Frank Lloyd Wright, the American architect, once said that to look at the cross-section of any plan of a big city is to look at something like the section of fibrous tumour. It is probably an apt description of how India's cities have been growing through the current economic boom. In many cases, cities have been termed safest or most unsafe, dirtiest or biggest (they can often go together!) and other complimentary and not-so-complimentary superlatives. But measuring city competitiveness is about the economic strength of one city relative to others. And this idea has over the past three decades been absorbed into the objectives of urban management. City managements try to maximise urban contribution to national economic growth. As the world expresses greater eagerness to invest in India, understanding the nation's economic landscape and making investment choices based on credible information is a daunting task not only for international investors, but for domestic organisations as well. Information on cities, particularly in terms of their relative competitiveness, is scarce.Using performance indicators to rank cities becomes an instrument for reform, standardising best practices and making managers of cities more aware of the projects they undertake. The City Competitiveness Report (CCR) 2010 is an attempt to look beyond the rankings to provide insights on how Indian cities can use competitiveness to tap their latent potential.So, What's New?This year's CCR throws up no major surprise in its top rankings, merely confirming that India's metropolitan regions continue to be the drivers of growth and productivity. Chennai's rise to the second place while Mumbai's drop to the third slot merely reinforces the importance of physical infrastructure, human talent and good governance. Mumbai's dismal showing in the physical conditions sub-index reflect a deteriorating housing scenario (the city's slum population will be 8.68 million next year, according to the expert panel appointed recently by the Ministry for Housing and Poverty Alleviation), inadequate transportation for its growing number of commuters and increasing pollution. THE WINNERS The five best cities forbusiness in IndiaRank 2010: 1City: DELHIOverall score: 82.55Rank 2010: 2City: CHENNAIOverall score: 77.87Rank 2010: 3City: MUMBAIOverall score: 77.58Rank 2010: 4City: BANGALOREOverall score: 69.35Rank 2010: 5City: KOLKATAOverall score: 64.94Source: Institute ofCompetitivenessClearly, this means that Mumbai needs to urgently address its crumbling infrastructure and work towards providing a place in its economy for the growing numbers of poor. What it also means is that large metropolitan areas are unsustainable, and will require innovative models if they are to continue to survive, let alone grow. Today's mid-sized cities will grow to mega cities such as Mumbai over the next decade. The rankings in the CCR 2010 throw light on the competitive direction of India's tier-2 and tier-3 cities, which are being closely monitored by investors as the next bastions to conquer in their quest for new markets.The Second RungAhmedabad and Pune follow the metros closely in the rankings and have been able to move up the development Diamond (a model proposed by Michael Porter to study competitiveness and widely used by research institutions globally, including the World Economic Forum). Ahmedabad ranks first in the administrative sub-index, indicating better municipal efficiency, good governance and low crime rates. The city also fares well in terms of human capacity, physical infrastructure and income distribution, offering a healthy business environment. Pune's positives are its physical infrastructure and a high quality workforce. These insights offer some direction on what kind of businesses would benefit from the business climate of these cities. Nagpur and Indore are cities that have noticeably increased their competitiveness over last year (by four and three ranks, respectively). Nagpur fares well in its physical infrastructure and, surprisingly, offers strong institutional support for industry. Indore, unusually for its size, has the advantages of being a market with strong demand backed by healthy demographics as well as a healthy availability of suppliers and supporting industries. Jaipur, Chandigarh, Gurgaon, Kochi, Coimbatore, Noida, Goa and Shimla are other cities in the Top 20 that emerge as viable business locations, each with their specific strengths. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } Even some cities that are ranked lower show surprising progress. Ludhiana (22nd) ranks high for supplier sophistication and institutional support. Dhanbad (21st), which has excellent physical infrastructure and an educated workforce, is at the heart of India's mining belt. Kozhikode (33rd) fares well in communication, indicating that ICT is an area of strength. Running The Steeplechase Cities that have strong focal points can be the growth drivers of tomorrow. For them, improving competitiveness is simpler as long as they address the areas they are weak in. For the cities that are yet to define their competitive edge, the journey is longer, irrespective of their current ranking. So what is to be done? As tier-2 and tier-3 cities become large markets and hubs of trade, business, industry and human talent, a clear strategy for the future is imperative in order to propel their economic growth by becoming increasingly competitive. The involvement of multiple stakeholders, especially civil society, is critical to this process to develop the city's vision and future roadmap focused around an identified competitive edge.OUR METHOD The city competitiveness report (ccr) 2010 evaluates a sample of 50 cities (up from 37 last year). A city, according to the definition used by the 2001 Census of India, is a town with over 100,000 people; the 2001 Census counted 422 cities with a population of 1 lakh or more, 25 cities with a population of a million or more, and 37 urban areas with a population of a million or more.The last category — urban agglomerations — is a reflection of the changing nature of our cities, defined as a continuous urban spread constituting a city and its adjoining urban outgrowths, which can also be large. The city can either benefit from or complement the economic progress of the core and the region as a whole.The CCR 2010 uses data published by the government of India disseminated by various central ministries and government-funded research organisations, apart from other credible research institutions. Robust data was available for demographics, basic education, health, the environment and crime, while data on accessibility, housing, infrastructure, technology and business were harder to source. Hard facts have made robustness and standardisation of data across all cities possible.Competitiveness is measured along four pillars or dimensions: infrastructure, demand conditions, competition and institutional infrastructure. Each of these is clarified by a set of sub-indices (6, 2, 2 and 2 respectively); each sub-index is further made up of indicators, about 800 in all. The index is thus a three-fold measure: on-the-ground indicators, aggregated into sub-indices that finally shape a city-level index.Constructing the index was a seven-step process: identifying the parameters; collecting both secondary and current data; analysing infrastructure and amenities; analysing purchasing power and population; identifying economic strengths; related and supporting industries; both external and internal opportunities and threats; and, finally, assessing and grouping indicators to measure the level and direction of influence on competitiveness.Cities were selected by combining both qualitative and quantitative research techniques. Second, these cities need to prepare adequately for the requirements of infrastructure, public services delivery and city management in the face of an increase in population and corresponding increase in demand for infrastructure and urban services. Last but not the least, each city needs to brand itself to appeal to investors and build citizen buy-in for its growth plans. Does City Competitiveness Matter? In an open world economy, city managers in Mumbai not only worry about their economic strength relative to Chennai, but as the nation's financial centre, they care about comparisons to Dubai. Why else would the government appoint a committee to study how Mumbai could be made a global financial centre along the lines of London, New York or Singapore? Three decades ago, cities were emblematic of poor income distribution, and thus bad policy: the differences in per capita income between urban India and rural India where 70 per cent of its population lived were stark. Today, governments see cities as most dynamic, the result of greater productivity, higher capital intensity, greater infrastructure density and much higher human capital. National urban policy is a key part of broader macroeconomic policy. True, cities are not competitive in the way firms are, which has been the biggest part of management research. You can't measure success in profits. But as Hugh Newell Jacobsen, another American architect observed, "When you look to a city, it's like reading the hopes, aspirations and pride of everyone who built it." srikanth(dot)srinivas(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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As the March 2010 deadline for phasing out single-hull ships approaches, Indian shipping companies are scurrying to replace their single-hull ships with double-hull ones. Time is running out, and shipping firms are looking for used double-hull ships rather than new ones. The catch: lower price and reduced delivery time of about two-to-three months, as against two years for new orders. Indian shipping companies are in for some serious bargain hunting. With recessionary trends in the world economy continuing, ship prices have come down drastically. And sniffing an opportunity, major players such as the Shipping Corporation of India (SCI) and Great Eastern Shipping Co. (GE Shipping) are actively scouting for used double-hull ships."We are especially scouting for oil tankers and offshore vessels that are up to five years old," says K.S. Nair, director (bulk carriers and tankers) at SCI. "We are tracking the developments and will buy at right prices," says a GE Shipping spokesperson. Interestingly, while GE Shipping and Essar Shipping have historically traded in ships, for the first time, SCI is entering the secondary market.According to industry data, all the three major categories of oil tankers — VLCC (very large crude carriers), Suezmax and Aframax — have corrected by at least 50 per cent from their peak values that existed last year (see ‘Price Correction'). While the price of a five-year-old VLCC has corrected from $160 million to $77.5 million, that of a five-year-old Suezmax has gone down from $105 million to $50 million. During the same period, the price of a five-year-old Aframax plunged from its peak of $80 million to $37.7 million. Recently, SCI invited bids for two medium-sized bulk carriers, two oil tankers and two offshore support vessels.Supply pressure and lower freight rates will mean that the weak trend in asset prices will continue till early 2010. The ship-building orders are at their peak with more than 40 per cent of the total existing capacity on order.To some extent, those orders are for replacement to comply with new maritime rules that will bar single-hull tankers and dry bulk ships that are more than 25 years old from early 2010 (see ‘Battling The Spill Effect', BW, 8 May 2009). According to London-based Clarkson Research Services, a shipping research and consultancy, 15 per cent of the world tanker fleet is the single hull and 19 per cent of the world dry bulk fleet is more than 25 years old, requiring replacement by early 2010. Among various categories, cape-size ships are expected to see a lot of supply — putting pressure on its prices, according to industry sources.Freight rates — as measured by Baltic Dirty Tanker Index, a benchmark for crude tanker freight rates — while improving from lows seen in April of this year, is nowhere near the highs of 2,300 index levels seen last year. Now, it is at 650 levels, unresponsive to the recent surge in oil prices. "Freight rates follow the trends seen in the world economy," says V. Ashok, director and CFO of Essar Shipping and Logistics. He adds that with demand for oil falling in 2008 and strategic oil inventories in the US, which is the largest oil importer, remaining at all-time highs, freight rates would remain subdued over the medium term. This is likely to keep a check on ship prices. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 21-12-2009)
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In May 2001, well before the highway development programme in India gathered steam, Mumbai-based Essar group decided to enter the roads business. The company bagged some stretches on the Golden Quadrilateral highway network connecting Delhi, Mumbai, Kolkata and Chennai. Essar's area included the Harihar-Haveri stretch of 56 km and Chitradurga-Harihar stretch of 77 km — both spread through the state of Karnataka.But neither of the projects had a smooth ride. In 2007, the National Highways Authority of India (NHAI), the apex body that manages India's national highways, terminated Essar's contracts. After Essar spent six frustrating years trying to complete what it had started, NHAI said it failed to deliver as promised. And so started the blame game between Essar and NHAI. The company said the government body did not deliver, and vice versa. Essar alleged that NHAI provided the land late and in "bits and pieces". The cost estimates for the projects were way off the mark and the project's specifications and drawings were flawed, according to Essar. On top of that, NHAI sat on the company's head to deliver, without keeping their end of the bargain.The jury is out on the roads whether NHAI or Essar is actually to be blamed for the unfinished projects. However, the experience was enough for Essar to stay off the path of highway development in the country.Rough RideLike Essar, Hyderabad-based GVK was also an early entrant to the roads sector. The company started on a pretty successful note, completing the Jaipur-Kishangarh stretch in 24 months in 2005 for Rs 706 crore.But the experience was not without glitches. According to senior executives at GVK, NHAI tends to promise more than it can deliver — land acquired often falls short of what is proposed at the time of handing over of the project. GVK argues that NHAI's consultants also go awry with their cost estimates — their costs are always lower than what companies estimate. This mismatch can lead to endless disputes on how much debt and equity would be recovered by the company if the contract gets terminated.Though it completed the project on time, GVK failed to win any further bids from NHAI. The company says this was more on account of what they perceive to be over-aggressive bidding by competitors. Says Vijay Agarwal, head of transportation business in the GVK group: "The capital markets were very buoyant at that time. So, bids were equally aggressive. We did not feel that it made sense to match them".Another large company in the fray, Bangalore-based GMR Group, which has six highway roads on hand is facing its own set of problems. While construction and transfer of projects have been relatively smooth, operational problems are beginning to tell. Collection and leakages of tolls are causing problems for the GMR-developed Chandigarh-Ambala highway that got operational barely a year ago.No Smaller WoesLike the big players, lesser-known companies have their own tales of woe. KMC Construction, a company with presence in both road construction and building and operating toll roads, says it has not been smooth sailing all the way. Although the company has won many projects, Shashank Shekhar, vice-president of the company, says KMC has faced niggling problems all the time, but has learnt to live with them. The company bagged the contract for the Ichhapuram-Ganjam leg of the Golden Quadrilateral. But the project was hampered by the state government's ban on quarrying in the region. Stones for the road project were available just 25 km away, but had to be brought from as far as 150 km due to the ban, says Shekhar. Another KMC project — six-laning of the Gurgaon-Jaipur highway — was stuck for weeks owing to failure in availing ‘forest clearance', something that should have been received well in advance. Moreover, collecting tolls has become a Herculean task. After KMC took over the task of collecting tolls from NHAI, the company found that the highway authority had in the past been quite lax in collecting toll. As a result, getting users to pay up became quite a challenge.Soma Construction forayed into highway construction in 2001. The company has bagged many projects — as many as five build-operate-transfer (BoT) projects worth Rs 10,000 crore. D.V. Raju, senior vice-president and head of business development at Soma Construction, says that though the company put in every effort to finish projects on time, "the delays caused by the state government and NHAI tend to hold up projects". Then at times, collection of tolls — the very basis for the viability of the project — can be unusually delayed. Raju cites the example of the Bangalore Elevated Tollway. He says while the project is almost completed, the state government is yet to issue the toll notification. Without this gesture, it cannot collect tolls. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } There are more troubles. Convincing the big boys to fall in line is easier said than done. Trucks and commercial vehicles are just bypassing the toll plaza at the Dhule-Pimpalgaon highway by using the village roads. Raju says toll collections have already seen a dip by 10-15 per cent, and the company is yet to find a way to stop this. Clearing PotholesThe examples above partly illustrate why India's ambitious National Highways Development Project (NHDP) has progressed way slower than it could have. The numbers tell the story. Despite policy being oriented towards tolls, during 2005-09 (till September), 78 BoT projects totalling a length of a little over 5,700 km have been awarded, but only 23 — with a length of 1,063 km — have been completed so far. Frequent changes at the helm of NHAI (see ‘Musical Chairs') have made matters worse. But even more troublesome than these changes are the constantly changing government policies that have kept companies spinning.Almost the entire Golden Quadrilateral — and the initial phase of the NHDP — was based on cash contracts (or EPC contracts), where NHAI paid money to companies to build roads. As it felt the need for more social sector funding, the government in 2005 decided to adopt the public-private partnership (PPP) route to build roads. In PPP projects, government support is limited — in the form of a grant of up to 40 per cent of the project cost — and the private sector has the right to collect tolls in order to recoup the investment for the road project. MUSICAL CHAIRSToo many cooks spoil the broth. Highway development in India has suffered from lack of consistency in decision making, besides constantly changing policies. Crucial decisions have been affected by constant changes at the helm of NHAI — five chairmen in as many years. Even smaller matters such as clearance of cheques have suffered. During the tenure of previous road transport minister T.R. Baalu, there were four changes in just 13 months. The longest stint was probably that of N. Gokulram, who steered the wagon for just about a year under Baalu. This, despite the fact that NHAI chairman's job has a fixed tenure of three years, extendable to five years. But Baalu blames everyone but himself for the changes. He says many of the chairmen under him failed to perform. "Those who were not performing had to be changed," he says, adding there was one instance where a chairman reached "35 minutes late" for a parliamentary committee meeting. He says the appointments and removals in NHAI were made in consultation with the prime minister and the home minister. Baalu washes his hands off the project delays as well. While the minister is fine with changes at one level, he questions another. He blames the changes in the model concession agreement (MCA) for delays. "What was the need for a new MCA?" he asks. Baalu says no developer had problems with the old MCA (developed by NHAI), and nobody challenged it in court, so there was no need to change it.Initially, the government had decided to offer highways on toll (BoT) basis. If this mode failed to attract investors, then the government would offer the same road on annuity basis — where NHAI gives a yearly payment to the developer of a particular road; and if this too failed to attract investors, the last option was to go back to the cash-contract mode. According to a senior government official, a minimum of six months was lost negotiating this process in spite of the fact that it was known to all that some roads just did not have enough traffic to merit tolling. Moreover, the entire process of awarding and executing toll-based highways took close to three years to finalise. But even after these were finalised, the developers challenged some of the very restrictive clauses of the agreement. In 2007-08, NHAI had 60 highway projects to offer. But there were absolutely no takers. Amrit Pandurangi, who heads the transport and infrastructure practice for audit and consulting firm PricewaterhouseCoopers, says that there were "deal breakers" in the original policy documents. That is why there were very few bids.David Birch, regional managing director of engineering consultancy Halcrow Group, says: "In order to attract investments in infrastructure, terms of contract must be fair towards investors." Birch says land acquisition and identifying the real cost of infrastructure projects remain major areas of concern for investors. The Journey AheadIn its second avatar, the UPA government is trying to correct many of the mistakes it made in its first term. A committee has been formed under B.K. Chaturvedi, member of the Planning Commission, to resolve the problems dogging India's highway development. In effect, the new policy measures are a shift of tracks. Earlier, all roads were to be offered on a toll basis. Now, the government's latest work plan for 2009-10 lists out the roads that can be tolled, which can be offered on annuity, and which can be given out on a cash contract basis. The latter two add up to about 30 per cent of the total 12,652 km planned for this year. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } Moreover, under NHDP Phase IV (20,000 km), a major portion will be offered on contract or EPC basis — just like it was done in the Golden Quadrilateral. The new government policy says if traffic is less than 5,000 passenger car units, the road project under NHDP Phase IV should automatically be given on the basis of EPC. In another major shift in government policy, a road developer no longer needs to hold a minimum amount of equity during the entire tenure of the project. The government has now allowed companies to exit a project and hand it over to companies that specialise in road operations. In short, a construction company can focus only on construction of roads and not bother with operating the toll booths.These changes show that the government policy is running round in circles, and has virtually come back to the earlier policy of getting the road built through its own funds. Asks an official from one of the companies on condition of anonymity: "If this is not an admission of a failure in government policy, then what is?"Even more critical is Partho Mukhopadhyay of Centre for Policy Research. He says the government appears to be doing just a "spell check" of the earlier policy rather than starting with a clean slate. Problems in toll collections have already begun to surface in the form of toll leakages. In states such as Orissa, truck operators have gone against the toll policy (see ‘State-level Roadblocks' on page 55). Recently, the Kerala High Court upheld a public interest litigation against tolls. Developers say that if government policy does not ensure that there is no competing road (or alternative routes), which have the potential to take business away, then tolling would always be a risky business. Based on feedback from developers, there is a fresh thinking in the government to allow road developers alternative sources of revenue. This can be in the form of wayside development — where real estate development along the highway can be offered to the road developer. STATE-LEVEL ROADBLOCKS It is just not land acquisition that poses a problem for developers and NHAI in getting the roads built. Government documents show that each state throws up unique, and bizarre, problems. In 2005, Uttar Pradesh imposed a unilateral condition asking NHAI to provide a 10-meter wide strip along their highway to plant trees. This was to compensate for the trees that NHAI had to cut to build the roads. This brought the highway programmes in the state to a grinding halt.In Karnataka, NHAI expelled a contractor in January 2007 for poor performance and handed over the project to Gammon India. But the expelled contractor approached police and local courts, and filed "false" criminal cases against NHAI officials. The project is delayed by two years. Similarly, a year back on NH-60 at Santoshpur in Balasore district, local people demanded a cut in user fee. Local authorities even deployed security personnel to ensure the demand is met. The daily loss of revenue was Rs 54,000. In Panikhoile on the same highway, private bus operators using the road have not been paying user fee. The loss: Rs 4.66 lakh a day. In Rajasthan, NHAI says there have been instances where the state government demanded compensation for acquiring government land. A few years back, district collector of Bhilwara ordered sealing of NHAI bank accounts saying the body had not paid compensation. NHAI, however, says intra-departmental transfer of government land is free of cost.Both Raju and Agarwal agree that there is a dire need to allow developers to create different sources of revenue. This will certainly help, says Agarwal of GVK. "If real estate developers can benefit from a new highway made by us, then we (road developers) should also get a share of this benefit." Some states such as Uttar Pradesh are already doing this for their state roads, according to Chaturvedi. He says the government may implement such a policy for the national highway projects as well.Such a change would not only make developers happy, but would also give additional security to banks that fund road projects. According to NHAI, close to $41 billion of the $69 billion is expected from private investments (see ‘Fund Demand'). And these investments are largely dependent on debt financing.Clear Fund Channels Developers have already expressed concerns that getting bank finances in the future may pose a problem. This is because loans to road projects are treated as unsecured loans —similar to credit card loans. Banks do not have the backing of any physical assets — which act as a security for the loans given to a road project. Ajit Gulabchand, chief executive of Hindustan Construction, says while the recent steps undertaken are in the right direction, issues such as project financing remain challenges for greater investment in infrastructure.The Reserve Bank of India may have the last word on the issue of financing. Till then, the government will just have to keep thinking of ways of making investments in this critical sector more attractive. And that will be a million- dollar question. kandula(dot)subramaniam(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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The fight between the ambani brothers over the price for gas has entered a decisive phase with the Supreme Court set to hear pleas of all stakeholders on 1 September.The feud is over supply of gas to Anil Ambani's power projects from KG Basin held by his elder brother Mukesh Ambani at a price agreed in the family agreement or as per the market price. More than five years have passed and legal eagles on both sides are trying to push the case to get a favourable judgement. While the counsels for Anil Ambani got it from Bombay High Court, Mukesh Ambani's legal team is hoping to get a favourable ruling from the Supreme Court. The government's stand is that corporates have no stake on gas, which is a national asset and is owned by the government. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 03-08-2009)
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Last year, 35-year-old Vicky, a resident of Chhattarpur on the Delhi-Gurgaon border, took over his family's truck business and added two more vehicles to his fleet. But instead of trucks he bought what he calls "JCBs".‘JCB' has become synonymous with the ubiquitous backhoe loader — one of the largest selling construction vehicles in India. It can excavate and move large quantities of mud. Vicky loads his trucks in minutes; makes more shipments; and saves on labour. He even rents out the backhoes to contractors at Rs 600 an hour.Vicky's fortunes mirror the rise of the Indian construction equipment industry. The Indian market's estimated turnover may be just $3 billion (about Rs 13,500 crore) compared to the global turnover of over $75 billion, but it is growing. Through the 1960-90s period, there were only a handful of players in this sector, including the public sector Bharat Earth Movers (BEML). But over the past few years, as construction became more mechanised, a large number of original equipment manufacturers (OEMs) have come in — Japanese excavator major Kobelco and mining equipment maker Komatsu, US-based construction and farming equipment major John Deere, Chinese excavator and construction equipment companies Sany and Liugong, and Korean behemoths Hyundai and Doosan. Till a few years ago, BEML was the market leader in earthmoving equipment. But now, JCB India (a 100 per cent subsidiary of its UK parent) leads with 50 per cent market share, says an ICRA study. It recently sold its 100,000th machine. JCB India is followed by Telcon in the backhoe loader segment. In the hydraulic excavator segment, L&T Komatsu and Telcon lead, while BEML and Caterpillar dominate the dumper and dozer segments. Chinese companies, too, are entering the market with existing as well as new products. For instance, Sany's specialised cranes are gaining popularity in India. What brings them to India is the growing demand here, while it slackens in developed markets. While India's share in total global sales has increased from 1 per cent in 2000 to over 4 per cent in 2009, during the same period, North America's share has dipped from 35 per cent to 18 per cent; Europe's from 31 per cent to 19 per cent and Japan's from 14 per cent to 7 per cent."Penetration (in India) is very low. Even today, manual labour is used to a large extent and there is great scope for mechanisation," says Pavethra Ponniah, assistant vice-president at ICRA. Sales, too, have increased from $700 million (about Rs 3,150 crore) in 2004 to $2 billion (about Rs 9,000 crore) in 2008. ICRA estimates the current market size to be of 40,000-45,000 units a year, or $2.6-3.1 billion. Backhoes and crawler excavators sell the most — over 60 per cent of sales is in these categories. More than 16,000 backhoes were sold in 2009 and only 771 rigid dump trucks.Though the construction heavy equipment industry posted negative growth of 5 per cent in 2007-08, it is expected to rebound and see 100 per cent growth in 2009-10 — higher than the 7 per cent expected in China — riding on increased infrastructure spending by the government and expansion in real estate. According to estimates, government expenditure on infrastructure is likely to result in construction expenditure of nearly $254 billion (about Rs 11.43 lakh crore) between 2008-09 and 2012-13. On the policy front, too, the government has allowed favourable depreciation rates and removed tariff protection on capital goods. India Brand Equity Foundation (IBEF) estimates that $616 million (Rs 2,772 crore) were invested in the industry at the end of 2009. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } After the drop in 2007-08, the industry bounced back in November 2009 and has maintained a healthy growth since, thanks to increased financing available, step-up in infrastructure investments and pick-up in demand for commodities globally. "We have a very positive outlook in the medium to long run for the industry," says Ponniah. Fight For The Pie The potential is not lost on any company. Vipin Sondhi, managing director and CEO of JCB India, feels the key is servicing. "Unlike automobiles, which come to workshops for repairs and maintenance, we have to go to these machines at sites," he explains. JCB India's 51 dealers have hired nearly 3,800 service technicians. Similarly, Hyundai Construction Equipment India (HCEI), within three years, has set up a network of service centres at 70 locations (without piggybacking on Hyundai Motors). Besides servicing, most construction machine manufacturers also provide training to those who buy the machines. "Knowing how to operate and maintain these machines is very important. It requires highly trained people to operate these machines," explains S.R. Subramanaian, L&T Komatsu's chief executive. For instance, says Subramanaian, machines often get spoiled as they are washed with water. Of course, production is of prime importance. While JCB India's facility in Ballabgarh, Haryana, is the largest backhoe loader facility in the world producing 100 units every day, HCEI imports its excavators. Prabhat Tiwari, head of marketing at HCEI, says even imported machines work well in Indian conditions. In 2010, HCEI has been able to sell 1,100 units — almost double the previous year — with 40 per cent repeat orders. Most companies, however, feel that while some specialised machines can be imported, a manufacturing base in India is important. Rajesh Sharma, senior vice-president, Escorts Construction Equipment, feels it is important to make machines suitable for Indian conditions. Agrees Ponniah: "The soil conditions, etc., vary across countries and, hence, a certain amount of indigenisation is important. Moreover, costs of imports can often be higher and also, companies are perpetually subject to foreign exchange fluctuations. Indigenisation will bring down costs. India is a cost-conscious market." Deere, Doosan, Kobelco, Liugong and Sany are all in the process of setting up manufacturing plants in India. The competition can only get tougher with all the major players offering the same products. What will finally distinguish one from the other? Will price be the all-important differentiator? "In the coming months, there is going to be cut throat competition very similar to that in the automobile sector," predicts Subramanian of L&T Komatsu. Good news for Vicky. kandula(dot)subramaniam(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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The ninth edition of The New Exploration licensing Policy (Nelp) could throw up some surprises. On 15 October, 34 exploration blocks — these include eight deep-water blocks, seven shallow water blocks, and 19 onland blocks — across the country went under the hammer. The government of India rolled out a red carpet for companies to venture into Indian exploration and production programmes, which closes on 18 March 2011. Meanwhile, there are proposals submitted by the Ministry of Petroleum and Natural Gas to the empowered committee of secretaries (ECS) for approval. It is expected that most of them would be accepted, aimed as making the ninth round of Nelp produce better results than the average response in the first seven. The eighth round was largely considered a failure because of the global recession. Just 76 bids were received for 36 blocks of the 70 on offer, compared to the 181 bids for 57 blocks received for Nelp VII. Will global exploration and production companies bite this time? No one is certain; besides, the government's ambiguity over Vedanta's proposed takeover of Cairn India could be a dampener. Another dampener is the government's refusal to extend some tax benefits to operators (see ‘Mixed Offer'). Long before the scheduled ECS meeting, revenue secretary Sunil Mitra had told petroleum secretary S. Sundareshan that once the direct tax code came into force, all profit-linked tax deductions to industries, including the hydrocarbon sector, that were available under Section 80 IB (9) of Income Tax Act will be withdrawn. Three are other disincentives too. For instance, the bond that bidders have to furnish for each block will be forfeited if the production-sharing contract for the block is not signed within 90 days of the award of the block. This clause is new. In addition, operators who do not drill wells down to their target depths would have to pay damages for the entire well, according to ministry officials. Nelp IX will be the last of its kind. It will be replaced by open acreage licensing policy, or OALP (see ‘Exploring New Rules', BW, 16 October 2010). Under OALP, companies can suggest any block for offer at any time, without waiting for the announcement of the bids as was the case under Nelp.There is some good news too. Some regulations are being relexed to allow new companies an opportunity to explore smaller onshore blocks. Initial exploration periods are being extended to five years from four; companies could drill the committed amount of wells any time in that period. Now for the road show. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 25-10-2010)
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The repeated attempts to auction the 10.4-acre Finlay Mills in central Mumbai by the National Textile Corporation (NTC) in many ways mirror the roller-coaster ride the property market has seen in recent times.The first round of bidding held in December last year was cancelled as there were no bids to match the reserve price of Rs 1,065 crore. The only bidder, DB Realty, offered just Rs 405 crore. The second round held in March 2009 was also a washout even after NTC reduced the reserve price to Rs 710 crore. In its third attempt in mid-July, NTC got some serious bidders. However, in this round too the highest bidders, the Lodha Group, bid below the reserve price at Rs 657 crore.After negotiations with NTC, the Lodhas have agreed to up their offer to Rs 710 crore to meet the reserve price, and the sale is now set to go through. While this price is 20-30 per cent lower than the peak prices Mumbai mills have seen in the boom, the Finlay Mill sale still reflects a high price — nearly Rs 16,000 per sq. ft. It shows the builder is confident of the future. However, the risk is obvious. There is a huge glut in commercial property in central Mumbai. It can, of course, wait till demand picks up.Gurbir SinghJapan seems to be manufacturing its way out of recession. Factory output rose for the fourth straight month in June. Production soared 8.3 per cent in April-June from the previous quarter, surpassing the 1953 record of 7.9 per cent. Japanese firms will keep raising production to meet the demand spurred by the trillion-dollar stimulus packages. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 10-08-2009)
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The Maharashtra Electricity Regulatory Commission's (MERC) clarification that consumers across Mumbai can switch over to Tata Power Company (TPC), whose power costs 13-14 per cent less than Reliance Infrastructure, may have come as a shock for the Anil Ambani group company. But analysts say that MERC's remark has only reiterated the Supreme Court ruling that backed the ‘Open Access' system, which allows consumers to choose their supplier.In 2008, BSES (later Reliance Energy) had fought in the Supreme Court and lost against TPC's bid to supply power to consumers in the BSES licence area. The court, ruling on a petition filed in 1998, observed that TPC could distribute power directly to bulk and retail customers.Despite constraints like higher "wheeling charges" to Reliance, and fresh investments in a distribution network, TPC had begun supplies in a limited manner, which now would get a push from consumers.This will make Mumbai the only place where open access is operational in letter and spirit.Girish Mahalingam, associate director of Fitch India, says open access brings in higher competition and sectoral efficiencies. Despite the fact that open access was envisaged way back in 2003 by the Electricity Act, its implementation has been tardy due to vested interests from state electricity boards, which imposed exorbitant cross-subsidy surcharge — the fee for switching over. The Centre may now amend Section 11 of the Electricity Act 2003 that would bring uniformity on these counts and, hopefully, openness in access too. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 10-08-2009)
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