India is projected to be the world’s most populous country by 2025. While the country offers incomparable business opportunities because of its huge market size, the demographic dynamics also create considerable challenges in terms of infrastructure needs. ARSHA Consulting takes you through the challenges and opportunities of Indian’s urbanization process.

According to the latest report of the World Bank on Leveraging Urbanization in South Asia (September 2015), “India and her neighbors are going through a tortuous process of urbanization - slow, messy and partly hidden. (…) Whatever benefits urban agglomerations could have offered in terms of economic advance are getting diluted.”

Urban India's population is predicted to increase by about 497 million between 2010 and 2050, going by present growth trends. To accommodate this additional population, nearly USD 600 billion will be needed just to provide adequate water, sanitation and roads, the report says. So far, Indian cities fall short of delivering a basic standard of living for their residents. In this context, unless India dramatically steps up its construction of the urban infrastructures needed, the country will not be able to bridge the gap demand for services and their provision (McKinsey, 2010). 

However, as pointed out by Sri Mulyani Indrawati, World Bank Managing Director and Chief Operating Officer, “if managed well urbanization can lead to sustainable growth by increasing productivity, allowing innovation and new ideas to emerge”. Sustainable growth in Indian cities is achievable through massive investment in the infrastructure sector, which is also a key driver for the Indian economy. The sector - including power, bridges, dams, roads and urban infrastructure development - is highly responsible for propelling India’s overall development.

In terms of market size, India would become fourth largest infrastructure projects market in the world by 2025 as the real estate and construction sector is continuously evolving in the country. India’s infrastructure market is expected to touch USD 6.6 trillion by 2025, which will be nearly 12.5% of the Asia-Pacific (PwC). According to the Indian Finance Ministry, the overall investment in infrastructure sector in coming years may go up to USD 1000 billion; more than 70% of it is expected from private and foreign players.

In this context, how are foreign companies doing in India? Here are a few recent success stories:

  • In April 2015, the French company Areva signed the Jaitapur project to set up six nuclear reactors with total power generation capacity of about 10,000 MW. 
  • In June 2015, VINCI, which operates half of France's motorway concessions over a network of 4,386 km, acquired the more than seven-decade-old NAPC from KS Manian and his family for nearly Rs 7.2 billion. 
  • In August 2015, Canada's Brookfield Asset Management made its first significant investment in Indian infrastructure, buying six road and three power projects from India's Gammon Infrastructure Projects Limited.

Apart from MNC finding market opportunities, there is also room for small and medium foreign enterprises. Few French SMEs took up the challenge, like Lumiplan – specialist in urban information systems, Tokheim – provider of fuel retailing solutions, Electricfil – manufacturer of sensors, ignition coils and actuators for the automobile industry, and Memoris – specialist in collecting, digitizing, and structuring geo-localized data.

This is precisely the right time for foreign MNC and SME companies to enter the Indian market, as urban infrastructures are also a concern for the Indian government, as depicted by Sushil Sethi, Managing Director, SPML Infra Limited: “India’s infrastructure sector is poised to grow at 7-8 percent next year following the forward looking plans and policies of the new government. The strong mandate will stimulate economic growth, positive surge by implementing desired policies, removal of barriers to foreign investment and other initiatives being taken that will boost infrastructure development and the outlook for the sector appears positive.”

To go further:
World Bank publication “Leveraging Urbanization in South Asia” (Sept 2015)
McKinsey Report “India's urban awakening: Building inclusive cities, sustaining economic growth” (2010)
PwC Report “Infrastructure in India A vast land of construction opportunity” (2008)

Laetitia Sieffert | Senior Consultant – International Trade
Arsha Consulting

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