India Infrastructure Report Q2 2008

The Indian construction industry comprises close to 300,000 players, employing a total workforce in the region of 30mn. Driven by strong demand from the transportation, power, urban infrastructure and irrigation segments, the industry contributed nearly 8.25% to India's gross domestic product (GDP) in 2006. This report forecasts the Indian construction industry to be valued at US$85.81bn in 2008 and at US$167.14bn by 2012.

In the past few years, the Indian government's focus has been directed towards improvement of road and housing infrastructure. Also, development of airports in accordance with international standards has taken off in a big way, with a slew of projects across India. Some of the major projects being undertaken here include the large-scale greenfield development of airports in Bangalore, Delhi, Hyderabad and other cities at a combined worth of over US$35bn.The Indian government is set to invest about US$150bn over the next five to six years for the development of infrastructure, of which US$60bn will be poured into building roads across the country. It has also taken initiatives to strengthen capital inflows by allowing 100% foreign-equity participation in the construction industry. But to forestall speculation in real estate by foreign investors, the sale of undeveloped land has been prohibited.

India has a skilled workforce, but its business environment is crippled by excessive government interference. Foreign investment remains restricted in many sectors, with greater liberalisation opposed by the Left. Hiring and firing procedures are governed by rigid labour laws under which companies employing more than 100 people need the permission of the state chief minister to lay off staff. Other concerns include the 670 or so industries reserved for small-scale producers, high import-tariffs levied on foreign-made goods, failing infrastructure, especially poor power supplies, and a warped bureaucracy needed to approve 'permits' for even the most routine tasks. But India is fast-tracking the creation of South East Asian-style SEZs, aimed at overcoming some of these bottlenecks.

Although many international contracting groups do have a presence in India, the market has been difficult to penetrate, with high tariffs for imported building materials and a complex and bureaucratic system of government. There are 27 separate states in the country, all of them having their own specific regulations and codes. However, the government now allows majority foreign-ownership for joint ventures and actively encourages joint ventures with foreign contractors on major infrastructure projects, as there is a shortage of local firms with sufficient funds to handle such activity.