January 2016: EDITOR Devangshu Datta

EDITOR Devangshu Datta

The construction industry shows signs of pulling out of a prolonged slump. This is good news all around because the industry’s fortunes are so intimately tied to infrastructure development and it is also the largest employment generator, outside of agriculture.

At the very least, construction provides employment to over 41 million people and contributes around 8 per cent of India’s Gross Domestic Product. It could absorb millions more from the labour force and also generate far larger value-addition if there was an uptick in infrastructure and real estate. It could also generate substantially higher demand for cement, steel, bitumen and other construction materials, and drive the adoption of much more in the way of sophisticated equipment.

The construction industry’s dynamics are interesting. It suffers from excessive fragmentation and perennial shortages of financing. The unique nature of individual projects makes it hard to scale up to a simple template. There is a permanent shortage of skilled labour, and this is getting worse as more sophisticated equipment is inducted.

Those construction companies which have attempted to move up the value chain and become developers and operators, have often suffered financial stress. As projects stalled, their funds were increasingly stuck. Deleveraging balance sheets has become an imperative for the industry and many players have not yet managed to disentangle themselves from stalled projects.

In its heyday, the industry grew faster than the overall economy. However, growth rates slowed after 2010-11. In  2012-13, the construction industry actually suffered from contraction. Happily, there has been a small but significant degree of expansion in 2014-15.

This growth is nascent. There are fears that it may not be sustainable if economic growth does not accelerate in 2015-16 and if the government does not find ways to get stalled projects moving and to expedite clearances for new awards. The industry also has to find alternative sources of financing at more reasonable interest rates.

Nevertheless, there is hope that things will finally get moving again.