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Look Forward To Growth Drivers
In the coming year, we would like to see positive traction in infrastructure spending
Photo Credit : Ritesh Sharma
The Indian Infrastructure Industry presents significant opportunities today. The government has made infrastructure creation a major pillar for sustained growth and announced a number of projects in roads, railways, metro rail, mining, irrigation, power and urban development — to mention a few. These are growth drivers for the Indian Construction Equipment (ICE) industry, which after a four-year downturn from 2012-13 has revived to earlier levels in 2016-17.
The ICE industry grew at a CAGR of seven per cent between 2007-08 and 2016-17. This was a period of significant volatility around the world and in India as well. It is now expected to grow at a more stable and higher CAGR of 10 per cent until 2021-22 and is estimated to reach $10.5 billion from $5.8 billion in value terms at present.
It is, however, critical that the Public Private Partnership (PPP) model be put into position urgently as a policy framework to encourage participation from the private sector. This will stimulate demand for construction equipment as it will spur construction activity across various segments.
This, however, will depend on liquidity being made available to infrastructure developers by way of loans from banks, which are already stressed. Decisive steps on recapitalisation of banks and the careful handling of NPAs need to be executed at the earliest to ensure that demand drivers in infrastructure development move swiftly.
The implementation of the Kelkar Committee report can greatly contribute to the stabilisation and sustenance of this model since the report itself was prepared with significant deliberation. The roads and highways sector is one of the first few sectors to witness an upward trend and continues to drive growth for the ICE Industry, along with rural roads. It would be important for the ICE industry to have more growth drivers than just one at present, namely Roads and Highways.
Irrigation and Railways have fast emerged as two areas where focus will further energise the ICE Industry. Railways, which have been moving systematically, still need to demonstrate its true potential as on-ground activity is yet to take off. Similarly, irrigation through the desilting of ponds and the digging of new reservoirs, can prove to be a significant contributor to this industry. A handful of states have taken the lead on this and their success can quite easily be replicated in other states.
In the coming year, we would like to see positive traction in infrastructure spending and strengthening of bank balance sheets. In addition, and very importantly, an easy implementation of the Goods and Services Tax (GST), which is certainly one of the boldest tax reforms introduced in India since Independence, is needed — so entry level traders, first time users and buyers and SMEs embrace it fully.
Macroeconomic fundamentals of the economy seem robust from the public data available and the deceleration in the growth rate seen in the first quarter of FY 2017 seems to be bottoming out, as was evident from the encouraging GDP figures for the second quarter FY 2017. Thus, we seem to be well set to accelerate and leverage the opportunities available today.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.