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NATIONAL HIGHWAYS DEVELOPMENT PROJECT Christine Wingate, a project financial analyst for California based Global Construction Inc. (GCI), knew that she was facing a challenging recommendation. The National Highways Authority of India (NHAI) recently proposed three new highway construction projects as phase V of the National Highways Development Project (NHDP). These proposed construction projects were particularly attractive because each was over 200 kilometers (120 miles) which allowed for increased construction efficiency. Recent changes in government regulations increased the ability of foreign companies to bid on construction projects in India. Given the expected growth of the economy and the need for improved infrastructure, India was viewed as providing significant opportunities for many years to come. GCI’s previous involvement in India was limited to collaborating with some Indian construction companies on the design and engineering proposals for some projects. The management of GCI thought the NHDP was an opportunity for the company to launch an Indian subsidiary. The challenge was that with the government’s proposed terms, Wingate’s initial analysis indicated that GCI would only earn a 10 percent pretax return on the investment in the project. The project probably would not meet the 18 percent U.S. dollar hurdle rate that GCI required for projects of this nature. The challenge facing her was whether to recommend that the possible lower return was just a small cost to pay to enter the booming Indian construction market. Indian Economy Traditionally the Indian economy was based on agriculture, forestry, fishing, mining, and quarrying. The economic system established at the time of independence from the U.K. in 1947 was characterized by a strong government role in economic planning with a large public sector, intervention in the labor and financial markets, and heavy regulation of private business. The state tended to develop protectionist policies and encouraged investment in import substitution projects. The result was low economic growth which compared unfavorably with the rapid economic growth of other Asian economies, the so- called Asian Tiger s. Beginning in the 1980s, India introduced a series of increasingly pro- business, free-market reforms. These reforms combined with an increase in export oriented and service industries resulted in a significant increase in economic growth. Recently the real economic growth _______________ © Copyright Marriott School of Management, Brigham Young University, 2007. This case was revised by Professor Brent D. Wilson. The original case was written by Professors Sherwood C. Frey, Jr., and Michel Schlosser.
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2 rate of India exceeded 8 percent annually and was expected to continue at this rate for the next several years. India’s nominal GDP of US$900 billion in 2006 ranked tenth in the world. However, India’s population of over 1.1 billion (second largest in the world) resulted in a low per capita GDP level. The World Bank included India in the low-income category.
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