India Infrastructure Report Q2 2009

India's construction industry will continue to exhibit strong growth over our forecast period, although it will be far reduced from the levels seen before 2008. In BMI's Q209 India Infrastructure Report, we have used a new methodology for our forecasting method which aims to increase the relevance and reliability of BMI's infrastructure data. We are forecasting real growth of 5.4% in the construction industry in 2009, to reach a value of INR4,200bn.

Despite the global downturn and much reduced growth forecast for 2009, India is exhibiting enviable growth compared to many other countries around the world. This is illustrated through the number of projects recorded in the construction industry's subsectors in late 2008 and thus far in 2009.

The power sector has seen probably the largest amount of activity. Most of which is has followed the opening up of the country's nuclear power sector in late 2008. Negotiations are ongoing with international majors in the nuclear power sector from France, Russia and the US, as companies fight to get a slice of the very profitable sector. In March GE Hitachi Nuclear and Bharat Heavy Electricals Limited (BEHL) signed an agreement with India's state-run nuclear monopoly, Nuclear Power Corporation of India Limited (NPCIL), to co-operate in the construction of nuclear reactors. In February, France's Areva signed an MoU with NPCIL for the construction of six reactors and discussions with Russia's Atomstroyexport are still ongoing also for the supply of six reactors.

The transport sector has also seen ongoing activity, with the expansion of Chennai Airport. The Port sector, which has been suffering from the decline in global exports, received good news in February when the India-focused fund of UK private equity group 3i announced it would invest US$161mn for a stake in the deep water port of Krishnapatnam, which is being developed under design-finance-build and operate initiative for 30 years.

Infrastructure investment in the region of US$500bn is being planned between 2007 and 2012 under the government's 11th five-year plan. Of this, utilities will receive the largest portion with US$167bn, roads will be allocated US$92bn, railways US$65bn, ports US$22bn and airports US$8bn. The government envisages 30% of the total amount in the plan to come from private sector companies through public private partnerships (PPPs). However, the global economic downturn has highlighted the barriers in India's infrastructure sector, which may harm the government's ability to attract private sector participation, especially at a time of risk aversion and tightening access to credit.

However, BMI believes that there are strong fundamentals to growth in the industry. Growing demand from a fast-expanding population (forecast to reach 1.34bn by 2018) will continue the need for increased capacity in the country's transport and utilities sectors. Strong economic growth of 6.5% on average per year between 2009 and 2013 is forecast, which will increase demand for infrastructure, however, if it is not up to scratch, it could hinder the achievement of this rate.