Infrastructure and Construction Sector Overview in India
The Infrastructure / Construction sector, comprising of Real Estate (both
Residential and Commercial) and Infrastructure (Roads, Highways,
Airports, Ports and Railways) is understood to be the second largest
employer in India, directly employing more than 40 Million people.
Despite relatively slow growth years of 2011 and 2012, the Construction
industry is all set to continue its high growth till 2016, on account of
revised government emphasis on the sector, which combines ambitious
targets with support in the form of funds, favourable credit terms and
easing of FDI norms.
Construction Industry Output in USD Billion
90
80
70
60
50
40
30
20
10
0
54
59
64
67
71
76
84
Construction Industry
Output in USD Billion
Furthermore, as a percentage of GDP, the Construction sector has retained
its healthy percentage of approximately 8% over the past 5 years. This is
expected to continue in the upcoming years, which suggests that the
sector is expected to maintain a healthy contribution to a rapidly growing
Indian GDP.
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Share of
Constructi
on in real
GDP
GDP
Growth
Rate
Constructi
on
Industry
Growth
Rate
2007
2008
8.1%
2008
2009
8.0%
2009
2010
7.8%
2010
2011
7.9%
2011
2012
7.9%
2012
2013
7.8%
2013
2014
N.A.
2014
2015
N.A.
2015
2016
N.A.
9.3%
6.7%
8.6%
9.3%
6.2%
5.0%
7.3%
(e)
8.5%
(e)
9.0%
(e)
10.8
%
5.3%
6.7%
10.2
%
5.6%
4.3%
8.0%
(e)
10.0
% (e)
11%
(e)
According to the estimates by Government of India and the Reserve Bank
of India, the Construction sector output is expected to touch USD 90
Billion by the end of Calendar Year 2017.
-------------------------------------------------------------------------------------------------------As per estimations by the various agencies of the Government of India,
including the Planning Commission, which is responsible for developing
the Five Year Plans, the Infrastructure sub-sector is set to outgrow the
Residential and Non Residential sub-sector within the next few years, as
can be seen from the chart below.
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Percentage Breakdown of the Construction Industry 2012-2013
Infrastructure
52%
Residential and48%
Non Residential
Percentage Breakdown of the Construction Industry 2016-2017
Infrastructure
48%
52%
Residential and Non
Residential
Investment Scenario:
The charts below depict the investment scenario for the Construction
sector, specific to investments made by Scheduled Commercial Banks and
Foreign Direct Investment.
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Years
Gross Bank Credit (in
USD Billion)
2008 – 2009
6.65
Foreign
Direct Investment (in
USD Billion)
1.51
2009 – 2010
7.62
2.32
2010 – 2011
7.48
0.85
2011 – 2012
8.38
2.62
2012 - 2013
9.00
1.25
Utility Infrastructure
Airports
The Civil Aviation sector in India has been growing rapidly since the turn of
the century and all indicators point to explosive growth continuing in the
next few years, till at least 2020, when conservative estimates suggest
that passenger traffic in India will cross 450 Million (more than double the
present number), comprising both domestic as well as international
travellers.
Projected growth in Air Passenger Traffic in India
Passenger Traffic in Millions
500
400
300
200
100
0
Passenger Traffic in Millions
CAGR:
12.5%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Industry Speak
“The world is focused on Indian aviation – from manufacturers, tourism boards, airlines, global
businesses to individual travellers, shippers and businessmen… If we can find common purpose
among all stakeholders in Indian aviation, a bright future is at hand,”
Mr Tony Tyler, Director General and CEO of International Air Transport Association (IATA).
Key Points:
Over the next 8 - 10 years, the cities of New Delhi, Mumbai,
Bangalore and Kolkata will execute work for a 2nd airport.
In addition, the existing airports at Bangalore, Chennai, Kolkata,
Ahmedabad, Pune, Patna, Jaipur, Guwahati and Lucknow will
execute modernisation and expansion activities in the form of
new terminals by 2020 - 2022.
In the same period, there will be 14 new 'Greenfield' airports
being planned for in the states of Goa, Madhya Pradesh,
Maharashtra, Karnataka, Kerala, Rajastha, Uttar Pradesh, Tamil
Nadu, Sikkim, Nagaland and Arunachal Pradesh
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Game Changers
Privatizati
on of
Airports
• Civil Aviation Ministry of India, along with the Airports Authority of India
are working on finalizing plans to execute a privatization plan for
upgrading and maintaining airports in India, which will allow private
companies to own upto 74% equity in airports they manage.
• Till 2017-2018, the government estimates that an amount of
approximately 7.8 Billion Euros will be required to develop, expand and
modernize airport infrastructure in India. Out of this, about 75% will be
contributed by the private sector.
• India has allowed FDI of upto 49% in its civil aviation sector and there
FDI in Civil
Aviation
are talks that in the upcoming years, in select spheres within the overall
aviation sector, the FDI cap could be increased to as much as 74%.
• Already, foreign companies have started investing in the Civil Aviation
space in India, by collaborating with Indian partners. The most notable
example being tie ups between Spice Jet (India's second largest low cost
carrier) and Singapore based Tiger Air as well as the launch of a new
airline under the collaboration between Tata Sons and Malaysia based
AirAsia.
Container Facilities
Railways:
Indian Railways is the world’s second largest employer with a workforce of
more than 1.5 Million people. During Financial year 2012-2013, Indian
Railways carried 1009 Million Tonnes of Freight Traffic and the same is
expected to grow by about 4% to 5% every year for the next few years.
Almost 70% of total earnings of Indian Railways come from Freight
services.
To cater to this demand, the planned investment till the end of Financial
Year 2017-2018 is more than USD 86 Billion, out of which, 19% is
expected to be contributed from the private sector. Out of this,
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approximately USD 6 Billion will go towards developing the ‘Dedicated
Freight Corridor’ project which is intended to decongest the routes
between Delhi, Mumbai and Kolkata, by building dedicated cargo lines.
In the recent years, the Government of India has allowed private players
to build, develop and run rail connected freight terminals.
Ports:
With more than 7500 kilometres of coastline, India boasts of 13 Major
Ports and more than 180 Non-Major ports, out of which only about 60 are
operational right now. In Financial year 2012-2013, Indian ports handled
close to 1 Billion MT of cargo. This is expected to grow at a CAGR of about
12% for the next few years.
In addition, more than 40 port modernization and expansion projects are
currently under implementation with an estimated cost of USD 2 Billion.
Furthermore, containerization level of cargo at Indian ports is only about
25% as against the global average of 60% - 70%.
This, points towards an innate need for the Indian Ports to continue their
modernization and expansion plans so as to be able to be ready for the
significant growth in traffic expected within the next 3 – 5 years.
-------------------------------------------------------------------------------------------------------Commercial Infrastructure
1. Shopping Malls
The ‘Mall’ culture in India has started showing real slowing signs over the
past 2 years on account of an over-supply situation that was created in
the preceding years. The total retail market size in India was projected to
cross the USD 650 Billion mark by early 2016 (from approximately USD
400 in 2010). More than 90% of this growth was expected to come from
‘Organized Retail’ and this fuelled tremendous growth in malls related
investments.
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The Bad News
Between
2010 and
2013, 250 to
300 new
malls were
were
developed
and
launched in
In dia.
By the end of 2013, due to
the 'Over-Supply' condition of
the market, nearly 60% of the
newly created retail space
remained vacant because of
high rentals and unwillingness
by retail outlets to take risks.
As a result, within
the same time
frame, it is
estimated that
nearly 40 malls had
to shut shop due
to lack of business.
Disproportionate Distribution of Mall Space in India
Expected Distribution of Mall Space in 2015
Delhi
Mumbai
26%
5%
5%
7%
30%
27%
Hyderabad
Bangalore
As can be seen from the adjoining
chart, the distribution of mall space
in India is highly disproportionate
with high concentration of malls in
Delhi and Mumbai.
By early 2013, the total mall space in
India was approximately 75 million
square feet, which is poised for a
much slower growth in the next 2 – 3
years.
Pune
Others
Source: PWC Report on Indian Retail Sector; Assorted News Articles from Reuters and Business Standard
In addition, the growing presence of the ‘Online Retail’ and ‘E-Commerce’
industry in India, along with evolving buyer trends has significantly slowed
down the projected growth of construction of new malls in India as
developers are hesitant to invest in this highly capital intensive sector.
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2. Office Space
As of the beginning of 2012, there were 143 operational SEZs (Special
Economic Zones) in India, essentially large demarcated areas of land
developed specifically to provide impetus to select industry sectors with
fiscal incentives and tax concessions.
In addition, development and physical construction work has begun for an
additional 381 SEZs whereas land has been identified and permissions
granted for approximately 600 additional SEZs.
It must also be noted that out of 143 operational SEZs in India right now, a
significant majority of them (91) are located in the 4 states of South India.
Although in the next few years, this imbalance will even out significantly,
still, the Southern part of India is expected to remain a key driver of
growth in the SEZ sector, especially in the sectors of IT/ITES, Hardware,
Pharmaceutical and Manufacturing.
-------------------------------------------------------------------------------------------------------The Commercial Office Space sector is currently in an Over-Supply
situation in India, with growth slowing down considerably over the past 2
years, due to a generally weakened macro-economic environment which
saw many new projects being delayed.
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New Office Space Being Developed in Million Square Feet
60
50
New Office Space Being
Developed in Million
Square Feet
40
30
20
10
0
2010
2011
2012
2013
2014
2015
As can be clearly seen from the chart above, the rate at which new office
space is being added in India has slowed down from the highs of 2010 and
earlier. It is unlikely that past mistakes will be repeated and subsequent
growth in new office space construction is expected to remain flat in the
next 2 – 4 years until such time as demand catches up and vacancy rates
(of above 20% in Mumbai and New Delhi) come down to below 10%.
Another aspect about the overall Construction industry in India and in
particular about the Commercial Office space segment is that over the
past 2 – 3 years, there has been a steadily growing adoption of Pre-Cast
Concrete parts in the construction of large projects involving tall
structures.
This also includes using pre-cast tiles and slabs for paving requirements in
these projects for driveways, walkways, outdoor public areas, etc. Thus,
the market in India is in a very favourable mindset now as regards use of
pre-cast concrete products because of their cost and time benefits
compared to traditional ‘On-site’ construction processes.
Regional Variations:
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- The one big difference in this above trend is the region of South India,
where real estate developers are carrying on development of new office
space and are major contributors to growth right now.
- It must be noted that global investment is also flowing towards real
estate developers based in South India with investments worth close to
USD 1.5 Billion being pumped into the market by players such as Qatar
Sovereign Wealth Fund, Singapore Sovereign Wealth Fund, Blackstone
Group LP and HDFC Property Ventures Ltd.
Thus, South India will beat the national average in terms of new office
space being developed over the next few years and therefore this region
is likely to see greater demand for construction related allied products and
services like paving stones and slabs.
Residential Infrastructure
It is estimated that India needs to develop more than 2 million houses
every year from now till 2028, simply to cater to the housing shortage
witnessed presently on account of the burgeoning population. However,
almost 85% of these houses will for the economically weaker sections and
low income group households.
Mid-Income:
By the year 2026, it is estimated that middle class households may triple
to almost 115 Million units. An average middle income house is about 800
– 1200 square feet in size.
Most of these houses are being developed in residential suburbs of tier 1
cities and across most tier 2 cities in the form of large apartment
complexes.
Luxury:
Furthermore, the Luxury housing segment is the fastest growing segment
among all Residential sector segments. From 2008 to 2012, more than
25000 new units were launched in top 7 cities alone with a combined
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value of just over USD 30 Billion. On an average, luxury housing segment
in India refers to houses with a minimum of 1500 square feet in size with
literally no upper cap. It is expected that India will require at least 1.5
million luxury houses within the next few years.
Most of these high-end luxury houses tend to be part of large gated
communities with either independent villas and row houses or huge multi
bedroom apartments and all modern living facilities such as supermarkets,
schools, hospitals, etc. as part of the Integrated Township.
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