The infrastructure sector has been the government’s biggest focus area for several years now. This can be especially seen from the huge budget allocation of Rs 5.97 trillion for the year 2018-19. The increased impetus for accelerating infrastructure development will open up vast opportunities for construction players. Sectors such as roads, railways, airports, power and ports are likely to witness greater construction activities.
Indian Infrastructure looks at the construction opportunities across various sectors…
With the government’s increased focus on expanding the road network, the road sector has become one of the top contributors to the construction industry. Mega projects such as Bharatmala, Setu Bharatam and Char Dham connectivity will be the biggest investment drivers in the sector. Phase I of the Bharatmala Pariyojana alone offers an investment opportunity of Rs 5.35 trillion. Assuming a construction intensity of around 60 per cent, the sector offers construction opportunities of about Rs 3.21 trillion.
Further, although the launch of new innovative implementation models, such as the hybrid annuity model (HAM) and the toll-operate-transfer (TOT) model have attracted substantial interest from industry players, the engineering, procurement and construction (EPC) model is likely to remain the dominant mode in the near to medium term. The Ministry of Road Transport and Highways (MoRTH) has set a construction target of about 12,000 km and an award target of around 20,000 km for 2018-19. Meanwhile, major policy initiatives, such as a bonus of 10 per cent of the project cost to the contractor upon completing highway projects before the deadline, single-window clearance facility to accord speedy approvals, etc., are likely to attract players into the sector.
In addition, the government is planning to develop nearly 200,000 km of national highways by 2022. It has plans to invest around Rs 1.45 trillion in road infrastructure in the northeastern-region between 2018 and 2020. At the state level, the government is declaring state highways as national highways. As per India Infrastructure Research, a pipeline of around 352 projects at the state level spanning a length of over 19,160 km at an estimated cost of over Rs 2 trillion presents vast opportunities for construction players. Based on these estimates and the strong pipeline, opportunities worth over Rs 1.2 trillion are expected to be available for the construction segment.
The port sector plays a vital role in sustaining growth in the country’s trade and commerce. The government is laying emphasis on expanding port capacity and improving operational efficiencies at ports. To support the sector, the government has chalked out various big-ticket programmes, such as Sagarmala, modernising and reviving inland waterways, and the National Maritime Development Programme.
Under the Sagarmala programme, 121 projects related to port modernisation and port connectivity enhancement are likely to come up during 2019-35. These projects are expected to entail an investment of Rs 2.13 trillion. With construction accounting for nearly 65 per cent of the total project cost, India Infrastructure Research has estimated a construction opportunity of Rs 1.38 trillion in the port sector. However, the actual cost will depend on several factors, including the type of cargo facility (brownfield or greenfield), project scope, location, etc.
The long-term outlook of the port sector seems positive. An estimated capacity addition of around 325 million tonnes (mt) is likely to take place till 2022. The Ministry of Shipping has targeted the creation of over 3,130 mt of capacity by 2020 to handle cargo traffic of about 2,500 mt, and this is likely to provide huge opportunities for private players.
In order to provide an impetus to the sector, the government has also taken various policy initiatives, such as revising the model concession agreement, allowing 100 per cent foreign direct investment, replacing the existing Major Port Trusts Act, 1963, with a new Major Ports Authorities Bill, revising tariff guidelines to provide flexibility to port operators, etc., and these are expected to further attract investments in the port sector, thereby enhancing growth opportunities in the sector.
According to India Infrastructure Research, the airport sector offers a strong pipeline of 58 projects entailing an investment of Rs 693.04 billion. Of this, nearly 30 projects are greenfield airport projects, 11 are for terminal construction and related works, while 14 projects pertain to runways and other works.
On an average, the construction share in the total cost of greenfield airport and terminal construction and expansion projects is about 66 per cent; the construction share in works such as aprons, runways, taxiways, maintenance, repair and overhaul (MRO) facilities and allied works is 90 per cent; and in new air traffic control towers it is 45 per cent. Given these assumptions, the airport sector is likely to represent a construction opportunity of Rs 462.3 billion.
The various opportunities in the sector are in segments such as MRO, cityside development at metro and non-metro airports, green energy, new technologies to improve airside capacity, communications, navigation, surveillance infrastructure, and passenger facilitation, among others.
Further, the government is planning to establish another 100 airports by 2035 at an estimated cost of Rs 4 trillion under the Nextgen Airports for Bharat [NABH] Nirman scheme. Active government participation, rising economic activity and tourism, availability of low-cost carriers, and growth in business and leisure travel has resulted in a surge in growth momentum in the Indian aviation market.
According to India Infrastructure Research, the power sector offers a lucrative pipeline of over 59 large hydropower projects, which will result in a capacity addition of 8,285.15 MW. Meanwhile, the government has planned to add thermal capacity of 7,266.15 MW during 2018-19. Typically, construction works account for 65-70 per cent of the total project cost of a given hydro project while the construction component in thermal projects accounts for about 40 per cent of the total project cost. Considering the estimates, the power sector is offering opportunities worth about Rs 3 trillion for construction players. A thrust to interregional transmission and the augmentation of intra-state transmission networks is expected to provide strong growth in the transmission segment, resulting in higher investments and vast opportunities in the segment. Besides, the launch of various government programmes, such as the Deen Dayal Upadhyaya Gram Jyoti Yojana, the Integrated Power Development Scheme, etc., will continue to generate huge opportunities in the distribution segment.
Meanwhile, the government is focusing on developing flexible, resilient and intelligent grids and is taking significant initiatives towards the development of smart grids. In addition, various other government measures, such as adopting advanced technologies for power generation, bulk tendering of power projects, augmenting generation capacity, etc., are likely to provide a strong positive outlook for the power sector, especially in the near to medium term.
Over the past few years, there has been an unprecedented rise in the modes of urban transportation, especially mass rapid transit systems. Civil construction forms a major portion of the total cost of urban transport projects.
As per India infrastructure Research, the urban transport sector has around 48 projects in the pipeline, entailing investments worth over Rs 4.48 trillion. The construction component accounts for about 50 per cent of the total project cost. Based on this estimate, the segment provides a construction opportunity worth Rs 2.24 trillion.
Meanwhile, the government is focusing on providing modern transportation modes in smaller cities as well. The new Metro Rail Policy will also open up vast opportunities for construction players by necessitating private participation in the segment.
In recent years, upgrading railway infrastructure has been a core focus of the government and Indian Railways (IR) is undertaking massive capacity augmentation in the form of network decongestion and expansion, safety works, rolling stock additions, logistics parks and station redevelopment works. The government has set in motion numerous measures to realise the sector’s potential as the growth engine of the economy.
Further, the government has devised an investment plan worth Rs 35.3 trillion by 2030 for IR. As per the plan, the average annual investment, including that for capacity addition and modernisation, is expected to be around Rs 2.5 trillion, offering vast opportunities to construction players to foray into the sector.
IR has targeted the expansion of its track length to 138,000 km by 2020. This is likely to improve the capacity in the near future. Besides, there is increasing focus on station redevelopment, augmenting rolling stock and introducing higher speed coaches, developing high speed rail corridors, upgrading signalling network, etc.
One of the most ambitious projects of IR, the dedicated freight corridor (DFC) project is being developed along the Golden Quadrilateral to link the four metropolitan cities of Delhi, Mumbai, Chennai and Kolkata and the two diagonals of the quadrilateral they form (Delhi-Chennai and Mumbai-Kolkata). While works on two corridors, Eastern DFC and Western DFC, are currently under way, the Ministry of Railways has come up with a proposal for four new DFCs in the country – East-West DFC (Kolkata to Mumbai), East Coast DFC (Kharagpur to Vijayawada), North-South DFC (Delhi to Chennai) and Southern DFC (Chennai to Goa). These are expected to attract huge investments, thus opening up opportunities for construction players.
Water supply and sanitation
As per India Infrastructure Research, an investment of over Rs 320.55 billion is expected in the 118 upcoming projects (as of August 2018) in the water supply and sanitation sector. With a construction component of 62.5 per cent, the sector offers a construction opportunity of around 208.36 billion. Further, the central government has launched a number of programmes/schemes for augmenting sewage treatment and garbage collection infrastructure in the country. These include the Smart Cities Mission, the Atal Mission for Rejuvenation and Urban Transformation, the Namami Gange Mission, the Swachh Bharat Mission, and the National Rural Drinking Water Programme.
In addition, a number of incentives and policy structures have been promulgated by municipal agencies as well as state governments to attract investments and encourage stakeholders in the sector. New implementation models, including HAM, have been introduced to accelerate sector growth. The government is increasingly moving towards the role of a facilitator and co-financier of water supply schemes and is taking the necessary steps to establish an enabling environment to support strengthening of local institutions. Specific opportunities include waste water treatment development in urban areas and improvement in clean water supply in rural areas.
Overall, the sector has a positive outlook and offers huge opportunities, both in the medium and long term. Expansion and uptake of various water supply and sanitation projects will offer multiple business opportunities across different segments and continuous efforts for rapid growth in the sector will result in elimination of major impediments. With various flagship government schemes such as the Pradhan Mantri Krishi Sinchai Yojana, the policy thrust is likely to enable continued growth of the irrigation sector as well.
Net, net, the infrastructure sector offers huge opportunities for construction companies in the medium term owing to big-ticket projects as well as the large number of upcoming projects across sectors. Sector-specific programmes and higher public sector awards augur well for the construction segment.