The construction sector is one of the major contributors to the country’s economic growth. It contributes nearly 7 per cent to the GDP. The sector is also labour intensive, being the second largest employer after agriculture. The construction sector is witnessing burgeoning demand at present, in line with the launch of the ambitious National Infrastructure Pipeline (NIP) and the government’s aim to make India a $5 trillion economy by 2024.
Based on the projects tracked by India Infrastructure Research across various sectors, there is a construction opportunity of more than Rs 33 trillion in the country. Of this, the maximum opportunity lies in the railway, irrigation and road sectors. Around 71 per cent of the total construction investment is expected to come from these sectors. While there is a strong pipeline of projects on the demand side, actual progress on the ground will depend on factors such as effective and timely execution of projects, better financing arrangements, credit metrics of the construction player, as well as the viability of the project.
The government has also been focusing on infrastructure development. The Union Budget 2021-22 has been hailed as growth oriented, with a focus on reviving the infrastructure sector. It has allocated Rs 5.54 trillion to infrastructure development for 2021-22, which is a 35 per cent increase over the previous year’s budget estimate. Sector-wise, railways and roads account for Rs 2.25 trillion.
Opportunities in key sectors
The road sector offers huge opportunities under the Bharatmala programme with a completion target of 35,000 km by 2024-25. The investment envisaged for the sector under the NIP stands at about Rs 20.34 trillion. Further, the Ministry of Road Transport and Highways has set a target of Rs 15 trillion worth of road construction for the next two years and 40 km per day of highway construction in 2021-22.
The railway is next in line with a planned capital investment of over Rs 13.67 trillion by 2024-25. Indian Railways (IR) plans to complete over 17,000 km of new lines, doubling and gauge conversion works by 2023-24. The upcoming dedicated freight corridors and high speed rail corridors also highlight substantial opportunities. IR has drawn up an ambitious plan for station redevelopment with the aim of opening up about 20 million square feet of real estate, attracting Rs 500 billion in investment. Tunnelling, bridge construction, track renewals and new line construction are some of the segments that will offer the maximum opportunities in the construction sector going forward. The projects have also opened several avenues of investment for the various stakeholders involved.
In the metro rail segment, a capital investment target of Rs 5.73 trillion by 2025 has been set for the sector. Elevated/At-grade structures will continue to dominate the future urban rail map. A number of Tier I and Tier II cities are now focusing on cost-effective modes such as light rail transit and MetroNeo, which often have an elevated/at-grade alignment. Airport development is another big area of opportunity for the construction sector, with the government planning to operationalise 100 additional airports by 2023-24. The report of the Taskforce on NIP has identified airport projects worth Rs 1.43 trillion, highlighting plenty of investment opportunities.
According to Off-Highway Research, the sale of construction equipment is likely to reach over 84,000 units by the end of 2021. Further, the projected sale of construction equipment in 2025 is likely to reach over 100,000 units. Backhoe loaders are likely to account for about 47 per cent and 42 per cent of the overall sale of construction equipment in 2021 and 2025 respectively. Overall, based on the projected sales, the Indian construction equipment market is estimated to grow at a CAGR of 8 per cent from 2020 to 2025.
For construction contractors
With a healthy project pipeline, the infrastructure space offers ample opportunity for construction contractors in both public and private projects. The government is also focused on speeding up project execution and reviving stalled projects.
Growth in the construction sector will increase the role of developers in infrastructure development in the country. Sectors such as roads, airports and housing stand out in this regard. According to projects tracked by India Infrastructure Research, an investment of Rs 20.34 trillion has been planned for 2020-25, offering abundant opportunities in the PPP/HAM space. At the state level too, several projects are likely to be taken up on a PPP basis, which will provide significant opportunities for road developers. Similarly, the airport segment is expected to offer abundant development works, with the award of newly conceptualised operations and maintenance (O&M) contracts by the Airports Authority of India in the coming months. In the housing segment, the line-up of new townships under consideration, aided by rapid urbanisation, will create opportunities.
For equipment providers
Equipment providers are expected to benefit from the significant push given to infrastructure development in the coming years. The increased focus on building domestic manufacturing capacity under the Make in India initiative also bodes well for equipment providers. Business models are evolving and extending beyond mere delivery of the product. They are transitioning towards competitive after-sales services such as training, O&M and supply of spare parts. There are also abundant opportunities to expand customer reach through platforms such as iQuippo, which offers an online market for construction equipment. Sector-wise, the power, roads and bridges, and tunnelling industries can be looked at as potential buyers of equipment.
Consultants have not only been extending their advisory services to assess the economic and financial viability of infrastructure projects, but have also started providing expertise for newly conceptualised projects such as smart cities and green buildings. With the government’s focus on the creation of sustainable infrastructure, there is significant opportunity for consultants to undertake due diligence and ensure that an infrastructure project conforms to international standards. Under the Smart Cities Mission, various consultants have been hired to prepare action plans for the proposed cities. The selected consulting firms, along with urban local bodies and state governments, have designed smart city proposals with feedback from citizens.
For financiers and investors
The financing arrangements need to be structured and executed well for the timely implantation of projects. Specific funds such as the National Investment and Infrastructure Fund can be considered for securing investment. Besides, there are some new and emerging investment avenues such as infrastructure investment trusts and real estate investment trusts.
With a robust line-up of projects across various infrastructure sectors, the future outlook for the construction sector seems promising. Both technology and sustainability will play a significant role in construction activities. The idea of sustainable construction focuses on three principles – reduce, reuse and recycle. While executing a project, it is essential to reduce waste and energy consumption wherever possible. The adoption of sustainable construction techniques will also help reduce project costs and save the environment at the same time.
Moreover, the sector is shifting its focus to digitalisation to automate processes across design, construction and operations. Going forward, the construction sector is expected to adopt advanced solutions such as cloud-based collaboration, digital twins, artificial intelligence, augmented reality, machine learning and information modelling.