January 2020

The construction industry is the highest employment generator outside of agriculture and also the largest consumer of steel, cement, bitumen, geosynthetics and other materials. It is, however, highly dependent on infrastructure development for activity – infrastructure projects have construction components of anywhere between 60 and 80 per cent.

The slowdown in infrastructure activity during 2019-20 has impacted construction severely, which, in turn, has led to unemployment, and to sub-par demand for steel, cement and so on. Moreover, financing has become expensive and hard to arrange due to the NBFC crisis. Naturally, there has also been a negative impact on the associated equipment industry.

The construction industry is hoping for a pickup in activity in 2020-21, given the government’s ambitious infrastructure development plans. A note of caution is necessary, however, since government finances are extremely stretched with the fiscal deficit likely to expand well beyond budgetary projections. This may constrain the government’s ability to implement its plans in the coming fiscal year.

If the targets of the NIP are met, there will be projects to the tune of Rs 102 trillion launched over the next five years. That will imply an investment opportunity of at least Rs 60 trillion for the construction industry.

Apart from coping with a situation of uncertain demand, the industry has to also hope for sensible policymaking and for improvements in trends of contracting and contract management. It must increase its induction of technology, including IT-based design and operation such as BIM as well. It needs to accelerate the pace at which it implements new methods of construction and adopts the use of new materials such as plastic waste and geosynthetics. All this will mean skilling up the workforce in order to optimise the use of new machines and methods.

The short-term prospects appear to be gloomy for the construction industry. There may be a pickup in activity in 2020-21, but it would be prudent to assume that growth will be muted, given the general economic slowdown. However, the medium-term prospects are likely to be good, given the thrust on creating more infrastructure capacity.

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