After experiencing a deep recession during the first and second waves of the pandemic, the construction industry is making a strong recovery. Activity is back to above pre-Covid levels. The revival has been driven by a combination of factors.
One is the government thrust to continue to develop infrastructure, coupled with various measures to ensure liquidity, and the roll-out of the vaccination programme. All this has helped keep activity ticking. Another important development has been the industry’s efforts to cope with restrictions, and continue to execute projects. The industry functioned, albeit at reduced intensity, through the devastating Second Wave in April-May 2021, and it has, so far, weathered the ongoing Third Wave without much disruption.
Competition is up in the road sector, with a sharp increase in the number of bidders for EPC projects. While this has led to a drop in costs for NHAI, it could mean some trouble down the line. Raw material costs are up, leading to thin margins. In the circumstances, over-enthusiastic bidding could lead to future financial distress. This was visible across the road sector in the 2012-14 period, as developers went bankrupt and were unable to execute projects. The negative fallout from that period is still apparent. NHAI will have to monitor bidders’ finances carefully to ensure this experience is not repeated.
Managing finances will be a delicate exercise in any case. The National Infrastructure Pipeline targets investments of Rs 111 trillion between 2019-20 and 2024-25. Given the slowdown, this will mean annual expenditures of Rs 20 trillion-Rs 25 trillion and there will be a 20 per cent shortfall in financing from normal sources. This gap will have to be compensated for by rapid asset monetisation, leveraging the financial capacity of new vehicles such as infrastructure investment trusts.
Indian Railways’ expansion and modernisation plans present another set of opportunities. In 2022, the construction of 2,500 km of new lines and doubling of tracks are planned, along with 6,000 km of track electrification. In addition, new road overbridges and rail overbridges are planned. In the future, seven proposed high-speed rail projects will offer huge construction opportunities. The port sector is also in the process of modernisation and capacity expansion, which will offer opportunities. Specialised constructions such as high-altitude tunnels and bridges are other areas that offer new scope for work, alongside ongoing metro projects.
The construction equipment sector is already picking up, in anticipation of these opportunities, and greater construction activity should lead to a boost in demand for cement, steel and other construction materials. It should also lead to better employment prospects.
The industry has many learnings from the recent past. It has had to focus on worker health and safety and it has had to monitor supply chains carefully given the disruptions. There has also been greater digitalisation across the value chain. On the policy front, slow land acquisition and tardy clearances remain issues. It will also be crucial to meet the challenges of ensuring adequate liquidity alongside financial stability.