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With the rapid growth of infrastructure sector in India, several German companies and VDMA members are planning more investments in the country. <span style="font-weight: bold;">Rajesh Nath, Managing Director and Ajmal Fawad,&nbsp; Deputy Manager, VDMA India,</span> elaborate more on the trend.<br /><br />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. In 2016, India jumped 19 places in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries.<br /><br />Infrastructure-related activities witnessed strong growth between April-September 2016. The activities that registered the highest growth include export cargo (10 per cent), highway construction/widening (9.8 per cent), power generation (6.6 per cent), import cargo (5.8 per cent) and cargo at major ports (5.3 per cent).<br /><br />India is witnessing significant interest from international investors in the infrastructure space. Foreign Direct Investment (FDI) received in construction development sector (townships, housing, built-up infrastructure and construction development projects) from April 2000 to March 2017 stood at $24.3 billion, according to the Department of Industrial Policy and Promotion (DIPP). The infrastructure sector in India witnessed 33 deals in FY 2016-17 involving $3.49 billion as against $2.98 billion raised across 31 deals in FY 2015-16, with the majority of deals led by the power, roads and renewable sectors. <br /><br /><span style="font-weight: bold;">Government strategy</span><br />The infrastructure sector has become a focus area of the Government of India. Under Union Budget 2017-18, $61.92 billion was allocated to the sector. Increased impetus to develop infrastructure in the country is attracting both domestic and international players. Private sector is emerging as a key player across various infrastructure segments, ranging from roads and communications to power and airports. In order to boost the construction of buildings in the country, the Government of India has decided to come up with a single-window clearance facility to accord speedy approval of construction projects.<br /><br />The Road Transport and Highways Ministry has invested around Rs 3.17 trillion ($47.7 billion), while the Shipping Ministry has invested around Rs 80,000 crore ($12.0 billion) in the past two-and-a-half years for building world-class highways and shipping infrastructure in the country. The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy and urban transport, prior to the general elections in 2019.<br /><br />A total of 6,604 km out of the 15,000 km of target set for national highways in 2016-17 has been constructed by the end of February 2017, according to the Minister of State for Road, Transport and Highways and Government of India. The government plans to build 8,000 km of pavements and lay more cycle tracks in 106 cities in the next five years with an investment of Rs 80,000 crore ($11.94 billion), in order to reduce carbon footprint in urban areas and promote activities like walking and cycling. <br /><br />The Airports Authority of India (AAI) is planning to undertake new development works at Lucknow, Deoghar, Rajkot, and Allahabad airports to improve the airport infrastructure in the country and will also develop a greenfield airport at Hirasar, Rajkot, according to the Ministry of Civil Aviation, Government of India. AAI also plans to increase its capital expenditure for 2017-18 by 25 per cent to Rs 2,500 crore ($0.37 billion), primarily to expand capacity at 12 airports to accommodate increase air traffic.<br /><br />The Ministry of Shipping plans to undertake development of 37 national waterways (NWs), out of the 111 NWs declared under the National Waterways Act 2016, in the next three years, which would have positive impact on reduction of overall logistics cost.<br /><br />The government is working to ensure a good living habitat for the poor in the country and has launched new flagship urban missions like the Pradhan Mantri Awas Yojana (Urban), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and Swachh Bharat Mission (Urban) under the urban habitat model. Contracts awarded under the Smart Cities Mission would show results by June 2018 as the work is already in full swing. The government has also launched a City Livability Index on June 23, 2017, which would measure the quality of life in 116 major cities on a set of 79 parameters.<br /><br />The Ministry of Urban Development has approved investment of Rs 2,863 crore ($433 million) in six states under the AMRUT scheme, for improving basic urban infrastructure over FY 2017-20. The government also plans to facilitate partnerships between gram panchayats, private companies and other social organisations, to push for rural development under its 'Mission Antyodaya' and has already selected 50,000 panchayats across the country for the same.<br /><br />In a stimulus package to boost the flagging economic growth, create jobs and increase credit flow, the cabinet recently approved a recapitalisation plan for state-run banks to the tune of Rs 2.11 lakh crore and a massive road infrastructure investment costing nearly Rs 7 lakh crore over the next five years. A big private consumption push was needed to get investment demand going. That could well come from the big infrastructure push, which will boost demand not just in sectors like steel, cement and other industries involved in roads construction but also consumer goods.<br /><br />Of the support to banks, a sum of Rs 1.35 lakh crore will be raised through recapitalisation bonds and the rest through budgetary support as well as market borrowings. Under the road connectivity programme at a cost of nearly Rs 7 lakh crore, the government will construct 84,000 km highways in the next five years. Of this, the Bharatmala project component will involve an outlay Rs 5.35 lakh crore. Funding for the programme will be raised as debt from the market (Rs 2.09 lakh crore), private investments through public-private partnership (PPP) (Rs 1.06 lakh crore) and from accruals to the central road fund and toll collections (Rs 2.19 lakh crore).<br /><br /><span style="font-weight: bold;">Indian construction equipment sector</span><br />In FY16, India construction equipment (CE) industry grew at a rate of about 3.45 per cent year-on-year (YoY) over the previous year. The demand for CE grew by over 35 per cent during 2016, overcoming four consecutive years of weak demand, giving a boost to the sector mainly due to the increase in infrastructure spends. <br /><br />With the sale of 76,000 units of construction equipment, the industry has witnessed growth at a CAGR of 4.76 per cent during FY07-16. Sale of construction equipment in India is estimated to grow at a CAGR of 6.18 per cent, in volume terms, and reach to 96,700 units by FY18 from 50,000 in FY07.<br /><br />Revenues increased at a CAGR of 8.38 per cent during FY07-14 and is further estimated to rise at a CAGR of 2.34 per cent between FY07-20, owed to the rapid infrastructure development, undertaken by the Government of India. By FY20, CE industry's revenue is estimated to reach to $5 billion.<br /><br />Infrastructure investments like this in roads, irrigation, railways and metro will drive demand. The improvement in average per day execution of NHAI projects to 10.33 km in fourth quarter of financial year 2017 despite demonetisation and investments by Indian Railways has also helped in the growth in demand for CE.<br /><br /><span style="font-weight: bold;">German technology</span><br />Germany is known globally for its engineering technology. The German manufacturers are internationally well-positioned with their broad range of sectors: In 23 out of 31 comparable sectors, they are among the global top three; in 14 of which, they are in first place.<br /><br />India is the second-largest sales market in Asia for the German engineering industry. Germany's total investments into India during April 2014 to March 2015 amounted to $1,125 million, accounting for over 3.6 per cent of the total Indian investment inflows in that year. Top sectors attracting FDI inflows from Germany are automobile industry (20.6 per cent), services sector (15.9 per cent), construction infrastructure) activities (15.6 per cent), industrial machinery (6.2 per cent) and drugs and pharmaceuticals (6.2 per cent). These top five sectors accounted for about 64.5 per cent of total inflows from Germany during the last fiscal. <br /><br />Following a good start in the beginning of the year, the upward trend has continued both in the construction equipment and the building material machinery industry. The sector expects to increase its total turnover by five per cent by the end of the year to around Euro 14.6 billion.&nbsp; <br /><br />Especially for CE manufacturers, business has been much better than expected at the beginning of this year, both in Germany and on the international markets. This is true for all sub-sectors, namely earthmoving, civil engineering, tunnelling, building and road construction machines. In addition to the good business development in Europe during the past years, demand is now also picking up in world regions that have performed weakly most recently, like for example China or Russia. The companies are pleased about this simultaneous push but it also presents new challenges for them. Some of them reported having supply bottlenecks on the supplier's side already.&nbsp; <br /><br />In 2016, German manufacturers of construction equipment achieved a turnover of Euro 9.3 billion, which is an increase of three per cent compared to 2015. Within the same period, world sales of construction equipment declined by one per cent. Thus, German companies performed slightly better than the world market. After an already strong 2015, the domestic market grew by another 20 per cent and achieved a level almost as high as in the record year of 2007 with sales of the German industry on the domestic market amounting to Euro 3 billion. <br /><br />Asia is showing good impulses. After four years of decline, China has seen another return to growth in 2016. The Indian CE market increased by 30 per cent, powered by strong investments in road construction. Experts of the industry estimate South East Asia to show positive signs. <br /><br /><span style="font-weight: bold;">The road ahead</span><br />Looking into the future, significant allocation to the infrastructure sector in the 12th Five-Year Plan, and investment requirement of $1 trillion is expected to create huge demand for construction equipment in India. <br /><br />The country needs around 55 new airports by 2030 with an investment <br />of $36-45 billion. <br /><br />India has a requirement of investment worth Rs 50 trillion ($777.73 billion) in infrastructure by 2022 to have sustainable development in the country. Sectors like power transmission, roads and highways and renewable energy will drive the investments in the coming years. In October 2017, road projects worth <br />Rs 6.92 trillion ($107.64 billion) were approved to build an 83,677 km road network in the country. In August 2017, a new Metro Rail Policy was announced to boost private investment in the sector. The government is also working on improving energy infrastructure in the country and investment opportunities worth $300 billion will be available in the sector in the coming 10 years. <br /><br />In the roads sector, the government's policy to increase private sector participation has proved to be a boon for the infrastructure industry with a large number of private players entering the business through the PPP model. During the next five years, investment through PPP is expected to be $31 billion. India's national highway network is expected to cover 50,000 km by 2019, with around 20,000 km of works scheduled for completion in the next couple of years, according to the Ministry of Road Transport and Highways. It is expected that due to this big infrastructure push, the demand for CE will boost further in the years to come.<br /><br />Many German companies have set up and are setting up manufacturing in India in addition to the sale and service office. Several German companies and VDMA members are planning towards more investments in India. German CE and building material machinery manufacturers like Liebherr, Schwing Stetter, Putzmeister, Wirtgen, ZF,&nbsp; and Thyssenkrupp to name a few have invested substantially in the last <br />five years.<br /><br />India is witnessing significant interest from international investors in the infrastructure space.<br /><br />Top sectors attracting FDI inflows from Germany are automobile (20.6 per cent), services sector (15.9 per cent), infrastructure activities (15.6 per cent), industrial machinery (6.2 per cent) and drugs and pharma (6.2 per cent).<br />