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Sunday, Oct 27, 2002

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Shaky structure abroad

Sowmya Krishnan

INDIAN construction companies have primarily been catering to the domestic market. According to a CIDC (Construction Industry Development Council) report, India's share in the global trade of construction, architectural and engineering services is less than 1 per cent. Though projects exports from India have increased almost four fold over the past five years, it still constitutes a miniscule portion of the total revenue generated by the domestic construction industry . Consider this. While the industry serves projects worth Rs 2,40,000 crore (according to L&T's annual report), projects exports contribute a mere Rs 1,225 crore (as per data provided by Overseas Construction Council of India).

Only a few companies, such as L&T, Hindustan Construction and Tata Projects, have been successful in tapping opportunities abroad. This is because of various internal and external factors.

One, world over, there is shift towards turnkey projects, whereby a company is expected to provide a range of services right from designing engineering, construction, maintenance, management and financing. Only few Indian companies are capable of providing such a wide range of services.

Two, domestic firms do not have the technical and financial muscle to bid for big contracts on a stand-alone basis. The lack of funds to explore opportunities abroad, conduct feasibility studies, provide for security deposits and buy necessary equipment and machinery limits the scope of individual companies to bid for high-value international projects. Often companies compete with one another for the same project and lose out. Therefore, if Indian companies form consortiums and bid for projects, there is a greater chance for bagging export orders.

Three, the cumbersome and time-consuming process of getting approvals form various organisations before submitting a bid make the bidding process very expensive. Granting industry status to the construction sector will provide some relief to companies, as they will then get access to cheap funds from banks and financial institutions. This will ease the financial pressure to some extent.

When competing on a global platform, Indian companies lose out on quality and efficiency. The general view is that Indian companies fail to comply with quality standards and complete projects on time. This leads to cost escalation and pressure on the scarce finances.

Given these restrictions, the performance of project exports has been poor. But companies such as L&T and Hindustan construction are increasingly exploring overseas markets. The revenues from project exports jumped 60 per cent to Rs 848 crore in 2002 for L&T, while that of Hindustan Construction zoomed 65 per cent to Rs 17.8 crore.

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