GAMMON INDIA LIMITED

General economic and business conditions. As a company operating in India, Europe, Africa and the
Middle East, we are affected by the general economic conditions in these regions and in particular the
factors affecting the engineering and construction industry in general and the projects we develop. India’s
real GDP grew 9.60%, 9.00% and 6.60%, respectively in 2006, 2007 and 2008 (Source: CIA World
Factbook). Growth in industrial and manufacturing activities and services sector will further lead to growth
in demand for infrastructure facilities, which translates into new proposals for construction, upgrade and
maintenance of infrastructure facilities. The overall economic growth will therefore impact the results of our
operations. The global credit markets and financial services industry have been experiencing a period of
upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions, severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth,
increases in unemployment rates, uncertainty about economic stability and an unprecedented level of
intervention by governments and monetary authorities. While the ultimate outcome of these events cannot
be predicted, it may have an adverse effect on our ability to borrow or raise additional funds in the capital
markets on favorable terms. Similarly, demand for infrastructure facilities may be adversely affected as a
result of the slowdown in the Indian, European, African and the Middle East economy.
Demand for construction services in India, Europe, Africa and the Middle East. We provide construction
services across diverse areas. Demand for civil engineering and construction services in India is currently
high, allowing us to expand operations across India. We will continue to focus primarily on the Indian
market, and also to increase the amount of our services in Europe, Africa and the Middle East. Our business
is therefore significantly dependant on the general economic conditions in these regions and government
policies relating to such projects. For example, the Government’s focus on and sustained increase in
budgetary allocation for the infrastructure projects and the development of a structured and comprehensive
infrastructure policy that encourages greater private sector participation as well as increased funding by
international and multilateral development financial institutions for infrastructure projects in this region
have resulted in and are expected to result in several additional infrastructure projects in this region. More
recently, policy changes in the transportation, energy and industrial and commercial infrastructure sectors
have begun to attract significant private sector interest. We believe that with policy and regulatory reforms
continuing, there will be a positive impact on our growth, financial condition and results of operations. Our
ability to benefit from the considerable investments proposed in the construction sector in the medium and
long term will be important factors affecting our results of operations.
Dependence on government policy and regulation towards infrastructure. The growth of the civil
engineering and construction industry in India and our business is dependent on the formulation and
implementation of stable government policies and prudent regulation. Construction in India has historically
been the domain of the central and state governments, and has been constrained by various factors such as
shortages of public funding, political considerations and issues of transparency and accountability. Changes
in government policies, which began in the 1990s, facilitated the entry of private capital into infrastructure
and have led to growth in certain sectors. More recently, policy changes in the transportation, energy, urban
infrastructure and industrial and commercial infrastructure sectors have begun to attract significant private
sector interest. We believe that with the policy and regulatory reforms continuing to move in the right
direction, there will be a positive impact on our growth and financial conditions and operations.
Growth of the power sector in India. The growth of the power sector in India as well as our business is
dependant on stable government policies and prudent regulations. Power generation has historically been
the domain of the central and state governments, and has been constrained by various factors such as
shortages of public funding, political considerations and issues of transparency and accountability. Changes
in government policies have facilitated the entry of private capital into the Indian power sector and have led
to rapid growth in the sector. For example, the generation of power in the private sector gained impetus with
the policy announcement by the Government in the early 1990s, followed by tariff determination guidelines
issued in 1995 and revised in 1998, assuring a fixed return on equity for independent power producers. The
Electricity Act, 2003 opened up new opportunities by allowing open access in power transmission and
distribution. The Government’s initiatives are likely to create a favorable business climate for us, but will
also increase competition.
Seasonality and weather conditions. Our business operations may be adversely affected by severe weather,
which may require us to evacuate personnel or curtail services, may result in damage to a portion of our
fleet of equipment or facilities resulting in the suspension of operations, and may prevent us from delivering
materials to our project sites in accordance with contract schedules or generally reduce our productivity.
Our operations are also adversely affected by difficult working conditions and extremely high temperatures
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