By the end of the review period (2008-2012) the Indian construction industry hit a total value of INR 22tn (USD 409bn). The country’s expanding economy, increased government spending on public infrastructure, and a supportive foreign direct investment (FDI) system aided the growth.

Doubling Up Construction industry growth is expected to remain strong over the forecast period (present to 2017), as a result of the government’s commitment to improving the country’s infrastructure. The industry’s output is expected to record compound annual growth of 15.45 per cent over the forecast period and double in value to INR 45.1tn (USD 838bn) by 2017.

Infrastructure construction is the largest market in the construction industry, accounting for a 32.9 per cent share of the total value in 2012. During the review period, the infrastructure market grew at a compound annual rate of 16.84 per cent to reach a value of INR 7.2tn (USD 134.5bn) in 2012. India invested heavily in infrastructure construction projects during this time and is anticipated to continue to invest over the forecast period. The infrastructure construction market is expected to grow at 17.18 per cent over the forecast period, driven primarily by energy, rail, and road sectors.

India’s real GDP growth fell from 9.3 per cent in 2010/2011 to 6.2 per cent in the 2011/12, and fell further to 5.1 per cent in 2012/13. This is primarily due to declining investments, soaring inflation, high interest rates and sluggish external demand.

India’s economic growth is estimated to have slowed to 5.1 per cent in 2012/13, the lowest rate in a decade. This was caused by inadequate infrastructure, sluggish investment growth and policy paralysis. It is expected to improve marginally in 2013/14. However, with a possibility of recovery in global economic growth and an expected improvement in business sentiment, India’s GDP growth is expected to improve in the following three years and will expand between 6 per cent and 7.5 per cent a year.

Funding
The general outlook for construction activity during the five-year forecast period is positive. Investment in physical infrastructure will also be a major driver of construction growth, with various infrastructure projects in the pipeline nationwide. The government expressed plans to invest INR 55tn (USD 1tn) in various long-term development plans under the 12th five-year plan (2012- 2017). However, given the government’s fiscal challenges, much depends on the extent to which it can involve the private sector in these projects. More still needs to be done to improve the regulatory environment pertaining to construction projects to facilitate faster private investment growth. According to the World Bank’s Doing Business survey, India ranked 181st out of 183 countries in the category of dealing with construction permits.

In order to meet the long term need of infrastructure construction funding, a Memorandum of Understanding (MOU) for setting up India’s first infrastructure debt fund (IDF) was signed by ICICI Group, Bank of Baroda, Citicorp Finance India and Life Insurance Corporation in 2012. IDF will provide an alternative source of finance for investors and allow more investment in the infrastructure construction market. It aims to attract private investment to finance the majority of infrastructure projects. Major investments will be made in publicprivate projects on highways, railways, ports, roads and other infrastructure projects.

Barriers to entry – low
The barriers to entry for contractors in the Indian construction industry can be categorized as low. The country’s economic structure is focused on the liberalization of regulations for establishing new firms.

The government is expected to implement more business-focused reforms over the forecast period. The World Bank’s Doing Business 2013 report ranks India 132nd out of 185 global economies. The country’s ‘Dealing with Construction Permits’ rank improved from 183 in 2012 to 182 in 2013, while the ‘Registering Property’ rank improved three places to reach 94 in 2013. Only 12 procedures and 27 days are required to establish a business. Substantial opportunities for new and innovative construction projects in the country also reduce the barriers for entry.

Infrastructure performance
Energy and communications infrastructure construction is expected to record healthy growth over the forecast period, with an expected CAGR of 17.97 per cent. Output in this category stood at INR 3.2tn (USD 58.7bn) in 2012, having grown at a CAGR of 17.23 per cent during the review period. Owing to high industrialisation, urbanisation and a rising population, electricity demand in India is rising. In a bid to maintain the balance between supply and demand, the government announced, in their 12th five-year plan, an aim to achieve 90GW of additional installed capacity by 2017.

Road infrastructure construction was the second-largest category in the infrastructure construction market during the review period and valued INR 1.3tn (USD 24.2bn) in 2012. The category grew at a CAGR of 17.78% during the review period and is expected to record a CAGR of 17.53 per cent during the forecast period. In October 2012, the government approved a total of INR 15bn for highway projects under phase IV of the National Highway Development Program (NHDP).

With a value of INR 1.1tn (USD 19.9bn) and a share of 14.8 per cent in 2012, rail infrastructure construction was the third-largest category in the infrastructure construction market during the review period.

The category is expected to expand at a CAGR of 17.72 per cent over the forecast period. A sharp increase in passenger traffic means Indian rail infrastructure needs to be enhanced. In the 2013 rail budget, Indian Railways announced their plan to invest INR 63.4bn (USD 11.5bn) on rail infrastructure during 2013-2014.

Key issues
Infrastructure investment is pivotal to supporting long-term economic development. In a bid to improve the nation’s infrastructure and attract more foreign investment into the country, the government announced its plan to invest INR 55tn (USD 1tn) for infrastructure construction in the 12th five-year plan (2012-2017).

Owing to implementation of the NHDP programs, which support the active participation of the private sector in public construction projects, India recorded healthy growth in infrastructure projects. A total of USD 38bn in build, operate and transfer (BOT) concession contracts, which were awarded in December 2012, are projected to be fully operational by 2015-2016.

At the end of the 12th five-year plan, total renewable energy generation capacity is expected to have increased by 30GW to 55GW. The renewable energy infrastructure will be further fueled by a six-year EUR 1bn (USD 1.3bn) loan from Germany.