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Achieving more for less in infrastructure

Using Internet of Things sensors—which can measure the flow of water through pipes or collect tolls electronically—can help India create smart highways, electronic tolling systems, smart ports and warehousing, and advanced water treatment and management systems. Photo: Pradeep Gaur/MintPremium
Using Internet of Things sensors—which can measure the flow of water through pipes or collect tolls electronically—can help India create smart highways, electronic tolling systems, smart ports and warehousing, and advanced water treatment and management systems. Photo: Pradeep Gaur/Mint

Technology in infrastructure can indeed bring India's people more, but it will need significantly less in terms of barriers to investment to realize this potential

London has reduced peak traffic congestion by 30% through congestion pricing, enforced by cameras linked to automatic licence-plate readers. Some 30% of freshwater demand in Singapore is being met through water reclamation and recycling. A Chinese developer completed a 30-storey hotel in 30 days to demonstrate how new industrial approaches could revolutionise construction. These are just a few examples of the staggering efficiency improvements that technology is bringing to the infrastructure sector around the world.

Inefficient logistics impose a heavy burden on competitiveness: logistics in India is about 14% of total cost of goods, compared with 6% to 8% globally. Citizens suffer from infrastructure deficiencies—the water supply in Indian cities is at least 25% less than the minimum required norm, and just 30% to 40% of urban sewage is treated. Lack of financial resources is a major impediment to bridging the gap. The government estimates that $1.2 trillion is required in transport infrastructure spending from 2015 to 2025. The government will be hard-pressed to fund its half of this investment, making it vital to wring productivity out of existing assets and build new ones more efficiently.

For example, using Internet of Things sensors—which can measure the flow of water through pipes or collect tolls electronically—can help India create smart highways, electronic tolling systems, smart ports and warehousing, and advanced water treatment and management systems. Next-generation construction methods hold the promise for vast efficiency improvements in infrastructure projects. MGI estimates that the use of technology in the infrastructure sector can create some $30 billion to $45 billion of annual economic impact for India by 2025.

Next-generation construction approaches introduce faster and cheaper methods, including industrial processes, such as greater use of pre-fabricated components—the approach that made the 30-day hotel project possible. Large concrete components, with built-in electrical, mechanical and plumbing systems, can be manufactured remotely in a precision factory, then assembled onsite. Advanced project-management systems such as 5D BIM (building information modelling) combine schedules, budgets and other critical data with 3D architectural modelling, enabling construction firms—and suppliers—to manage the flow of material and labour in real time.

These techniques result in a safer and far faster construction process. In advanced economies, such methods have contributed to reducing construction costs by 5-10% to up to 35%, and crunching project completion times by at least six months. Not surprisingly, governments are encouraging their use around the world: South Korea’s public procurement policy made the use of BIM technology compulsory for all projects over $50 million and for all public sector projects by 2016, and the UK government’s construction strategy mandates all public projects over £5 million to implement BIM by 2016.

GIS-based surveys have been used in a variety of ways to improve the water supply—to demarcate distinct water metering areas, set differential tariffs, plug leaks, and raise pressure as needed. Hubli-Dharwad, Amravati and other towns have started such programmes. All these can contribute to making cities much better places in which to live and work, boosting job creation, gross domestic product and productivity.

There are many ways in which technology can raise productivity in the infrastructure and real estate sectors, but doing so in practice means India must address fundamental barriers: lack of suitable frameworks for public-private partnership, high implementation uncertainties, and a poor overall environment for doing business. Special-purpose entities empowered with the authority for regulatory clearances and dispute resolution could accelerate the pace of projects that use new technologies.

The lack of capability in government agencies to select and deploy technology is another stumbling block, which can be addressed through innovation in partner and vendor selection methods. For instance, the Swiss Challenge, a tendering process that allows innovative companies to frame bids (rather than simply responding to bid requests), can help bring forth the best technological solutions at competitive prices.

The recent government move to lower barriers to foreign investment in the construction sector could be a positive development since multinational infrastructure companies may be best equipped to bring cutting-edge technologies to India. Technology in infrastructure can indeed bring India’s people more, but it will need significantly less in terms of barriers to investment to realize this potential.

Anu Madgavkar is a senior fellow at the McKinsey Global Institute and is based in McKinsey’s Mumbai office, where Rajat Gupta, a director of McKinsey and Co., is also based.

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