Saturday, September 20, 2008

INFRACTRUCTURE SECTOR IN INDIA: ITS GROWTH AND EMPLOYMENT POTENTIAL

India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world.
India's infrastructure has been expanding at a rapid pace to support the economic growth rate of over 9 per cent. The six core-infrastructure industries, which account for a combined weight of 26.68 per cent in the index of industrial production (IIP)
[1], registered a growth of 8.6 per cent in 2006-07 as against 6.2 per cent during 2005-06. On the back such a robust growth in the previous year, the six-core infrastructure-industries index rose by 5.6 per cent during April-February 2007-08. Significantly, electricity generation, petroleum refinery production and cement production grew by 6.6 per cent, 7.2 per cent and 7.5 per cent, respectively. For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and 16.64 per cent, respectively.
Growth Potential: A massive US$ 494 billion of investment is proposed for the eleventh plan period (2007-12), which would increase the share of infrastructure investment to 9 per cent of GDP from 5 per cent in 2006-07. For this, the government has already enacted many proactive measures like opening up a number of infrastructure sectors to private players, permitting FDI into various sectors, introducing model concession agreements, taking up new projects like the National Highway Development Project, National Maritime Development Programme among others. Some of the projects planned for the next five years include:
§ Additional power generation capacity of about 70,000 MW
§ Constructing Dedicated Freight Corridors between Mumbai-Delhi and Ludhiana-Kolkata
§ Capacity addition of 485 million MT in Major Ports, 345 million MT in Minor Ports
§ Modernization and redevelopment of 21 railway stations
§ Developing 16 million hectares through major, medium and minor irrigation works
§ Modernization and redevelopment of 4 metro and 35 non-metro airports
§ Six-laning 6,500 km of Golden Quadrilateral and selected National Highways
§ Constructing 1,65,244 km of new rural roads, and renewing and upgrading existing 1,92,464 km covering 78,304 rural habitations
Investment: With such huge opportunities opening up in this segment, private investment has been growing at a scorching pace. Already, telecommunications, construction and power together have attracted a combined cumulative foreign direct investment of US$ 7.553 billion over the period April 2000 to December 2007. In fact, these three account for about 16.68 per cent of the total FDI in to the country during this period. Significantly, India Inc invested an overwhelming 81 per cent of their planned total investment of US$ 104 billion during April-December 2007-08 in developing core, physical and service infrastructure. While steel (US$ 31 billion) accounted for the largest share of total investment, other industries attracting substantial capital expenditure include oil (US$16 billion), power (US$ 13 billion), telecom (US$ 8.2 billion), real estate (US$ 6.2 billion) and cement (US$ 4.8 billion), among others.

Indian companies are keenly looking for cooperation with and investments from the global players to beef up its infrastructure and energy sectors as it considers creation of essential infrastructure such as roads, ports, railways and airports and meeting its energy needs as critical not only to boost economic growth but also for enhancing competitiveness in the global market. In the energy sector, EU could help India in clean coal technologies, augmentation of oil and gas reserves, gas pipelines, power transmission and distribution, R&D, training and capacity building for energy companies, energy conservation, new and renewable energy sources and nuclear power.

According to FICCI, India’s spending on infrastructure is expected to go up from US $ 24 billion in 2005 to US $ 47 billion in 2009. The government of India has indicated that India has the potential to absorb US $ 150 billion of FDI in infrastructure sector over the next five years. For bringing in greater efficiency in the process and mobilizing this huge resource requirement, the government has provided a large number of incentives to attract private sector investment. This includes creation of Special Purpose Vehicles
[2] and a Viability Gap Funding scheme[3] for financing infrastructure projects. Barring aviation, all infrastructure sectors have also been opened up for 100 per cent FDI. There is a growing trend of Public-Private Partnership (PPP) in implementation of infrastructure projects in India.

Huge Investment opportunities are seen with respect to the roads and highways sector are primarily in terms of: investment in major highway projects on toll based BOT and Annuity collection agreements including: NHDP Phase IV: Upgradation of about 20,000 km of single/intermediate lane National Highways to 2- lanes to be implemented on annuity basis with estimated cost of about US $ 5.702 billion. NHDP Phase V: Widening of about 5,000 km of National Highways to 6-lanes on BOT basis with an estimated cost of US $ 3.991 billion. NHDP Phase VI: Development of 1,000 km Expressways with an estimated cost of US $ 3.422 billion, and NHDP Phase VII: Construction of Ring Roads, bypasses, and flyovers in several important cities, on BOT basis with an estimated cost of US $ 3.422 billion; manufacture and supply of construction equipment and participation in construction of bridges, bypasses and expressways; technical consultancy in the field of design, supervision and carrying out traffic studies; Intelligent Transport System Companies; and
Ø under Operation, Maintenance and Transfer (OM & T) contracts, stretches of about 500 to 1000 km would be given out to the private sector for operations and maintenance for 5-10 years.

Ø In airport infrastructure, EU companies would be interested in construction, up gradation and operation of new and existing airports including cargo related infrastructure; outsourcing of some of the operation and maintenance functions such as cargo handling services and commercial development; consulting opportunities for airport management, airport design and architecture, traffic studies and project supervision; setting up of non-aeronautical activities like shopping complex, golf course, entertainment park and aero-sports near airports; up gradation of smaller airports through private sector participation and opportunities for airport and avionics equipment manufacturers and service providers.
The Planning Commission has earmarked a whooping sum of Rs. 3,20,000 crore (US$69 Billion) for modernization, up gradation of ports, airports and highways for the 11th Plan Period to make India as world-class manufacturing hub with the best of infrastructure facilities

Giving sector-specific details for the 11th Plan Period, while releasing the ASSOCHAM Study on `Infrastructure : The $ 150 Billion Growth Story’ Rs. 40,000 crore has been specifically earmarked for modernization of leading airports and Rs. 60,000 crore for the upgradation of ports. Rs. 2, 20,000 crore has been earmarked for building highways across the country, 75% of which resource generation would come through public-private partnership, announced.

Employment potential

The Indian infrastructure Sector has undergone a revolutionary change and is now emerging as a propellant of Indian economy. It is one of the fastest growing industries with promising career opportunities hidden in it. The industry is growing at 30 per cent per annum and is expected to soar further. It is the second largest employment generator of the country. Due to restructuring, the sector has witnessed sea level changes in its modus operandi, management practices and employment trends.
To begin with employment opportunities, the sector is over flooded with innumerous career opportunities. The sector presently employs 15 percent of educated Indians and has the capacity to provide jobs to over two billion people in the coming five years. The housing sector alone is likely to generate 40 lakh new jobs within ten years. The prime reason for such a huge demand of personnel has been due to great demands for residential and commercial real estate projects. Moreover, the sector offers attractive opportunities to people with roles such as developers, architects, strategy and urban planners, civil engineers, and contractors. It also offers a plethora of opportunities which are not confined to profiles of contractors and builders only, but extend up to professionals including people with marketing, law, finance, and advertising backgrounds. Many property management companies also work tightly with the sector, thereby, resulting into indirect generation of employment.
Coming to the trends of talent acquisition, most real estate firms are becoming proactive in terms of hiring and are adopting latest talent acquisition and recruitment trends like on-campus recruitments, e- recruitments using recruitment portals, executive search and so on. To meet the demands for highly skilled professional, The job options range from real estate appraisal to property managers, advisors, investment bankers, entrepreneur, retail buyers and merchandisers, visual merchandisers, supply chain distributors and logistics and warehouse managers.
Talking in terms of compensation, the realty or infrastructure sector offers attractive packages even at the entry levels. The sector has seen highest salary increases (25%) during the last year, leaving IT and BPO sector far behind. The compensation offered by the sector is at par with what other sectors like IT and Pharma are provide. As the sector is facing an immense shortage of trained personnel, companies are offering lucrative compensation packages to new graduates and other experienced professional. The sector offers a lot of challenges and the salary levels are four-five times as compared to the manufacturing sector. Salaries of chief executives in real estate firms range between Rs40 lakh and Rs4.5crore a year, far higher than salaries for CEOs in more established sectors. Junior managers are seeing highest salary hikes with 15.9% increase while middle-level managers witness a significant hike of 15.7%. For the general staff and manual workforce, the hikes are predicted to range between 11 to 13.5 per cent in coming years. Challenges for HR:
Lack of quality talent: There is a gap between the requirements and the availability of quality manpower. The sector is growing quickly and the amount of human resources available is not at par with the rate at which the sector is growing. A large amount of talent is absorbed in mega infrastructure projects. However, the continued growth of the industry is adding to the dearth in the existing talent pool within the country.
Less supply of freshers from educational institutions: Since real estate sector is a burgeoning one, not every one was earlier attracted to it. Students were lured by other sectors like IT who offered better salary packages than real estate. As a result, people with high potential opted for computer science degrees rather than civil engineering courses. Recently some of the institutions have started offering diverse courses in infrastructure (real estate, civil aviation).Moreover, candidates are now recognizing the opportunities real estate sector provides.
Retention:It is becoming increasingly difficult for the companies to retain talent with them. The attrition levels in the sector have touched 12.08 per cent in last year. To retain the potential, companies are paying hefty amounts to their employees. The salary hike was recorded at 25.2 per cent in 2007 and is expected to be followed in coming years.
Inculcating values: Times have been changing for the real estate sector and earning profits has become top priority for every company. With respect to this, the companies often forget to comply with quality norms or ensure integrity in practices. It becomes a challenge for the HR to inculcate values of integrity and commitment towards customer satisfaction in all the employees. A majority of companies now also emphasize on transparent dealings and methods while doing business. This will be an on-going challenge since the sector has enough weak links outside their companies, which also need to be changed.
Lack of second line leadership: By MNCs entering the realty markets take away the cream of talent at the first level. Other players thus look for candidates with high leadership skills. The challenge for HR, here, becomes to develop the second line of management and if possible even the third line, which is capable of undertaking enormous work pressure from the top line.
[1].Index of industrial production IIP: An economic indicator that is released monthly by the Federal Reserve Board. The indicator measures the amount of output from the manufacturing, mining, electric and gas industries. The reference year for the index is 2002 and a level of 100.
[2] Specially Purpose Vehicle: A financial special purpose vehicle (SPV) is to fund projects in the infrastructure sector. The proposed SPV is expected to lend funds, especially debt funds of longer maturity, directly to eligible projects to supplement loans from banks and financial institutions. The SPV, according to the proposal, will become a vehicle for channelising funds for projects in the roads, ports, airports, and tourism sectors
[3] Viability Gap Funding Scheme: The VGF scheme provides financial support in the form of capital grant for public private partnerships (PPP) in various infrastructure sectors. Eg. in transportation, power,urban inf..

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