables BKT to attend to very specific demands of its exclusive customers, by creating products exclusively made to encounter their specific needs.

As if all these leadership qualities were not enough, BKT has gone a mile ahead in cementing its position as a long distance runner by fulfilling its role towards the society. "At BKT, we strongly believe that society and environment, both are vital to our existence. Various green and social measures have been adopted, to take care of these aspects. We keep our plants pollution free, for instance, for mixing of Carbon Black (powder), we have highly sophisticated Auto Carbon Charging unit, which eliminated manual loading. Hence, minimizing air-pollution," says Mr. Arvind Poddar. This truly sums up the sentiment!

NBM&CW November 2013

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OTR Tires Never Tire

Technological innovation, focused R&D, and strategic marketing is standing this industry in good stead, reports, S.D.Khan

Off-Highway-Tires
Steve Jobs, the doyen of entrepreneurship once remarked, "Innovation distinguishes between a leader and a follower." This timeless quote is universally applicable to all industry segments, and for the past few years or so, it's been conspicuously reflected in the Indian Off-The-Road (OTR) Tire Industry. Going back in time, a gamut of Indian tire manufacturers were focused on highway tires for mass consumption. But the late 80s brought a change in this mindset, and with the passage of time, the shift towards OTR tires became the need of the hour.

Today, we have ushered into an era where India has emerged as one of the leading manufacturing and consumption hubs of OTR tires primarily in the Agriculture and Mining Segments. In order to meet the growing demand, manufacturers are complimenting their production capacities with rigorous Research & Development (R&D) and innovation, a telling example of which is the gradual shift to radialization.

Perhaps the driving force behind constant innovation is the rate at which OEMs are technologically upgrading their offerings for Mining and Infrastructure Sectors. Be they backhoe loaders, forklifts, tipper trucks, dumpers, cranes, or excavators, all equipments go through frequent technological upgradations these days, with respect to diversity of applications and hauling loads. And since OEMs are the major consumers of OTR tires, it's imperative that tire manufacturers periodically tailor their products in accordance with the clients' requirements. Apart from this, OTR tires of the modern age comply with the international standards and score high on abrasion resistance, fuel economy, and energy efficiency. Undoubtedly, innovation has emerged as the key to success.

Kunal Mundra
OTR Tires
According to Mr. Kunal Mundra, VP-Speciality Sector, CEAT Limited, "OTR tires are highly customized and engineered products. This in turn means that they require extensive R&D investments. CEAT has not only attracted a very strong R&D team but also invested in state-of-the-art labs, equipment and testing facilities at our Halol plant. There is one other critical element that drives our success - our R&D team is not simply a team of internal focused scientists; instead it actively interacts with customers as well as OE manufacturers to ensure that the right tire is designed for the right customer. Mining and heavy equipment manufacturers like JCB, Caterpillar, and Komatsu are continuously innovating and CEAT is continuously working in parallel to ensure that the ideal tire is in place for any new machinery they have to offer."

He continues, "CEAT is consistently investing in R&D to ensure our tires offer the optimum performance and a complaint free service for our customers. The priority for customers can vary significantly and CEAT's USP is a broad portfolio that has the right tire for the customer. We do not believe that one-size-fits-all, and hence are constantly working with customers and OE manufacturers to better understand their needs and fold that into our product development."

Satish Sharma
Apollo Tyres
Mr. Satish Sharma, Chief, India Operations, Apollo Tyres Ltd, affirms, "Our R&D is fully equipped to develop new tires for different applications, which is evident from the fact that Apollo has one of the widest ranges of off-highway tires with products in both small and large OTR segment. In the large OTR segment, we have the best in class bias range with sizes starting from 35 to 51 inches. We will be soon introducing the ultra large sizes 33.00-51 & 40.00-57 in Indian & International market. In this segment as well, Apollo will offer a wide range of choice with the core philosophy of 'application to fit'. And, I am happy to say that, we are the only ones to offer customized solution to the customers for diverse mining conditions and application challenges in bias segment."

He adds, "Our OTR tires have one of the lowest CPH (Cost per hour) in the industry. Our customized compound solutions help the customer to overcome his specific challenges like high abrasion, cuts and damages, and heat related failures."

Rajiv Poddar
BKT, on the other hand, is still moving on the path of innovation, on which, it embarked almost a quarter century back. Mr. Rajiv Poddar, Executive Director, BKT, informs, "How committed and focused we are towards R&D is reflected in the fact that we spend around 3–4% of our topline on this requisite. BKT develops about 150-160 new SKUs (Stock Keeping Units) every year in response to these ever changing requirements of our consumers. We have exclusive facilities to develop new compounds and technology which keeps adding new products to its already gigantic range of solutions every year. We proudly say that BKT is the first tire company in India to produce all-steel radial OTR tires. Again, it's our ability to constantly adapt to the needs and requirements of the clients that has stood us in good stead over these years and this philosophy will strongly be adhered to in the future too."

He elaborates, "The prime feature of our tires is the value-for-money which translates into an economical cost of life. Secondly, we sell you a service rather than a product. We use high quality raw materials to manufacture OTR Tires which are produced with most advanced technologies and state-of-the-art machineries. Importantly, we strongly adhere to rigorous quality control mechanisms and each product passes through 450 stages of tests, and the end result is for everyone to see in the form of tires that are tough, durable, long lasting, and fuel efficient."

BKT Tyres

Foreign Technology, Radialization

Today, the domestic OTR Tire market is quite competitive and highly concentrated, and is catered by top notch players. There has been a noticeable change in the technological upgradations that the Indian industry has adopted. It appears as if these trends are to some extent attributable to technological tie-ups with foreign players! OTR Tire manufacturers have divided opinions on this notion.

Mr. Mundra believes that the Indian OTR Tire Industry, till now has been a success story on the back of a significant cost advantage vs. international players combined with strong quality and performance. "This industry however requires strong R&D capabilities and this requirement will only increase as average tire sizes increase, number of SKUs increase and radialization gains momentum. While till recently, the development by Indian companies has largely been in house, the above trends could force existing players to experiment with different models for accessing technology held by international players. Currently very few players have taken steps in this direction however till then companies like CEAT, are in parallel investing to enhance their in-house R&D facilities."

Talking about radialization, he avers, "Across segments, from passenger cars to commercial vehicles to OTR, customers have embraced radialization only once they see a clear value proposition. Customer education by tire companies and OE manufacturers plays a big role in this. In India, radialization is slowly but steadily increasing in pockets; for example in mining, it's being driven by two key reasons. Firstly, there's increased education by companies like CEAT which has led customers to take trials of radial tires. Secondly, increasing sizes of machinery, especially in mining, is automatically triggering increased radial demand. India, however, still has a long way to go and the adoption will depend on how successful these trials are, since customers expect that for twice the price, radials should give well more than twice the service."

OTR Tire Industry
Meanwhile, Mr. Poddar brushes aside the belief that foreign technological collaborations are a must-have in order to flourish in India. "Over the years, Indian tire manufacturers have quite strongly directed their focus towards OTR tires. However, BKT being a pioneer in this segment doesn't need any technological tie-ups with foreign players. We are completely self-reliant." He perceives radialization as an integral part of the Indian OTR Tire Industry. "Radialization is not an alien concept in India by any means. In fact, contrary to popular belief, India is doing quite well at this front and there are some developed countries which are behind India in terms of the growing rate of adoption of this trend. Today, many Indian manufacturers are focusing on radials, but BKT was the first company to initiate this trend."

And according to Mr. Sharma, Indian mining industry has already attracted all the top players, which has helped the customers get access to the latest technology. "The increasing presence of global OEs in this sector has resulted in creating more demand for radial tires. Also, the Mining Sector is now looking for complete service solution on cost per hour basis. The dumpers and loaders used in the mining and construction sector travel long distances beyond the normal roads suitable for radial application. Hence, in India, the bias tires are still in demand, which are meant for tough applications."

Market Scenario

Although the economic slowdown hasn't spared any sector, it's perhaps Infrastructure & Mining, the second largest employer of workforce after Agriculture, that has been worst hit. What makes it a sorry state of affairs is the delay in awarding contracts, and lacklustre implementation of policy and framework. Infrastructure too has been through turbulent times. Has this had an impact on the OTR Tire market? Adjusting their proverbial sails according to the winds, manufacturers are devising customer-oriented marketing strategies in order to retain market share.

Says Mr. Sharma, "Yes, there has been a slowdown in the Mining and Infrastructure Sectors. However, our superior products, backed by the service support for our customers, have helped us to grow our market share even during this slowdown. OTR segment is a very niche one, where the marketing strategy is also customized for individual customers."

Meanwhile, Mr. Mundra has meticulously chalked out a strategic growth plan for CEAT. "While market growth is currently under pressure, CEAT's OTR business has been growing steadily in both domestic as well as international markets. CEAT has undertaken a number of strategic initiatives to achieve this. There has been increased focus on segments like cement, ports and construction that are showing good growth. In parallel, CEAT has also focused on becoming a partner to our customers as against a supplier - this has been achieved by investing in our key relationships through workshops and on-the-ground support to minimize their operating costs. CEAT has also been continuously investing in and improving key back-end processes such as logistics and R&D resulting in an increasing portfolio, lower costs and faster delivery times. Globally, an expanded product suite and an enhanced specialist distribution network helps in driving our growth."

According to Mr. Poddar, "To be very honest, the market for OTR Tires is not eroding at all. There is a transient blip or to be more precise, a momentary downward trend which has impacted almost every industry, leave alone OTR Tires. Despite the slowdown, the sales of machines have been constant as India has been steadily moving on the path of an infrastructural boom. Talking of Mining, well, the lack of appropriate policy and framework is to be blamed for the lull that this sector has been going through for a long time now. Although we are not into Mining in a big way, we are gradually directing our focus towards this sector. Moving on to marketing strategies, we always strive to provide value-for-money to our clients. Not only do we have the widest range of OTR Tires in our bouquet of offerings, we also possess the highest levels of adaptability. We try to understand the clients' requirements first and then tailor the end-product in accordance with that. One of the major reasons for BKT's enormous success has been its ability to establish the last mile connectivity with its clients."

Government Support Will Pave the Way

Indian OTR Tire Industry
While lamenting the lack of appropriate policy & framework in Mining and Infrastructure, tire manufacturers suggest that the Government should aim to achieve targets listed in the Five Year Plans. According to them, a concerted revival of these sectors is critical to the growth of the OTR Tire Industry in the long run. Observes Mr. Mundra, "The growth for the Indian OTR tire industry is directly proportionate to the growth in key user segments especially infrastructure and mining. The Government's actions in driving growth in these user segments will therefore have indirect but far reaching consequences for the OTR tire industry. Increasing infrastructural investments as highlighted in the latest 5 year plan will go a long way towards nullifying the growth pressure currently being felt due to the challenges being faced by the Indian mining industry. In terms of direct support, India's price competitiveness in the local and international markets will continue to depend on the government regulation / levies and their continued support would be critical."

Mr. Sharma echoes this sentiment, "The ambiguity in the Mining due to lack of clear policy environment is affecting the sector in a big way. In spite of the huge potential, the demand currently is weak for the large size tires due to the regulatory issues in the sector. We look forward to a clear policy framework to enable the mining operations in the country and create demand for the OTR Tire industry."

BKT sees the situation rather differently. In the words of Mr. Poddar, "The first and foremost challenge is the lack of mechanisation in the Agricultural Sector in India. Despite the fact that ours' is an agrarian economy, we are yet to shift to machine-oriented farming practices in a major way. This stems from the fact that ancestral land is passed on from one generation to the other coupled with that the traditional farming practices and the mindset. The policy should aim at widespread awareness campaigns, educate farmers, and encourage them to shift to mechanisation. Agricultural equipment and machinery can be made available through incentives and finance schemes. Secondly, there should be fast track clearances of a swathe of mining projects which are stuck in doldrums due to scams and inappropriate implementation of policy and framework. This has left CE manufacturers and contractors in a worrisome state as they are uncertain about the future. The Government should highly prioritise on bailing this sector out of trouble."

Well, here's an industry that's upbeat on setting new benchmarks and adding to the country's growth. All it's asking for is a helping hand from the Centre!

NBM&CW November 2013

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Construction Equipment Financing Sector...

Construction Equipment Finance

Instead of being bogged down by the economic stupor, CE Financiers are reinventing their strategies to maintain profitability

Perhaps, what makes Construction and Infrastructure unique is the symbiotic nature of these sectors wherein fortunes of all the stakeholders are intertwined. If one flourishes, the others also reap rewards, and if one faces hardships, the others also flounder. For the past couple of years or so, the sentiment in construction and allied activities has been low and it has impacted Construction Equipment (CE) Manufacturers, who have found it difficult to keep the order books full; Contractors and Developers, whose projects have been inordinately delayed; and CE Financiers, who have had a tough time in dealing with cash-strapped borrowers. In order to maintain profitability, financiers – NBFCs and banks-had resorted to a very cautious approach wherein new clientele was not established and loan rates were increased to mitigate higher credit risks.

Nevertheless, fast tracking of stalled projects through the Cabinet Committee on Investment, redrafting policy and framework for Mining, and devising new modalities for the Roads and Highways sector are some positive moves from the Centre that will wipe out impediments in the country's growth plans. CE Financiers have welcomed these developments and are coming up with new financing schemes that are in sync with the situation. In the following pages, leading CE Financiers shed light on their approach as they get candid with S.D. Khan.

The Cabinet Committee on Investment has cleared infrastructure projects worth Rs.1.84 lakh crores. Moreover, the Ministry of Roads and Highways has fixed a target of awarding projects of 7,000 km in this fiscal. How does this augur for the CE Financing Sector?

GC Rangan
Mr. GC Rangan
Mr. GC Rangan, Chief Operating Officer, L&T Finance Ltd: Planned government expenses play a pivotal role in driving the CE Industry. Investment in Roads, Ports and Irrigation Sectors in particular (apart from Mining) gives a big thrust to the CE volumes. Moreover, average size of infrastructure projects is getting larger and increasing shortage of manual labour is expected to bring the CE Industry back on the growth trajectory in the long run. Action by the Government on pending policy decisions and actual release of funds in the development projects is the fillip eagerly awaited by the CE Industry. To be more specific, the surge in Infrastructure and Road projects would drive Earthmoving, Concrete and Road Construction categories of CE. This will also give respite to CE Industry reeling under pressure both on owning cost side on account of increased manufacturing costs of equipments and on operating cost side with rising fuel prices post deregulation of diesel. Needless to say, once the demand for CE is back on track, the surge would trickle down to the CE Finance Industry as well. Release of funds would help timely repayment of loans both by developers and contractors, thereby releasing pressure on Credit Loss front. This can help reduce risk perception and hence increase availability of finance for the CE customers at lower rates. Current tight liquidity condition and increased borrowing cost of financial services has raised the loan rates for the end customers beyond comfort range.

Anil Bhavnani
Mr. Anil Bhavnani
Mr.Anil Bhavnani, Business Head & Senior Vice President, HDFC Bank: Yes, the projects cleared include 18 in the Power Sector with investment of about Rs.85,000 crore and 18 others in sectors like Road, Railways, Petroleum and Natural Gas with an objective to get investment cycle restarted. Definitely this will be a boost for the CE Industry, banks, and financial Institutions participating in this space. However, there are a few bottlenecks in Road/Mining/Infra project investment which need to get addressed on urgent basis before the "Model Code of Conduct" sets in. NHAI needs to get the environmental issues/Right of Way Issues resolved so that road contractors can execute projects timely. Similarly, Mining ban is severely impacting the country's trade. Mining needs to start in order to kick start the economy. Also, a Single Window Clearance concept should get implemented so that projects get implemented in an orderly and timely manner.

Sunil Gupta
Mr. Sunil Gupta
Mr.Sunil Gupta, Vice President & National Sales Head, Construction Equipment & Strategic Construction Equipment, Magma Fincorp Ltd: The Goverment has started taking corrective steps in order to revive the Infrastructure Sector and economy. The Government has recently cleared 28 Infra Projects worth Rs.1.1 Lakh crores which include 18 Power projects and 4 Highways project. It is also planning to kick-start a number of new infrastructure projects including 8 new airports and 2 new sea-ports in the coming months to boost economic growth. Railway projects worth Rs.2 lakh crores will also be cleared in a time bound manner. AAI has been directed to award 50 low cost airports in 11 states during the current financial year. All these measures look extremely promising for Infrastructure Segment as well as economy and CE Industry.

Despite the Centre's various attempts at fast tracking infrastructural growth, the financial condition of the economy is in doldrums. Contractors and developers are facing liquidity crunch. How is this situation affecting your approach to finance CE as contractors might defer their installments?

Mr. G.C. Rangan: Financial Services sector is facing difficulties on both cost side and collection (income) side. On the one end, borrowing costs have shot up due to tightening of liquidity on account of RBI's stand on monetary policy. On the other, with pending decision on investment proposals and non release of funds by the Government for various infrastructure projects, developers and contractors are unable to pay the installments on time. A combination of two has forced many of the NBFCs to either slow down on funding customers in the CE Industry or to increase loan rates to cover for increased risk. To counter this, we are being more cautious in funding non-standard equipments and players. Credit appraisals are being done more on case to case basis instead of applying generic norms for entire segment of customers. We are also helping CE customers by offering them refinance on free assets, thus helping them meet working capital needs. We are trying to maximize from the vast domain expertise built over years by our sales and credit team in identifying right set of customers and assets to finance. The steps have already started showing some positive results, though overall condition of the CE Finance Industry remains challenging.

Mr. Anil Bhavnani: The best barometer of a country's economic standing is its GDP. As a thumb rule our credit growth is little over 3 times of the GDP. With a lower GDP growth, we also have lowered our expected credit growth. Given the current Government's fiscal situation, it will be prudent to reduce Unplanned Expenditure so that Fiscal Deficit is under control. Thus, the Government then needs to ensure that it creates an environment which is conducive for the Private Sector to take the burden of capital investment and maintain growth rates. Keeping the market scenario in mind, we are also adapting the cautious approach towards funding the equipments.

Business Acquisition Financing

Mr.Sunil Gupta: While a number of steps have been taken, the situiation on the ground has not really improved as yet. Less than 1000 Km of the planned 8000 Km of Road projects have been awarded during FY 12-13 under BOT. The Government failed to find any takers for BOT projects. Current pace of road construction is just 5 km per day against 20 km. There are delays in project execution due to bottlenecks around land acquisition and environmental and forest clearances. A large number of projects are stuck and delayed. The Infra companiess have made significant investments which are not generating any revenues and cash-flows. This has made lenders wary of lending to Infra companies and it's a disturbing trend. Banks and investors are shying away from the Infra Sector. This is leading to drying up of funds and liquidity crunch in this sector. More and more large companies are defaulting in repayments approaching for CDR. The situation is very precarious today.

What new and innovative financing schemes have you come up with in these volatility stricken times?

Mr. G.C. Rangan: Utilizing our domain experience gained over the years, we have worked out customized schemes, specific to business seasonality and customer segments. We have also developed special schemes jointly with manufacturers we have close association with. Financial offerings with moratorium and option of structured repayment in line with income cycle of the customer, attractive loan to value (LTV) and rates against suitable risk mitigation have been designed. Moreover, we keep on coming with festive season or event specific (such as EXCON) schemes, at times in collaboration with manufacturers. These offerings are designed to meet customer expectations in a mutually beneficial way. We have increased focus on offering financial assistance towards procurement of used construction equipment, refinance on un-encumbered owned assets and top-up to meet working capital requirements of CE customers. Moreover, trusting our knowledge of CE Industry and assets, we have designed few loan offerings with slightly increased tenure for term loans on standard assets. This helps keep installment amounts in check, thus driving numbers. We are supplementing all these offerings for end customer with trade advance and working capital offerings for dealers and manufacturers, as their business models have also been impacted by liquidity crunch in the economy.

Mr. Anil Bhavnani: At present, we are running one of the highest numbers of Joint Promotional Schemes with all the key manufacturers. We understand customers' need and thereby provide solutions both for immediate and long term finance. As a leading bank in Infrastructure and Construction Finance Industry, we offer a bouquet of innovative banking products under one roof to Infrastructure and Construction Segment customers. We believe in providing complete banking solutions to our customers through our 3000+ branches and distribution network, and this has been our USP for years.

Mr.Sunil Gupta: We are mainly a retail finance company with significance presence in semi-urban and rural India. Our focus has been mainly on first time buyers and small contractors. These customers are still managing to get work orders and are able to sustain. However, the operating costs have gone up and machine deployment has declined thereby reducing the cash-flows of customers. We have rolled out products with extended tenor, lower EMI, and higher moratorium to match the cash-flows of our customers.

In the last one and a half years or so, the CE market has contracted by 10 - 12%. How has it impacted your business? Foreseeing the Government's emphasis on Mining, Power, and Roads Sector, how do you see the coming year?

Mr. G.C. Rangan: The contraction of CE market is a fall-out of pending policy decisions and delaying actual release of funds in approved mining and infrastructure projects by the Government. Reduced liquidity has generally resulted in increased borrowing costs for the financiers and increased rates for the end customers. This, along with increased costs of CE models, deregulation of diesel prices and stagnant rentals, has affected asset viability and economics. This has reduced demand for purchase of new CE models, thus reducing the pie many financiers vie for. Moreover, with developers and contractors struggling to get work orders and payments in time, the loan repayments have been delayed by many. Thus, it's a two front challenge for financiers, both on cost and income (collection) side. Faced with all these challenges, our numbers have also dropped in CE in line with industry de-growth. We are tackling the challenges on collection and recovery through a dedicated team and effort. To counter for increased borrowing costs, we are emphasizing on refinance and used vehicle finance, where market operates at higher rates. The efforts have already started showing some positive results for us, but industry as a whole is far from being back on track. It's good that the Government is re-emphasizing on Mining, Power and Roads, but till actual funds trickle down to benefit developers and contractors, scenario is unlikely to change much. At the same time, a good monsoon could help revive demand a bit in a few pockets where CE sales is driven by Agri-Sector. Considering this, we expect some recovery to start taking place from Q4 of FY13-14, but the CE industry would take some more time and we expect it would be back on growth trajectory post Q2 of FY14-15, once general elections takes place.

Mr. Anil Bhavnani: As a business model, HDFC Bank has not been a large player in the Infrastructure Sector but has been historically funding contractors who have been infrastructure enablers. We are a dominant player in this segment and enjoy one of the highest market share in CE space amongst banks. It has been a difficult year for CE manufacturers with numbers shrinking. Traditionally we see much better demand in the second half of the year and we expect a stronger demand with the onset of a good monsoon. As and when the demand picks up, the banks will participate in the India Growth Story.

Mr.Sunil Gupta: The CE market has declined by approximately 15% in the H1. This is the 2nd consecutive year of decline. Compared to FY 11-12, the market has shrunk by almost 30%. We have been able to maintain our volumes due to our strategy of going retail and expanding in semi urban and rural markets. We currently operate from 200+ branches. Our strong distribution and collection infrastructure has helped us retain our volumes and market share. Yes, the steps and measures taken by the Government are very positive but the implementation may take time. Also , the situation may not improve until elections are over and new Government takes over.

NBM&CW November 2013

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