Policy reforms such as GST, RERA, Benami Act, REIT, steps to reduce approval delays etc, are going to strengthen the future of the construction industry in India
After agriculture, the building materials industry is the second largest employer in the country. Not only does the sector employ a large number of people, but also contributes significantly to the nation’s economy. It accounts for 8% of India’s GDP and is valued at approximately $126 billion; industry reports forecast building materials to record a CAGR of 15.7% y-o-y to reach $738.5 billion by 2022. Major developments are expected in co-related sectors, which will, in turn, lead to the growth of the building materials industry by 10% in 2019.
Some areas which will witness positive augmentation are social infrastructure, educational institutions, hospitals, government accommodation, defense infrastructure and water resources. In addition to this, increasing investment in the industry is another key factor contributing to the growth of building materials. More international investors have taken an interest in the Indian infrastructure space. A marquee investment announcement in the space is of AIIB investing $200 million into the National Investment & Infrastructure Fund. Overall there have been private equity and venture capital investments worth $3.9 billion in the sector. Of this, 29 deals were closed in H12018.
The backbone for the overall economic development of the country has been our developing infrastructure market. Building infrastructure requires cement, ceramics, steel, windows and other construction materials which make the future of building material industry more promising. The launch of numerous ambitious building schemes in the recent past by the Indian government including industrial parks and corridors, smart cities, logistics networks, Housing for All 2022 scheme etc are strong contributing agents to the growth of the industry.
In 2018, there were many significant developments in the industry. Union Budget 2018 was promising towards infrastructure development with an allocation of $92.22 billion for the sector. Massive push was given to development across categories with an allocation of $18.69 billion for the road sector, $10.97 billion for development of National Highways, $22.86 billion for railways, $2.47 billion towards Sahaj Bijli Har Ghar Yojana, $648.75 billion to increase capacity of Green Energy Corridor Project, $69.86 million for the upgradation of state government medical colleges (PG), $122.66 million for development of government medical colleges and government health institutions, $1.55 billion to boost telecom infrastructure.
The Smart City project, which has been the primary vision of the government, was sanctioned $31.81 billion, and affordable housing was given an ‘infrastructure’ status. All of these are strong agents which will push the growth of the sector in 2019 as well. Construction of additional 150,000 affordable houses under PMAY showcases the clear vision of the country and the opportunities for the sector ahead. Most of the prominent investments have been in states of Andhra Pradesh, Telangana, Maharashtra, Gujarat, Goa, Union Territories of Daman & Diu and Dadra & Nagar Haveli.
Additionally, the scope of projects on government land has become more lucrative with India achieving the mandate of prefabricated, pre-finished, and volumetric construction (PPVC). The benefit of subsidies that the government has been providing to companies that participate with the aim of increasing and standardising modern methods of construction (MMC) in the country will fuel the demand for construction materials in India as well as in Asia-pacific region.
2019 is likely to see the Government making ardent ventures to revitalise the industry and boost Public-Private Partnerships. To have sustainable development in the country, India needs investment worth $777.73 billion in infrastructure by 2022. The future will see phase-focused developments across the road and railway networks, port and airport development, solar park development, strengthening of logistics and warehousing segments, affordable housing launches and metro rail network expansion. This will also increase the focus on industries like coal and steel, natural gas, windows, ceramics, crude oil, refinery products, fertilisers, water supply, cement, electricity and sanitation.
Proposed construction of around 250 airports across the country in the next 2-3 years by Airports Authority of India is another promising aspect. $3.2 billion has been allocated to build new terminals and expand the capacity of the existing ones. Metro rail projects worth over Rs 500 billion ($7.7 billion) are already underway (approximately 28 projects ongoing or under construction) in India, and more such projects are going to emerge. Monorail projects are also being developed in Chennai, Thiruvananthapuram, Bengaluru, Pune, Thane, Delhi, Port Blair, Dehradun, Chandigarh etc. All these developments give a clear indication of the exciting future the sector holds.
The infrastructure sector is expected to contribute 15% to the Indian economy by 2030, thereby navigating India to possibly become the 3rd largest construction market globally in the coming years. All recent policy reforms such as GST, RERA, Benami Act, REIT, steps to reduce approval delays etc. are only going to strengthen the future of the construction industry.
However, vision and investment alone would not be enough to turn the infrastructure dream into a reality; there are many planning, technical and financial oriented issues that need to be tackled immediately and efficiently. Immediate attention is required to address concerns related to land acquisition, environmental clearances, time and cost overruns, and reduction of regulatory uncertainty and delays. Additionally, a mechanism for single window clearance for approvals and improved transparency is also necessary.
The author is managing director, Aparna Enterprises Ltd.