TORONTO, Feb. 18 /CNW/ - Engineering and construction (E&C) companies
should look to India for growth as domestic markets contract, according to a
new report by PricewaterhouseCoopers (PwC). More than US$500 billion worth of
investment is planned to flow into India's infrastructure by 2012. A
liberalization of government regulations and a deliberate strategy on the part
of the Indian Government to develop infrastructure and promote foreign direct
investment (FDI) spells opportunity for foreign E&C companies.
PwC estimates that India will become the world's third largest economy by
2050, and despite a recent slowing down, annual growth is expected to continue
at 7-7.5%. Construction is the second largest economic activity in India after
agriculture. The developing services and manufacturing sectors, increasing
consumer demand and government commitments to rejuvenate agriculture and rural
areas, have spurred increases in rail, road and port traffic, necessitating
further infrastructure improvements. Projected spending from now until 2012 is
US$167bn in electricity, US$92bn in roads and US$65bn in railways.
Major infrastructure development requires a substantial influx of
investment capital. The policies of the Indian government seek to encourage
investments in domestic infrastructure from both local and foreign private
sources. Public Private Partnerships (PPPs) are gaining in importance, and are
benefiting from government support - targeted PPP participation is US$150
billion. As part of policy reforms, the Indian government is constantly
simplifying the approval route process, including setting up several agencies
to expedite FDI approval. Companies experienced in structuring these types of
deals should be able to use their expertise to good effect in the Indian
Unsurprisingly, international interest in India PPPs soared in 2008.
Already a number of firms from Canada, Europe, Australia, China, Malaysia and
Korea have made their presence felt in India. Toyo Engineering, Jacobs H&G,
Uhde, Tecnimont, and Aker Kvaerner, are already leading players in the region.
An example of a Canadian company making the move into India is SNC-Lavalin
which has acquired Pipecon Consultants Pvt. Ltd., based in Mumbai, India and
Span Consultants Pvt. Ltd, an engineering firm headquartered in New Delhi,
India with local offices in Bangalore, Mumbai and Kolkata.
Operating in India requires a thorough understanding of the local market.
Companies need to do their homework in order to understand a host of tax and
regulatory issues before bidding on projects or setting up operations. The
typical PPP project design and preparation process is still largely
technically-oriented, with limited appreciation of the overall financial and
commercial risk issues involved. Further, the procurement process is often
highly prescriptive, rather than participative.
In addition, foreign players are likely to need to identify promising
local companies, then make a case for a profitable partnership, in order to
achieve a win-win situation in India. Still, there is a strong rationale for
many construction companies to invest in India sooner, rather than later. Not
only are there substantial opportunities now, but establishing relationships
and a presence in the market can help to ensure continuing project potential
over the medium and long-term.
"Overall, the opportunities to develop a significant business in India
are extremely promising for construction companies, with roads, ports and
airports, railways and power standing out as particular bright spots," says
Michael Clifford, PwC Canada's Engineering and Construction Leader. "Companies
need to carefully select strong local partners, structure contracts sensibly
to maximize tax benefits where appropriate, and take a long-term, sustainable
perspective. Foreign companies who do not acknowledge the opportunity now may
miss out on a critical opportunity to establish a long-term presence in one of
the world's largest growth markets."
For more information please visit www.pwc.com/ca/ec.
For further information:
For further information: Carolyn Forest, PricewaterhouseCoopers LLP,
(416) 814-5730, firstname.lastname@example.org; Nina Godard, PricewaterhouseCoopers
LLP, (416) 941-8383 x 13520, email@example.com