2nd MMI Web-Seminar – Covid-19: Business Continuity for Infrastructure Development Projects and Construction Equipment Industry

VDMA India

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country.

Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. India was ranked 44th out of 167 countries in World Bank's Logistics Performance Index (LPI) 2018. India is ranked second in the 2019 Agility Emerging Markets Logistics Index.

Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to December 2019 stood at US$ 25.37 billion, according to the Department for Promotion of Industry and Internal Trade (DPIIT). India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country.

COVID-19 is all over the world. More than 185 geographies have reported a confirmed case of coronavirus and almost everyone on this planet is adversely affected, directly or indirectly from its impact. Needless to say, an event of this scale would bring along many catastrophic consequences- social and economic.
 
The Indian Government imposed a nationwide lockdown on 25th March, when the number of affected cases were still low compared to other countries. The lockdown has resulted in various infrastructure project sites staring at closure as it is mainly due to an effect on the labor movement due to the lockdown and also due to supply chain disruptions that may contract further as more states enforce COVID-19 lockdown.

Construction halt, revocation of toll collection, labour crunch and severe working capital pressure – these nightmares for any infrastructure company have now become a reality. The infrastructure sector is one of the worst-hit on account on COVID-19 and for some companies, this might even become an existential crisis.

 

 

The more imminent challenge for the construction players remains working capital management. In the wake of COVID-19 pandemic, the focus of state and central govt has shifted to the welfare of citizens and hence infrastructure activity has taken a backseat. Infrastructure players are facing a severe liquidity crunch and as bills and dues from govt are not being honoured on one hand and on the other hand companies are striving to maintain steady salary flows to contract labourers and employees. The same has resulted in a stark mismatch in fund inflow and outflow, putting pressure on balance sheets.

The construction equipment industry had showed some signs of recovery in the first two months of 2020 after declining by 15 per cent in 2019. However, due to the Covid-19 pandemic and an unprecedented national lockdown for 6 weeks, it is expected that demand will face major problems. Initial estimates suggest that it may take over six months for the economy to return to normality. According to Off-Highway Research’s revised estimates, the market is expected to decline by 19 per cent in 2020, compared to the previous forecast of 10 per cent growth this year.
 
India lost 10.7% of the production of construction equipment as compared to the wotld average of 4.9 %. This data represents lost production due solely to full factory shutdowns. It does not reflect any losses of output due to partial closures, reduced shift patterns, reduced component supply, the impact of social distancing or other measures.

According to KPMG, total construction projects worth more than Rs 59 lakh crore are under development, most of which would have been impacted severely by COVID-19. The Indian construction sector employs over 49 million people, close to 12 percent of the nation’s working population. Further, it has a multiplier effect on nearly 250 allied industries. Apart from providing employment to millions this infrastructure activity connects and accelerates economic momentum between large hubs of economic activity and the centres that lie in between.

In this context, Messe Muenchen India, the organizer of bauma CONEXPO INDIA, organized a Web-Seminar on – "Covid-19: Business Continuity for Infrastructure Development Projects and Construction Equipment Industry” on Friday, April 15, 2020, in association with ICEMA and AEM.
 
In the presence of the Guest of Honour, Honourable Minister General V.K Singh, Minister of State for Road Transport and Highways, Govt of India, the session was moderated by Mr. Rajesh Nath, Managing Director, VDMA India and joined by esteemed panelists as follows:

Mr Sandeep Singh-President ICEMA, Managing Director - TATA Hitachi
Mr. Arvind Garg, Executive VP and Head Const & Mining Machinery at Larsen & Tubro Ltd.
Mr. Deepak Garg, Managing Director at Sany Heavy Industry India Pvt Ltd
Mr. Sakthikumar, Managing Director at Schwing Stetter India, 
Mr. Devendra Kumar Vyas, Managing Director, Srei Equipment Finance Limited 
Mr Sorab Agarwal, Executive Director, Action Construction Equipment Ltd, 

In the Union Budget the government had launched Rs 103 trillion infra projects to augment India's infrastructure and create jobs. Ministry of Road Transport & Highways (MoRTH) is one of the important baselines for revival of the Indian economy. In this perspective, Honourable Minister General V.K Singh, Minister of State for Road Transport and Highways, Govt of India, pointing out the criticality of the situation, mentioned that the government is taking necessary steps to ensure money comes in the hands of the contractors, machine makers, material manufacturers and other stake holders, such that businesses can go on.

Prime Minister Narendra Modi recently announced the long-awaited stimulus package of Rs. 20 lakh crore for businesses and workers to soften the devastating blow from the coronavirus lockdown that has pushed many companies to the brink of bankruptcy with revenues and cash flows disappearing overnight. The New Deal for Aatmanirbhar Bharat - a resilient India, comprises of around 10% of India’s grade domestic product (GDP) and will focus on land, labour, liquidity and laws. It accounts for almost a full year of India’s gross tax revenue and includes the monetary easing announced by the Reserve Bank of India. The self-reliant strategy will depend on five pillars - growing a new economy, creating a state-of-the-art infrastructure, setting up a technology-based delivery system, leveraging the young demography and by exploiting domestic demand.

General Singh said that the need of the hour is upgradation in technology and thus reducing the cost.

 

 

 

An important stakeholder for the industry is the Indian Construction Equipment Manufacturers Association (ICEMA). Mr. Sandeep Singh added that skilling of workers is an important aspect for the development in the industry. One of the limitations the industry is facing is the lack of skilled manpower, operators and technicians. For development of skill sets of the workers in the CE industry, he said, ICEMA in cooperation with IESC, has successfully trained more than 30000 people, with help of simulators, in the state of the art training centers at the OEM premises.

Road building activity has been important as a driver to the industry. The revival of road sector is crucial to our growth of the CE industry.

Road construction – As a thumb rule, 25% of the Construction Equipment is required in a specified time. Evolution of technology for the better quality of roads is necessary. Mr. Sakthikumar of Schwing Stetter added that with the help of technology driving systems, IOT, augmented reality, biometrics machines can communicate and help in increasing productivity and predictive maintainance of machines. For this too upskilling is required.

Mr. Deepak Garg of Sany, quoting PM Modi’s vision of being ‘Vocal for Local’, added that these technologies if can be localized, can help in reduction in cost and MSMEs can also be supported to develop these new technologies.

At this juncture, financing of infrastructure projects remains one of the biggest bottlenecks for development of this sector.  Mr. Vyas of Srei Infrastructure suggested bringing financial institutions within the scope of bank gurantees and constitution of a Infrastructure finance corporation will be helpful to the industry.

COVID-19 has led to disruption of global supply chain. Here there is a window of opportunity for India. Talking about the opportunities of Make in India around the COVID Crisis Mr. Sorab Agarwal of ACE said that governments step for procurement tenders upto Rs 200 crore, which will no longer be under global tender route, will give big benefit to MSMEs, which used to get disqualified, and disallowed from participation and thus boost Make in India.

The BSIV CEV regulations are to be effective from 1 Oct 2020. Now due to the COVID pandemic, this seems to be a challenge. To this Mr. Arvind Garg of L&T mentioned that in addition to other challenges, the engines and the emission treatment systems are not available and so it will be difficult for the OEMs to adhere to this timeline. ICEMA has requested the government for more consideration in this regard.

As the ministry of home affairs (MHA) made way for lifting curbs on certain sectors to get economic activity restarted, construction activity is still crawling, though it has started across various districts. There are different issues cropping up at different project sites. Inter-state movement of new, additional labour is an issue where more labourers are needed, while at some project sites they are anticipating a shortage in inventory and raw materials.

Many challenges lie ahead for the industry post lockdown and given the situation; it is simpler said than done. Right from availability of workforce, monitoring workers’ health at factory, supply chain disruptions more importantly, ensuring liquidity, are a few issues to name. What are the views in this regard and how are you coping with this new normal?

To this Mr. Sandeep Singh said that the construction companies should look at incentivizing the labourers to bring them back and that the need of the hour is a real time collaboration between contractors, labourers, and OEMs for quick revival of the stalled projects and minimizing the liquidity crunch.

India needs to be innovative in the months to have a quick recovery post lockdown. This would see revival in the consumer sentiments despite of the global economic depression and India as a nation, would have possibility to stand out here. Times are difficult no doubt, but he who shows resilience, he who shows determination and he who shows foresight, shall come out of this successfully. 
VDMA India thanks Honourable Minister General V K Singh for gracing this panel discussion with his august presence and participation and sharing his views on development of Road and Highway sector in India.

VDMA India thanks the experienced and reputed panelists, who shared their views on several topics and would also like to thank all the attendees which were more than thousand. And also conveys gratitude to Messe Munich India for organizing this web-seminar.