SECTOR ANALYSIS

India: Construction, Architecture and Urban Infrastructure Date February 2014

Our ref. AJ

Prepared by Trade Council India, New Delhi

Keywords: India, Architecture, Building, Construction, Urbanisation,

Urban infrastructure, Housing, Real Estate

Abstract:
This report provides a short overview of the Indian Architecture,
Building and Construction sector. It describes the industry and its
potential, with focus on opportunities for Danish companies.

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Table of contents
Introduction ......................................................................................................................... 3
Construction......................................................................................................................... 3
Industry and Key Drivers .............................................................................................. 3
Opportunities for Danish Companies ......................................................................... 4
Architecture .......................................................................................................................... 5
Industry and Key Drivers .............................................................................................. 5
Opportunities for Danish Companies ......................................................................... 5
Urban Infrastructure ........................................................................................................... 6
Industry and Key Drivers .............................................................................................. 6
Opportunities for Danish Companies ......................................................................... 6
Challenges for Danish Companies.................................................................................... 7
Conclusion and Recommendations .................................................................................. 7
Contact .................................................................................................................................. 8

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Introduction
The Indian construction sector offers many opportunities for Danish companies.
This brief will summarize these opportunities, as well as the challenges, posed by
the nature of the Indian construction market.

The high focus on infrastructure development in India in recent years has lead to a
major boom in the construction sector. The annual GDP contributed from the
construction sector amounted to INR 3.85 trillion in 2010-2011. This is a
significant increase from 2006-2007 where the GDP contribution was INR 2.85
trillion. The construction sector GDP constitutes a share of 7.9 per cent of India’s
total GDP. The growth rate for GDP in the construction sector was 8.1 percent
for 2010-2011, struggling to get back at the pre-crisis level from the years 2006-
2008 which saw growth rates above 10 per cent.

Furthermore, this sector report will analyse the Indian market for architecture. As
the construction of residential housing and commercial properties surge, plenty of
opportunities in the architecture sector arise.

Finally, this report focuses on some of the opportunities that arise from the
growing degree of urbanisation that the Indian society experiences in these
decades.

Construction
Industry and Key Drivers
Construction is the second largest employer in India after agriculture. Currently, it
employs, directly or indirectly, around 41 million workers, which constitutes 8.5
per cent of the total Indian labor force.

As far as the corporate structure is concerned, the industry is primarily dominated

by small and medium sized companies. More than 95 per cent of the companies in
the construction sector employ less than 200 persons. However, there are some big
diversified construction companies as well, amounting to approx. 350 companies
with more than 500 employees.

Major construction work includes road and highway projects, power plants,
housing, railway lines, mineral plants, dams and undertaking irrigation and urban
infrastructure projects. These works are undertaken through many entities
including construction contractors, equipment suppliers, material suppliers and
solution providers. Around 50 per cent of construction activity is generated across

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various infrastructure sectors. Another major area of growth in the coming decades
will be residential activity, i.e. mainly low-cost urban housing.

The Construction Industry Development Council (CIDC), a registered council

founded by the Planning Commission, represents the construction industry. It has
membership of four ministries, major public sector undertakings, and leading
private sector companies, besides financial institutions, universities, research
organisations and rating agencies. The majority of investments in construction
activities comes from the public sector. However, recently the government has
realised that if it wants to achieve a fast-track completion of major projects, there
must be a greater involvement of the private sector in construction.

Some major trends have been observed in the construction sector over the past
years. Traditionally, projects were executed on a cash contract basis. However, with
increased focus of the government on public-private partnerships, newer models
such as BOT (Build-Operate-Transfer) and design-build-operate-transfer have
come up. Such models have allowed for more appropriate allocation of risk and
responsibility ensuring that the projects are designed and executed efficiently at
optimum cost and on schedule.

Opportunities for Danish Companies

- The general demand on the construction sector far exceeds the supply.
This is mainly due to a high demand for infrastructure construction and
residential housing.
- As India will continue to require quality infrastructure projects for many
decades to come, the construction sector is set for a big expansion
primarily fuelled by infrastructure.
- Recent years have seen an increased government spending on physical
infrastructure with programmes such as National Highway Development
Programme (NHDP) and PMGSY/Bharat Nirman.
- However, residential housing is also set to be a major driver, as recent
estimates from the Ministry of Housing and Poverty Alleviation show a
total housing shortage in India at about 18.78 million dwelling units.
- Commercial real estate projects are also forecasted to experience growth
due to a growing service industry such as IT, tourism and logistics services.
- The level of mechanisation has improved. Therefore, the use of
sophisticated construction equipment has become a must.
- A major policy initiative in recent years has been cabinet approval for 100
per cent foreign direct investment in the construction development sector.
This is likely to ensure rapid improvement in infrastructure, benefit
manufacturing and generate fresh employment.

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 - The 12th 5-Year Plan, starting in 2012, forecasts an aggregate output of the
construction sector during the period 2012-2013 to 2016-2017 of INR
52.31 trillion. The annual output for 2016-2017 is estimated at INR 13.59
trillion.

The above scenario offers tremendous business opportunities for the construction
sector in India. Requirements of men, material and technology are immense and it
is the right time to tap this business potential.

Architecture
Industry and Key Drivers
The architecture industry in India is on the verge of an explosive growth which can
be duly credited to the construction boom. The Indian Architecture Industry
generates job for the budding architects who are ready to prove their talent and
expertise. The projects range from small houses to the development of planned
cities. Architectural projects in India must be made on a JV basis. Many Indian
architectural companies are highly sector specific – e.g. some architects are only
designing hospitals, commercial buildings or residential buildings etc.

Opportunities for Danish Companies

- The architectural industry in India has not been in very high focus
previously. However, together with the construction boom, the sector is
gaining high importance. Therefore, these years are the perfect time to
enter this industry.
- There is a growing trend among the young and the old in India to purchase
their dream house, which in turn has led to the building boom in India.
This has created plenty of opportunities for architectural companies, as
aesthetics are becoming increasingly important in India.
- Designing of residential properties, ports, airports, hospitals, public spaces
and malls are all good opportunities for Danish companies.
- It is important to bear in mind that there are huge differences between the
perceptions of architecture in Denmark and in India. Therefore, it is
necessary for Danish companies to have some local guidance, e.g. from the
Danish Embassy who has great experience with architecture projects in
India.

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Urban Infrastructure
Industry and Key Drivers
The urban infrastructure sector includes urban housing, sanitation, water supply
and waste management. It also covers special economic zones (SEZs) and IT
parks. In the next 20 years it is estimated that another 200 million Indians will
move from rural areas to urban areas. The sector is characterized by poor
infrastructure, institutional delinquencies, multiple jurisdictions, lack of
professional cadre, poor service quality, inefficient operations and maintenance,
inadequate investments, low willingness to pay etc.

Opportunities for Danish Companies

2012 marked the ending of the 7-year long Jawaharlal Nehru National Urban
Renewal Mission (JNNURM). However, in the 12th 5-Year Plan the Indian
government continues to place a strong focus on urban development, and
therefore introduces the JNNURM-II programme.

- Affordable low-cost housing in urban areas remains a key priority in the

new 5-Year Plan, with a current shortage of 18.78 million dwelling units.
Private investments are essential in order to close the huge gap between the
demand for affordable low-cost housing and its availability.
- The National Urban Transport Policy from 2006 calls for increasing the
share of public transport in the cities from 22 per cent to 60 per cent. This
is still a goal for the government. The primary focus in achieving this goal
is by investing in rail based transport systems, such as metro systems and
high speed urban rail systems.
- An investment of INR 2.8 trillion is needed in urban transportation over
the span of the 12th 5-Year Plan (2012-2017).
- In the long term, it is expected that the next 20 years, starting from 2012,
will see an investment of INR 22.95 trillion in urban transportation,
accounting for 74.1 per cent of the total investments in the urban sector.
- A broad array of opportunities lies within the construction and
refurbishment of water treatment plants, sewage treatment plants, pumping
stations and sewer pipes.
- A wide number of SEZs are operational in India, and more are planned
across the country.

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Challenges for Danish Companies
- The most urgent issues facing the construction sector relates to contracting
quality, technology and manpower.
- Unless adequately addressed, shortage of skilled manpower will be the
single most important hindrance to aggressive infrastructure development.
This is partly due to lack of demand for construction-specific skills, as well
as lack of institutions to help build the required skills. However, companies
have begun to invest in training and development across all levels of staff.
- One key bottleneck faced by the industry is that there are no standardized
contract procedures and evaluation criteria in place. This is affecting the
credibility of the industry. Another concern is the inequality of contract
conditions. FIDIC is a recent phenomenon and many small Indian
companies find it difficult to comply with.
- Most construction projects are subject to disputes because of lack of
credible institutional dispute resolution mechanisms.
- The lowest-cost criterion for winning projects causes most contractors to
focus on cost cutting. Thus, there is reluctance on the part of contractors
to invest in high quality materials and equipment. Most indigenous
equipment does not meet global standards.
- Finally, high bureaucracy in India can be a big challenge for Danish
companies. Thus, there is often a need for the Danish Embassy to be
present at every step of the process of Danish companies entering the
Indian market.

Conclusion and Recommendations

New projects contribute more than 50% of the revenues of the Indian
construction industry. Therefore, given the large number of large infrastructure
projects in the future ahead, the construction sector is set for a big expansion.The
levels of mechanisation have improved – the use of sophisticated construction
equipment has become a must.

There has now been cabinet approval for 100 per cent foreign direct investment in
the construction development sector. This is likely to ensure rapid improvement in
infrastructure, benefit manufacturing and generate fresh employment.

The above scenario offers tremendous business opportunities for the construction
sector in India. Requirements of men, material and technology are immense and it
is the right time to tap this business potential.

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Contact

Trade Council in India

Embassy of Denmark
11, Golf Links
New Delhi – 110 003
INDIA

Anshul Jain
Deputy Head - Trade
Sector Expert: Architecture/Infrastructure/Water/Defence
Email: ansjai@um.dk
Tel: +91 11 42090 700

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