With large residential and non- residential projects in the pipeline, the Indian infrastructure market is forecast to overtake Japan's in next five years, says a report.
"India's infrastructure market is the third-largest in Asia, and is forecast to overtake Japan's in nominal value terms by 2023," the report by BMI Research said.
Although demonetisation had a negative impact on construction activity in 2016 as most construction workers' wages were paid in cash, the Fitch group company said that it believes that "robust growth will return in 2017 as work resumes on the large pipeline of infrastructure, residential and non-residential projects in the country".
At the same time, the operating environment of India's construction industry remains immensely challenging, with major infrastructure projects commonly incurring delays and cost overruns, it said.
"The Modi government has made some progress in addressing underlying issues in the sector, such as streamlining the land-acquisition process in some states, though the slow pace of reform means that the market remains relatively risky," it added.
Industrialisation and urbanisation trends are making India's infrastructure deficit more apparent and increasing demand for investment in roads, railways, ports, power transmission and water utilities, the report said.
The Narendra Modi-led government at the Centre has initiated several programmes aimed at improving logistics, stimulating investment in manufacturing and building affordable housing, which will contribute to growth in the construction industry over the next 10 years, the report said.
"Reforms to foreign investment laws under Make In India initiative have made it easier for international companies to invest and participate in India's infrastructure projects.
"That said, the infrastructure market remains dominated by domestic companies which have significant home market advantages owing to their experience with the complex regulatory environment in India," it said.
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