Saturday, May 20, 2017

India's construction industry will look to build on gains of 2016

The country's construction industry will be looking to build on the strong momentum gained in 2016. The year 2016 undoubtedly has been a hit year for the $126 billion construction industry, which is a major contributor towards India’s GDP (both directly and indirectly). The construction industry, which is the second largest employer, next only to agriculture, staged a strong comeback in 2016 after witnessing de-growth for four years owing to a sustained slowdown in the sector. In fact, the growth of the country's construction equipment industry can draw a parallel to the high growth it recorded in 2011.

The revival of the construction industry can be attributed to the Union government’s high focus on infrastructure funding. Clearly, the government’s stress on infrastructure funding in two successive budgets would seem like music to the ears of construction companies. It may be worth recalling that Union government had initially earmarked Rs 57,976 crore for construction and maintenance of roads and highways in the 2016-17 fiscal, up 24% over the actual spending in the previous financial year. This was subsequently revised down to Rs 52,447 crore. The government has set aside Rs 64,900 crore for construction of roads and highways
for the next fiscal.

A close look at the sales numbers of India’s leading earth moving and construction equipment maker, JCB India would only provide a seal of confirmation of where the industry is heading. The company’s revenue grew by over 40% to Rs 8,000 crore in 2016 over 2015, of which exports accounted for around 20%. It sold about 26,500 machines in 2016, which is close to the sales numbers it achieved in 2011 when it sold 27,000 such machines.

Amidst this growth journey, the industry has surmounted various challenges along the way. Acute shortage of skilled workforce and paucity of construction sand, raw materials, and political disturbances continue to serve as headwinds. On the positive front, technological advancements and international infrastructure players foraying into the Indian market augur well for the industry.
The construction industry will hope to thrive on big-tickets projects such as the Smart Cities Project, the Government's ‘Housing for All by 2022’, Atal Mission for Rejuvenation and Urban Transformation (AMRUT). There is also talk that the Union government is keen to further open up the construction sector. There is a possibility that the government might allow Indian companies to bring FDI even for undeveloped plots in any project. The further opening of FDI to the construction sector coupled with the roll-out of the much-hyped GST, which is expected to ease tax-related complexities,  will accelerate overall growth.

India’s construction industry is poised to maintain the strong momentum in 2017 and beyond, but will find it hard to sustain its growth journey purely on the back of a strong performance of the roads and highways sector going forward. Infrastructure funding will continue to aid the industry but overall the construction industry needs to see growth in other segments such as real estate, mining and irrigation. ‘Not much growth is happening in these sectors. It is imperative for these sectors to contribute to the growth of the construction industry,” said a top construction company official.

The construction sector has indeed walked down the growth path and a much-needed revival of the real estate, mining and irrigation sectors will make its growth journey a complete success.

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