The Hindu : Looking beyond tomorrow

Online edition of India's National Newspaper
Monday, Mar 01, 2004

Business

Business

Looking beyond tomorrow

Politicians of the day must work in unison, irrespective of their party affiliation, to push drive these projects which are of immense significance to the society at large, says K. V. Rangaswami.

A view of the Jordan Bridge

TO GIVE a fillip to economic growth, especially in a developing country like India, it is imperative that construction is given the required thrust and focus. Impetus to the construction industry leads to manifold growth in the economy. One of the strategies of achieving sustained economic growth is to focus on construction and this is exactly what countries such as China, South Korea and others did and are now on the verge of becoming "developed countries.''

Despite the initiatives and reforms of the past decade in India, improvements are still required in the area of infrastructure — BOT (Build, Own and Transfer) concept and implementation. Also a lot needs to be done on training construction workmen which will become mandatory and an important constituent of the pre-qualification bids in the coming years. Improvements and growth in these in volume and expanse will herald a new era for the industry and the nation.

Construction vis-à-vis

infrastructure

Infrastructure has been the buzzword for some time now and should continue at least for a few more decades for India to reach a level of respectability in the world arena. It is the backbone of the economy and a key driver of growth.

Infrastructure per se can be broadly grouped into basic infrastructure and utility infrastructure.

Basic infrastructure is large scale in nature, permanent and consists of immovable physical facilities such as transport, housing and ports. Facilities, installations and equipment, largely technological in nature and the systems (financial and legal) complementary to basic infrastructure are termed utility infrastructure. (telecom, net and the like).

It can be easily inferred from the above that construction based infrastructure remains at the top of the total infrastructure edifice.

BOT/BOOT

The Government and the public alone cannot meet the investment needs of the high capital intensive infrastructure projects. The much talked about private sector participation through the BOOT and BOT route, comes in handy at this stage. Major construction companies and funding institutions have participated in these. The ECC division of Larsen & Toubro also has participated in a number of projects that include the Coimbatore Bypass, Narmada Bridge and Watrak Bridge.

However the experience has been that by and large the agreements in such projects are either too stringent or more oriented to protecting the rights and interests of the project proponents. An attempt has to be made to make the agreements more balanced, protecting the interests of all concerned. Though initially the response of the private participants was enthusiastic and satisfactory, the private players are now more chary in participating in BOT projects because of the uncertainty and risks involved.

Some issues for action

There are certain general issues that need the immediate attention of the authorities concerned.

Long gestation period: The complete cycle from conceptualisation to invitation for bids to the concession agreement takes anywhere between three and four years. There are cases (much discussed in newspapers) where the projects are being pursued for more than six/seven years (for example, some hydro electric projects) and are yet to see a concession agreement. Politicians of the day must work in unison, irrespective of their party affiliation, to push these projects which are of immense significance to the society at large.

Willingness to pay: The common experience of private parties has been that even if a project reaches financial closure and the infrastructure facility is ready for public use, there is general reluctance and even opposition to pay the toll. The willingness to pay for a service needs to be inculcated in the minds of the general public.

The IT Park, Ebene Cyber City in Mauritius developed by the ECC division of L&T

Risks of political and legal changes: There are threatening to be a big hurdle. There has to be general awakening that grand developmental causes need to be separated from politics. While ensuring that amendments that are in tune with modern times are executed faster, the lawmakers must also proactively give attention to of future BOT projects.

Land acquisition: More often than not, the land for construction works is not acquired in advance. Getting land cleared at a later stage becomes a Herculean task jeopardising the very viability of the project. Land acquisition for all BOT projects should be effected before the concession agreement is inked. A nodal agency accountable for delays should take charge of land acquisition and utility shifting. There should be greater freedom to the concessionaire to implement design innovations in the project to reduce upfront costs as also total project costs.

Traffic survey: In the road sector specifically, it is often observed that the traffic surveys go wrong and sometimes have 50 per cent variance jeopardising the very existence of the special purpose vehicle (SPV). This lacuna needs to be addressed squarely.

Workmen training

The quality, cost and timely delivery of products in the construction industry very much depends on workmanship. Multinational construction companies, especially from China, Malaysia and Korea, are outperforming Indian construction companies on all fronts. Apart from project management skilled and trained workmen are their forte. Even if one discounts the mechanisation factor, the gap in productivity is still very large. As a result, Indian bidders are not competitive in the global market and within India the quality of construction is not up to the mark.

Training of construction workmen on a large scale is the need of the hour. The industry deploys 30 to 35 million persons in India which by any standard is a large resource.

The objective of the training should be to develop a skilled, knowledgeable, productive worker and more importantly a worker with the right attitude.

The Directorate General of Employment and Training is responsible for vocational training and runs 1724 ITIs through the State governments and through private enterprises. However, only three or four trades out of a total of over 140 are construction related. This against the backdrop that construction employs the highest number after agriculture is quite appalling. In the recent past though agencies like HUDCO, National Academy of Construction, CIDC and IGNOU have set up vocational training institutes. Private players in the construction industry also have set up training institutes. (Larsen & Toubro has elaborate training facilities at Chennai and Mumbai.) But all these add up to a fraction of the requirement of the industry.

Since construction is highly broad based as well as massbased, training of construction workers will have multiplier effects on the society and the national economy. It will not only raise their occupational levels but also give them good careers. If only the raw resource of three crore construction workers are harnessed, the number of youths getting domestic and overseas assignments will leapfrog by multiples.

The benefits are for anybody's imagination — large foreign exchange remittances, social stability and so on. It must however be stressed that for all this to be a reality the first steps have to be taken by the Government. To begin with, it can make it mandatory that 10 per cent of the total workmen are trained and certified. Such a regulation by the Government will kickstart the cycle of demand-supply of trained workmen.

]The CIDC, the apex body of the Indian construction industry, is working jointly with the Central Government and others on these issues as also on financing, unified contract conditions, grading of construction companies and the like which are vital for the orderly growth of the industry.

Along with all these benefits is the project of the industry becoming a global force to reckon with like India's software industry..

Let the heart be opened first, all else will follow.

(The author is Executive Vice President & Head (Operations), L&T-ECC Division & Member of the Board of Governors, Construction Industry Development Council).

(The author is Executive Vice President & Head (Operations), L&T-ECC Division & Member of the Board of Governors, Construction Industry Development Council).

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