CIDC Summit: Construction Business Awaits Astounding Boom

CIDC Summit

Every cloud has a silver lining and the adage appears to be true in the case of Indian construction industry. In my five decades of experience in the industry I witnessed countless business cycles when things suddenly went slow and then bounced back with a bang. In the current scenario, the major concern is not the lack of funds or work force but the lack of faith. Are we really willing to come out of the depression or are we working to achieve that goal? The erratic fund flow is a secondary issue for construction vendors but then it should not disturb the ability to take risks or the ability to deliver project on time? In India, most of the equipment are not technologically oriented and perhaps this is the right time to come up with our own indigenous mechanism to help resolve slowing fund flow, summarizes Chairman and Managing Director, Simplex Infrastructures, B D Mundhra during his address at the CIDC summit.

Captains of the Indian construction industry in a brainstorming meet organized in the recent past by the Construction Industry Development Council (CIDC) in partnership with Accenture identified key steps to achieve higher performance in the construction sector. Driving home their viewpoints they appeared unanimous reiterating that targeting about 8 per cent of the GDP growth by 2020, the Indian infrastructure and construction business, which entails an annual investment worth $75 billion and bringing about a consistent growth of over 10%, is in fact the second-biggest economic activity of the Indian economy after agriculture. Adding to the momentum is the targeted investment of $1 trillion for the 12th Five Year Plan period, which doubly demonstrates the governmental resolve and increased focus on the sector. But there still lies some loose ends that are needed to be nailed to bring the industry at par with its global counterparts irrespective of the challenges that the country is currently confronting. In such a scenario, there is a dire need to collaborate and work together to build a mechanism pushing productivity by prudently managing our scarce resources alongside ensuring environmental sustainability especially when ecological resources are drastically depleting.

Addressing the conference, Principal Advisor to the Planning Commission, Government of India, Dr Pronab Sen, recalled that the speed with which the Indian infrastructure industry has come of age in past half century is really marvelous because at the launch of the Highway Development Authority, there were not too many players around to take up the challenge. Today, Indian infrastructure companies are not just building world class infrastructure within the country but also diversifying into newer geographies to expand their business. He pointed out that over the next few decades, the Indian economy will be creating about 9-10 million jobs of which about 3-4 million will be in the construction sector. But these will be absorbed by smaller players, like the companies engaged in the construction segment in rural areas.  The Public Private Partnership PPP has been around for a decade now as before 1999, there was nothing like it today a large percentage of infra and construction projects are under PPP. We are still learning, it’s an evolving process.

Stressing on the risk factor, Chairman and Managing Director, IIFCL, S.K. Goel, explained that uncertainties and risk in the infra and construction is abounding as in every vertical huge amount of construction is involved and slowdowns further push the risk to higher scales. As per stats over 78% construction is required in rail projects, dams involve 75% and 66% of the cost goes for construction. Only in the power sector, construction cost comes to 35%. But that means if Rs. 100 crore is earmarked for infrastructure development, a major chunk of it goes to the construction industry. In fact, currently large investment industries are finding the going very tough and the need to sub-contract and the project management challenge again adds to the woes, but alongside it also helps achieving success if properly monitored and stream lined, he said.

Summarizing his view point, President SREI Infrastructure, Shailesh Pathak, explained that the third set of players in the construction industry is the enablers and at time bankers, financers, insurers are not even aware of the real, ongoing and emerging risks in the business. Under the circumstances even the smaller sub-contractor is not making money. This is pressing banks for operational finance, more than capital finance and this is the biggest issue facing bankers and financers now. In order to complete the project in hand on time, requires the best equipment for which they again need financing. As far as financers are concerned, training must be provided. Quoting an instance he claimed that the NSDC has given SREI Infrastructure Finance Rs. 100 crore to train a million people. The group has 28,000 e-governance centres. These can then be utilized according to skillsets required.

Similarly, the Director General of CIDC, DR P R Swarup, explained that in a human capital oriented business like construction, there was no formal training available in India and certainly not at the worker level. The trained engineers are not imparted site skills, but only project management abilities making it the major drawback in the industry. On the other side, even if a company presents a beautiful concept document and bid, the decision to award the bid takes a longer time simply because the person reading it may not be able to correctly interpret it. The resultant delays in taking decisions alone are costing industry as much as Rs. 150 thousand crore, maybe more. Players have no faith that their bid or proposal will get a fair deal and this is one of the biggest reasons that foreign brands of infrastructure and construction industries globally are reluctant to touch Indian shores. He pointed out that in the current situation, banks and institutions are also not playing trigger mechanism for driving contracts and growth. There is a bit of a twist there as workers are actually kept on the parole of a supplier to handle tax and other situations. These people are raw, big companies train them using their own people. After the project gets over they go back to their parent company.

Unfolding ground realities, Managing Director Accenture, Management Consulting, Sanjay Dawar, informed that study threw up the fact that as orders are choking up from Indian markets there is an increasing trend of geographical diversification. Another key factor that is helping Indian companies stay afloat is that they are subcontracting at the project level. So the risk is spread even thinner. Then the question arises that in the Indian scenario, there are companies that deploy high technology and also there are the ones that go largely manual, how can they co-exist? Finally, it was all about economics that has the capability to make money at much faster pace. Even clients who are looking at automating are doing so only for economic reasons and productivity of labor is not the driving factor. We should see productivity in the context of construction, not only labor, he concluded.

NBMCW December 2012

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