January 2021

The construction industry faced extraordinary problems in 2020 due to the pandemic, the associated lockdown and the migration of labour back into the rural hinterland. The first calendar quarter (January-March 2020) was poor and the next two quarters (April-September 2020) were even worse. It was only after September that some semblance of normalcy was restored.

The coming fiscal is expected to be better. But the government has to play a lead role both in terms of policy-making and pushing projects. This would be a win-win situation. Every sort of infrastructure requires construction activity.

Construction employs roughly 60 million people when it is operating at full capacity, which makes it the largest potential generator of employment. Moreover, it leads to higher demand for materials such as cement and steel, as well as demand for a wide range of equipment and for increasingly sophisticated electronic and digital gear. This will help kick-start the economy, which contracted in 2020-21 and, of course, more infrastructure capacity will accelerate future growth rates.

There is no lack of ambition and plenty of possible projects on the anvil. There is a vast road-building programme, which targets 50,000 km of new roads in the next five years, built at the rate of 40 km per day. Apart from this, there is the creation of airport infrastructure (greenfield and brownfield), a plethora of planned metro and other urban transportation projects, more upcoming port capacity, the ramping up of key railway corridors, new renewables generation projects, etc.

But to enable smooth execution, policymakers will have to suggest interventions to deal with critical areas such as slow land acquisition, poor dispute resolution, tardy approvals and clearances and, if possible, address contractor liquidity issues and arrest the trend of state governments often scrapping projects post-award. In addition, the sector must address the non-availability of skilled manpower at every level. The lack of skills leads to issues in leveraging better construction and digital technology, and to an absence of integrated planning. Moreover, it leads to financing stress and inaccuracy in estimates, resulting in time and cost overruns.

The pandemic led to almost intolerable stress being placed on the sector. However, it also forced developers to adopt new technologies and deploy better equipment, with improvements being especially visible in the digital sphere. Future projects will benefit from the efficiency gains this has enforced.

The government appears to be serious about continuing the thrust on infrastructure. It has managed to increase the pace of road construction – commendable in the face of the pandemic. The pace of awards has also improved. It has also tweaked an important element of the hybrid annuity model (HAM) road projects, linking annuities to MCLR rather than the bank rate. This helps HAM projects, but developers are still struggling to raise funds for BoT models, where there is a higher equity commitment from the developer.

There will be no shortage of opportunities for construction in the next five years as these projects are rolled out. However, smooth execution will depend on the above issues and challenges being tackled in a sensible and proactive fashion with policymakers, developers, financiers and other stakeholders putting their heads together.


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