Your passage to India

To feed that growth, its government is overseeing a £95.9bn investment in infrastructure. So don’t you think it’s time you put aside your prejudices about working there and tried to win a share of the riches on offer? Katie Puckett visited the hotspots of Chennai, Delhi and Bangalore to find out how you can

We’re a couple of miles from our next meeting but with only 45 minutes to get there, it’s looking doubtful that we’ll make it. Outside the car window, cars, lorries, bicycles and autorickshaw taxis are hooting frantically and grazing cattle block the pavements. This is downtown Bangalore in perpetual rush hour and a frustrating example of the difficulties of doing business in India.

MC Srinagesh, a senior trade and investment adviser at Britain’s Deputy High Commission in Chennai, shakes his head, looks at his watch and gets out his phone to call ahead. “Time management is very important in Bangalore,” he sighs. “Even if you do manage time, anything can happen.”

With national growth topping 7%, I’m trying to find out how UK construction companies can take advantage of the phenomenal economic boom taking hold of India’s major cities. Srinagesh and his colleagues have fixed up a series of meetings in the property hotspots of Bangalore and Chennai – a service they’ll provide for the firms themselves if any are brave enough to take the plunge.

The subcontinent’s infrastructure issues are one reason why UK companies have so far opted to remain on the sidelines; there are also well-founded concerns about bureaucracy, corruption and a fragmented and unregulated construction industry.

But the traffic is a vivid illustration of exactly why UK companies can’t afford to stay out of the Indian market any longer: Bangalore is at the epicentre of India’s economic boom and the number of vehicles on the roads has increased fourfold in the past four years. About 25 Western companies are setting up there every month. The 70-acre Whitefields IT park is India’s answer to Silicon Valley, but it resembles nothing so much as huge building site.

India’s development got off to a slow start after the government opened up the economy to foreign investment in 1991, but in the past five years it has achieved what economists call “take-off”. It already attracts $5.2bn (£2.9bn) worth of foreign direct investment every year, one-tenth of the Chinese total, but by 2008 this is set to rise to $13bn (£7.35bn). If current trends continue, by 2050, only China will have a larger economy.

In 10 to 15 years, India will be a powerful nation. British companies have left the advantage to other countries

S Chandrasekar, International Infrastructure Consultants

S Chandrasekar is director of International Infrastructure Consultants, a body set up to introduce foreign companies to local construction partners. He says: “There is a sea change. In 10 to 15 years, India will be a powerful nation. British companies have not caught on to this opportunity, and left the advantage to other countries.” There will be a massive amount of construction spending in the next decade, by government, private developers and foreign investors, and India’s firms are struggling to cope. The top 15 are reported to be sitting on orders worth a combined £5bn.

As India assumes more importance on the world stage, firms without a presence there will be at a disadvantage. Some UK firms have established themselves: Mott MacDonald, Atkins, Arup, Scott Wilson, Currie & Brown and Davis Langdon are all here in force, as are property services firms such as Knight Frank and Cushman & Wakefield. However, most have stayed out, or retreated after a brief toe-test in the mid-1990s, preferring to focus on the more accessible Chinese and Middle Eastern markets. The slack has been taken up by Asian multinationals. But now the trade and investment wing of the British government is trying to make amends. For the past year-and-a-half, Srinagesh has been spearheading an attempt to raise the profile of British construction firms in India and facilitating their entry into the market. India is modernising rapidly and the construction industry is evolving to keep pace, making it a less risky bet for UK firms with technological know-how and project management skills.

It’s hard to overstate the rate of change in India and the seismic social shifts taking place as a result. Workers in the software development parks and call centres of Bangalore, Hyderabad and Chennai are enjoying unprecedented earning power and more women are going out to work, boosting families’ disposable incomes. India’s fast-growing middle classes are embracing the consumer culture of the West. A few years ago, India had only a handful of shopping malls; over the next three years, 350 are planned. Factories are springing up to meet the demand for consumer goods, especially mobile phones – 2 million mobiles are sold every month. Couples are also taking advantage of low interest rates to live apart from their extended families, creating a shortage of some 70 million homes – Prescott eat your heart out.

But these affluent islands are linked and supplied by arthritic third-world infrastructure. Road and rail networks are patchy and poor quality, water supplies and waste management desperately need an upgrade and power outages are common across swathes of the country. The government has realised that it must act or the economy will lose its dynamism.

Nowhere is this more apparent than Bangalore, where traffic often moves at the pace of a Brahmin bull. AS Murthy is director of Atkins’ base in the city and has witnessed the dramatic upturn in its fortunes. “When I was young, you’d have one car between 10 houses. Now one house has three or four cars,” he says. There’s also a dire shortage of hotel accommodation. Unless you book months in advance, you have little chance of getting a decent room and rates are three times more than pre-boom levels. The situation is so bad that many businesspeople choose to stay in Chennai 205 miles to the east. The joke is that you can fly to Bangalore from there in 40 minutes but it can take you more than double that to reach your meeting on the other side of town.

Determined not to fall victim to its own success, the Indian government has embarked on a programme of infrastructure investment, upgrading roads, railways, ports, airports, telecoms, power distribution, water supplies, housing and tourism facilities. As you’d expect in a country covering 1 million square miles and populated by more than 1 billion people, the numbers are massive. Over the next five years, it will oversee £95.9bn of investment, most of it from private companies in the form of public–private partnerships. The privatisation of India’s infrastructure is a contentious issue but with such a desperate need, most believe the trend is now unstoppable. The surprise defeat of the BJP-led coalition in the general election of May 2004 has led to a greater anti-privatisation influence in the government. But though this has slowed progress, it will not halt it.

Bhupendra Kainthola is the deputy general manager of media relations at the National Highway Authority of India, the central government’s roadbuilding organisation. He says: “People now understand the importance of having a government that delivers, that doesn’t just play on questions of caste or class, that just has a political approach. Before, religion was the big issue; now it is development.” The NHAI has completed stretches of four-lane dual carriageway in Delhi and it does make for a much smoother ride, though it also serves to foreground the idiosyncracies of the place – tiny dust-caked children still paw at the windows of expensive saloons and workers sweep the gutters with bundles of twigs.

People now understand the importance of having a government that delivers. Before, religion was the big issue; now it is development

Bhupendra Kainthola, National Highway Authority of India

The federal government is tilting towards foreign businesses and investors by slashing import duties and opening up ports, roads, power, oil and gas and residential developments to 100% foreign direct investment. At the level of India’s 29 state governments, however, commitment varies considerably. Northern states such as Uttar Pradesh are proving slow to shake off the shackles of the past, and Jharkland and Bihar do their best to shut out foreign companies behind a wall of bureaucracy. But in the south, in provinces such as Karnataka, Andhra Pradesh and Tamil Nadu, competition between states is driving development at lightning speed. “Bangalore was supposed to be Silicon Valley but now state governments are competing with each other to be investment-friendly and are putting IT first,” says K Ramakrishnan, manager of business development at TrammelCrowMeghraj, formerly the Indian wing of British developer Chesterton.

Everyone agrees that government support is the single biggest factor in getting projects off the ground. Tamil Nadu, for example, is going all out to present itself as a welcoming destination for foreign developers by forming the the Tamil Nadu Industrial Development Corporation, or TIDCO, and beginning a 2.1bn rupee (£26m) roadbuilding programme. State capital Chennai is its big hope for drawing investment and the Old Mahabalipuram Road is to become the state’s answer to Bangalore’s high-tech Whitefields district. The government has installed the power and telecoms infrastructure and assembled and pre-cleared the land. This may not sound like a big deal, but it was a five-year slog and crucial to the success of the projects. Site assembly is a serious brake on development in India, because ownership is fragmented and the process of acquiring land is laborious. The confusion is not helped by archaic, paper-based processes and a murky trade in dodgy title deeds. “People drive a hard bargain,” says David Murray of Currie & Brown, which has been working there for 20 years. “The processes are a stumbling block, and there are no big landowners, just lots of individuals that own smaller plots. Trying to get them all to agree to a sale or lease price is difficult.”

In Tamil Nadu, the government’s hard work seems to have paid off. Developer ETL Infrastructure Services has completed one park in a joint venture with TIDCO and now it’s working on another. Commercial vice-president Jair Souza is positive about the government’s role and believes that now the groundwork is in place, development will accelerate. “Tamil Nadu is the first state to have a separate IT policy. It’s very business friendly, and it’s easier to get special economic zone clearance in Chennai than anywhere else. The government has done some serious homework in providing infrastructure before asking companies to come up. This definitely gives confidence to investors.”

Spanish developer Americorp has invested $200m (£113m) in Tamil Nadu. Director CS Ilangovan Umesh says Chennai’s low prices and well educated population make it a prime destination

Foreign companies also need to feel confident that projects will proceed on schedule and that they will get paid at the end of them. “Most projects in India are known for time and cost overruns because of poor project management skills. Companies bid for the contract but are left not knowing what to do – the project’s size overwhelms them,” says N Ramakrishnan, an infrastructure journalist at Indian daily Business Line.

That should improve with the rise of the project manager. This was an unknown profession in India until foreign clients came along; it is now a prime opportunity for UK firms. Davis Langdon and Currie & Brown are doing a brisk trade in QSing, although finding and training local staff to RICS standards can be hard. “Risk evaluation is not part of the Indian system. Foreign companies are more strict,” says Atkins’ Murthy. He adds that Indian universities have begun to offer masters courses in the discipline.

What is called ‘speed money’, in plain English is called bribery. Foreign companies will find it difficult to stomach

CN Srinivasan, architect CR Narayana Rao

Government contracts in particular are subject to delays as the political will or funding runs out but, again, people feel this is improving as the need for infrastructure upgrades becomes more acute. The government has set up a viability gap funding facility to help get PPP projects off the ground. Srinagesh points out that the first phase of the Delhi metro, completed in December 2004, was finished seven months ahead of schedule.

UK firms may have grounds to feel more assured over project reliability, but they will still find the level of government corruption uncomfortable. “I’m ashamed to say that Indian ethics are a very important barrier,” says CN Srinivasan, a partner at architect CR Narayana Rao. “What is elegantly called ‘speed money’, in plain and simple English is called bribery. It’s a big problem with the whole industry. Foreign companies will find it difficult to stomach Indian ethics.” This goes for the erratic way rules are adhered to and interpreted as well, he adds.

“Everyone plays the game,” says one British QS working out there. “You see it on the accounts as ‘conveyancing’ or ‘overseas trip’ and you can’t say anything.”

Everyone admits that corruption permeates right through to the highest levels of the system, but they are divided on how much the situation will improve. Some argue that privatisation, the influx of foreign companies and a new generation of Indian workers will eradicate the worst abuses. Others believe it is too integral a part of the system to ever disappear completely, and that it is at least on an affordable scale for Western firms.

UK companies should find that standards in the construction industry are improving, though. More than two-thirds of construction work in India is carried out by small family firms and casually employed, often female, labourers using primitive tools. With 32 million workers, it’s the second largest employer after agriculture, but few are formally trained. On major international sites, standards of management and safety are improving to meet the demands of foreign clients, but workers balancing precariously on rickety bamboo scaffolding are still a common sight, and a stark reminder of how little value is placed on human life in India.

India’s Construction Industry Development Council is trying to improve health and safety and has introduced training programmes for workers. It also wants to standardise procurement methods and speed up mechanisation, and is working with the British Standards Institution to improve quality. “This industry is growing at 15% a year and there’s been consistent growth over the past seven to eight years,” says PR Swarup, the CIDC’s director-general. “There are too many things coming up and the industry has to gear itself up to meet the challenges.”

India’s industry badly needs the help of foreign firms, he says, to develop financing models and dispute resolution techniques, to modernise procurement and improve risk assessment. Swarup believes UK companies have an inherent advantage in India but that they are failing to take advantage of it. “The risk insurance industry in Britain, for instance, is one of the most developed anywhere. They haven’t done very well considering that we have had a long association. The way our people think is almost British.”

British firms do command a significant amount of respect for their professionalism and the quality of their services, albeit on the understanding that they are very expensive by Indian standards. “There is a natural inclination to look to the British in business matters,” says Srinagesh. “I’ve seen Indian companies where, if the price is right, they don’t check anything about a British firm. That’s the credibility they have over here.” Neither, he adds, is there anything like the fear factor that Indians have about working with their Chinese neighbours, with whom they have a fraught history.

Given the warm welcome they are prepared to offer these Britishers, Indians are bemused by the reticence of their erstwhile colonists. “We have a very good feeling towards the British,” says A Ramakrishna, formerly chief executive of Indian construction giant Larsen & Toubro. “All our leaders are educated in the British system and have a great respect for it. I go to Los Angeles or San Francisco and it’s different; I come to London and I feel at home, we have more in common. Many, many countries are looking at India and the UK should also look at it fast if they don’t want to miss the bus. This country was built up by the UK – if you aren’t able to do that now, who is?”