January 2017: EDITOR Devangshu Datta

EDITOR Devangshu Datta

The construction industry has seen a phase of muted activity. It has been impacted by ten-sions around the mixed impact of the GST, and by slow project execution and a generic slow-down. However, there’s optimism that programmes like Make in India, the Smart CitiesMission and a huge number of projects in the pipeline across multiple sectors will lead to anuptick. Given that the sector is the largest employer outside of the primary sector, and that itaccounts for 7-8 per cent of GDP, more activity always has a multiplier effect.

One of the key problems has been financial. Equity investments have been slow. Bank creditis hard to come by and banks have become very reluctant about project lending. This has con-strained construction. In addition, interest rates have tended to be high. However, the recent trendtowards lower interest rates should bring major benefits to the sector.

In terms of policy, the intent seems to be positive but implementation will be crucial. Recentmoves like the cabinet decision to fast-track arbitration and the injection of fresh liquidity (75 percent of project cost) by government agencies into contracting firms are welcome. Procedures forclearances need to be streamlined and land acquisition issues remain critical in that this is still amajor cause for projects getting stalled.

There are a huge number of potential opportunities across multiple sectors, given the largepipeline of projects. The range of works could be very wide, ranging from power plants to roads,airports, ports and water treatment plants. Assuming smooth flow of work, there could be sus-tained construction opportunities available over the long term.

The industry is seeing a mixed impact from the GST. This will simplify life for EPC firms in thatit will reduce the cascading effect of taxes but it could result in some costs rising due to creditrestrictions. Certain challenges will also arise for equipment manufacturers and producers of steeland cement, though they should gain net net, once the new GST system stabilises.

Apart from the fact that the sector employs close to 40 million workers and could employ manymore if activity increases, there are direct beneficiaries in several related sectors. Skilling thatworkforce in itself could be a major service. Equipment manufacturers and service/maintenanceindustries are two segments that would benefit as well. Manufacturers of cement, steel, bitumenand geosynthetics will also gain. One intriguing prospect is that India could well become a hub forequipment manufacturing.