There is a huge expectation that the Indian construction market will pick up this year. The landslide victory of Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP) last year came with a mandate to kick-start the stagnant economy.
That sentiment was certainly in evidence at December’s bC India exhibition. The comments of Liugong India’s general manager for finance, Ashok Kumar, were typical of many. “The previous government was not making any decisions about investment.
However, the new government is setting up special departments to speed up the process. The next year should see a boom in construction and implementation,” he said.
February saw the unveiling of the government’s budget for 2015-16 - its first real budget, following on from the interim announcement made at the end of June.
Perhaps the most significant policy change for the infrastructure sector was the announcement of the quadrupling of the tax on petrol and diesel for road vehicles from INR 2 (US$ 0.03) per litre to INR 8 (US$ 0.12). The so-called Road Cess is a key instrument for funding transport projects in India, and the rise will see INR 4 (US$ 0.06) per litre fed into road and other infrastructure schemes. Finance minister Arun Jaitley said this would mean an additional INR 40,000 crore (US$ 6.37 billion) per year would be available.
In terms of major projects, there is a strong desire to develop high-speed rail in India. Indeed, this could be the defining legacy of Mr Modi’s premiership, in the same way that India’s national highways network is associated with the last BJP Prime Minister, Atal Bihari Vajpayee.
The cornerstone of the National Highways Development Project (NHDP) was the Golden Quadrilateral, a diamond-shaped network of motorways connecting Delhi, Mumbai, Chennai and Kolkata, along with several other major cities along the way. The total length of this phase of the NHDP – other phases followed – was more than 5,800 km, and construction ran from 2001 to 2012.
The proposed high-speed rail equivalent has been dubbed the Diamond Quadrilateral, and would connect the same major cities and therefore have a similar length. Besides the four cities at the ‘points’ of the quadrilateral, it would also include Pune, Hyderabad, Bangalore and Thiruvanathapuram as major stations.
High-speed rail is one of Mr Modi’s manifesto pledges, and speeches shortly after his election indicated the government was following-up on its promises. In February, Union Railway Minister Suresh Prabhu gave an update as part of the presentation of the Indian Railway budget.
“We will continue to pursue with vigour our special projects like high-speed rail between Mumbai and Ahmadabad. The feasibility study for this is in an advanced stage and the report is expected mid-year. Quick and appropriate action will be taken once the report is available. Regarding the other high-speed routes on the
Diamond Quadrilateral, studies are being commissioned.”
The 525 km Mumbai-Ahmadabad route in the West and North of India was identified early on as a potential first segment of the Diamond Quadrilateral and another forerunner could be the 1,000 km line between the capital Delhi in the North and Patna in the North-East.
However, the question of funding hangs over what will undoubtedly be an expensive project. According to a World Bank study, the cheapest high-speed rail has been built anywhere in the world in recent years has been in China, where costs are said to run at CNY 57 million (US$ 9.1 million) to CNY 73 million (US$ 11.7 million) per km of double-track line. Even if India could achieve these sorts of costs, the Diamond Quadrilateral would come in at around US$ 60 billion before the cost of stations was added in.
It is going to be a big issue, especially given Mr Prabhu’s budget speech comment that central government finances are “over-stretched.” The proposed solution to this is to open up Indian Railways to private investment though Public Private Partnerships (PPPs), to open up equity in projects to State governments and to allow the Indian Railways organisation to borrow directly on the markets.
The Indian Railways investment plan for 2015 – 2019 calls for INR 856,020 crore (US$ 136 billion) in spending, of which INR 65,000 crore (US$ 10.4 billion) has been set aside for high-speed rail and the proposed Mumbai elevated rail corridor project.
Indian Railways has set up a dedicated unit, the High Speed Rail Corporation of India (HSRC) to handle this initiative. In fact this was launched in 2013 under the previous government, with the dual role of modernising the existing rail network as well as developing high-speed rail.
But now HSRC seems more focussed on the high-speed projects.
As iC went to press, the deadline to receive tenders from companies bidding to carry out feasibility studies for the next three packages of the Diamond Quadrilateral was due to pass. The three packages are Delhi – Mumbai, Mumbai – Chennai and Delhi – Kolkata, which is to say the fourth Chennai – Kolkata link is not yet at this stage.
But another project approaching the feasibility study stage is the Delhi – Chandigarh – Amritstar line.
With the Diamond Quadrilateral at the feasibility stage, and with less than a year having passed since Mr Modi came to power to give the project genuine impetus, it is anyone’s guess what the timeline will be from here.
The only parallel in recent history is the NHDP of Mr Vajpayee’s premiership, which went from the launch of the plan in 1998 to its approval in 2000 and the start of construction in 2001. Substantial stretches of national highways started to reach completion in the mid- to late-2000s, so essentially a ten-year horizon between inception and completion.
But high-speed rail will be more demanding. It is certainly more expensive infrastructure to build than highways, as well as being more technically demanding. Tolerances are tighter and alignments need to be as straight and as level as possible, which inevitably means tunnels, bridges, cuts and fills.
The issue of alignments could be particularly challenging in India, as land rights and compulsory purchases have been a historic problem. It is not just the legal complexity of these issues that is a stumbling block, there can also be tensions between state- and national-level governments in this area.
And a final point to consider is that the Diamond Quadrilateral may only be the start. India’s national highways programme started with the 5,800 km Golden Quadrilateral. However, there were 13 subsequent phases, including the cross-shaped North-South, East-West links, which took the total length of the national highways to more than 50,000 km.
A high-speed rail network that extensive is unlikely. China, the world’s most ambitious builder of high-speed rail, has a network of completed and under construction lines of about 35,000 km, which is more than the rest of the world combined.
But however ambitious India’s plans for high-speed rail become, it looks like a promising growth sector for the construction industry.