By Nikita Rana
During the Great Depression, when joblessness was rampant in America, the federal government had commissioned the Hoover Dam project, creating an entire town for the construction workers who worked on it. Covid-19 has led the Indian infrastructure industry to ask the government for big spends so that projects can re-start and jobs can continue to be created. While the announcement of the Rs. 20 lakh crore stimulus package and the report by the task force on National Infra Pipeline (NIP) layoung out a Rs. 111 lakh crore investment for FY2019-2020 to FY2025 are encouraging, industry insiders are waiting for details to feel assured.
“After some relaxation came in to play in the last week of April, we have been able to begin work. But we’re currently operating at about 25% capacity, mostly catering to orders that were already placed and have to be delivered. It’s been a very slow start and we don’t see any need to increase the rate of work because domestic demand seems slow. A huge outlay has been announced but I am waiting keenly to see when it will come into effect. In construction, an order has no meaning. There are projects which have been tendered, but will not begin till funds come in,” says Jagdish Bhat, CEO of Ajax Engineering which manufactures and distributes construction equipment. Buying machines like dumpers, pumps, and transit mixers require heavy capex and are always bought with financing assistance and loans. Without banks and NBFCs granting loans for these purchases, new sales will be difficult to come by.
For a firm like Hindustan Construction Company (HCC), which is involved in the construction of roads, tunnels, hydro projects, metros, and nuclear reactors, new orders shall continue to flow as higher infrastructure spending by Government will be a key driver for the economy, whilst absorbing large swaths of unemployment, especially migrant labour.
The construction industry has faced considerable stress prior to COVID 19. Support from Government is essential in the form of both liquidity and reform so new infrastructure projects are bankable by financial institutions. Immediate liquidity, including the unqualified payment of Arbitration Awards, will help address lender concerns, unlock supply chains, protect thousands of MSME while restarting the profit cycle that will trigger an economic revival. A healthy construction sector is critical to realize the ambitious National Infrastructure Pipeline (NIP) plan,” says Arjun Dhawan, Director and Group CEO, HCC.
Even though the real-estate sector has been under pressure, builders are keen on finishing projects. KONE, which builds elevators, believes there is latent demand that will need to be served. “The inventory that had piled up in residential real estate has come down and there is definitely demand for smaller houses. The commercial segment was also doing well before Covid-19. I believe the virus will have an impact, but we will be able to overcome it,” says Amit Gossain, MD, KONE Elevator India. Many in the industry share his optimism and believe that especially in cities like Pune and Hyderabad there is a lot of traction for commercial construction but there are some systemic issues that need to be addressed. “There are a lot of DIIs and VCs who are extremely active and supporting mid-sized players. They will stay invested. I also see banks opening up more to this sector. But we’re really banking on the government to support this sector. If land acquisition became quicker and easier, it would greatly help the industry. As far as the recovery of this sector goes, I believe there will be a three-month lag compared to other industries. Migrant labour is not going to come back soon, we have already lost close to 60 days and will also lose the upcoming monsoon months. So March and April which was extremely crucial has been lost,” says Jairam Panch, MD, Turner India.
In the post Covid-19 era, crucial infrastructure will not be limited to physical construction. Telecommunications, internet connectivity and data centres will become even more important. For Yotta Infrastructure, part of the Hiranandani Group, that builds data centres and provides managed data center services, the focus is on commissioning the data center at Panvel at the earliest to honor the contracts of its large global customers. The company is providing labour a place to stay on premises, giving them meals and access to health and medical care in order to keep its construction work going. And while it doesn’t see the current crisis affecting its business in the long term because it’s operating in a growth area, it believes the government can implement policies that encourage removal of policy roadblocks in creating infrastructure, single window for the multiplicity of approvals, localization of citizen’s data in India and in general which promote foreign investment in India. “In the last 1-2 months there has been a 40% increase in subscription services globally. Digitization is going to grow and data centres are crucial for that. If the government further improves the ease of doing business and is successful in getting international firms to set up data centres in India, there will be a spurt of other businesses that spring up. One of the biggest issues that needs to be resolved is that of power. Power is relatively expensive in India and there are restrictions on how you can generate and consume solar energy on a mass scale,” says Sunil Gupta, Managing Partner & CEO, Yotta Infrastructure.
In the infrastructure space, experts believe, demonetization and GST had filtered the weak players from those with strong foundations and now, these medium and large players are trying to stay afloat. “While the RBI is doing its bit with rate cuts and extending moratoriums, there is an urgent need to reallocate budgets and help local manufacturers. This is also a time when the government must revamp some of their processes, so that approvals are given in a 30-60 day window. Now, for all those who can, delivery and implementation of projects will be key,” says Jairam Panch.
Most firms make the case of quick approvals and permissions as they will greatly increase efficiency. Data centres for instance require almost 60 approvals across the central, state, and district level across various ministries and departments before they can operate. Companies also need relevant categorization to operate optimally and seek necessary benefits. The elevator manufacturers have long been requesting their businesses to be categorized as essential as in many commercial and residential complexes, especially in urban India, things do come to a standstill without them. All industry players want the government to resolve two types of issues, one is the urgent problem of liquidity and the second are systemic issues related to land acquisition, the cost of power, dispute resolution and the ease of doing business.