The construction industry in India is an important growth driver of India’s economy, thus it is one of the primary industries in India. It is also the third largest sector in India, next only to agriculture and services. It contributes ~8% to India’s GDP and offers direct and indirect employment for nearly 40 million people. This is because of the relationships that the sector has with other sectors of the economy. Around 250 ancillary economical areas such as cement, steel, brick, timber and building material are dependent on the construction industry.
The Construction industry in India comprises the real estate as well as the urban development segment. The Real estate segment covers residential, office, retail, hotels and leisure parks, among others. While urban development segment generally consists of sub-segments such as water supply, sanitation, urban transport, schools, and healthcare. The government construction projects are majorly providing a thrust to the rising India construction industry. Major construction activities accounting for growth are power generation projects, highway construction, and railway expansion and export and import cargo. Around 21% of the contribution is from cargo, 9.8% from highway construction and expansion and 6.6% from power generation. Government initiatives such as making 100 smart cities, world-class highways and shipping infrastructure, housing and urban development has attracted huge investments through FDI, private players, and government budgets.
Despite major hurdles, the industry is moving ahead and has exhibited commendable growth in the last five years. The Indian construction industry offered several investment opportunities for foreign companies. As per market reports, there was an infrastructure investment of around 260 billion U.S. dollars in the construction industry across India in the fiscal year 2017. The year 2017 also reported the construction industry to be the most employed sector in India, as it employed around 51 million people focusing on urban development projects, such as highway construction, transport, healthcare infrastructure, etc.
The year 2018 accounted for 30.6% of the industry’s total value. Residential construction was the largest market in the Indian construction industry during the review period. The market was expected to remain the largest market over the forecast period and accounted for 30.1% of the industry’s total value in 2023. As per reports, energy and utility construction accounted for 27.1% of the industry’s total output in 2018, followed by infrastructure construction with 23.3%, industrial construction with 7.8%, commercial construction with 7.6%, and institutional construction with 3.6%. Under the Pradhan Mantri Awas Yojana (PMAY), the government built 15.3 billion houses during the period of 2014-2018.
In its 2018-19 budget, the government increased its expenditure towards infrastructure development by 20.9% from Rs 4.9 trillion (US$75.9 billion) in the financial year 2017-2018, to Rs 6 trillion (US$89.2 billion). The industry’s CAGR was reported to be 4.31% during the review period (2014-2018) but was expected to rise to 6.44% over the forecast period. The industry is estimated to rise from a value of US$505.7 billion in 2018 to US$690.9 billion in 2023.
In January 2019, India’s construction sector had a contribution of over 2.7 trillion Indian rupees to the country’s GDP. This was an all-time high contribution recorded through the sector. In 2019, railway sector in the nation received the highest ever budgetary allocation. Moreover, FDI in the construction development sector (townships, housing, built up infrastructure and construction development projects) and construction (infrastructure) activities stood at $26.16 bn and $25.95 bn, respectively, between April 2000 and September 2021. The government policies and the endeavour of the industry itself to follow best practices, made FDIs easy to enter the Indian market.
India is on the move towards a phase of constant growth in the infrastructure build up. Though the industry experienced few hiccups but it regained growth movement in 2018 as well as 2019, with output hovering around 8% which was at 1.9% in 2017. The industry is expected to continue to expand over the period (2019-2023). The growth was mainly driven by the government’s efforts and large expenditure on housing, road, ports, water supply, and airport development. This is seem to be possible as the Government of India has announced several Infrastructure development programs such as Bharatmala, Sagarmala, Smart Cities, the UDAN (Ude Desh ka Aam Nagrik) scheme and the Aayushman Bharat program and Housing for all 2022 to strengthen the country’s infrastructure. This provided impetus to the industry and is expected to boost the industry in the coming years, too.
Budgetary allocations to the sector have also been increased over the years to support infrastructure led growth in India. Investments in Infrastructure totalled `24 lakh crore in the 11th five-year plan (FY2007-12) and `36 lakh crore in the 12th five-year plan (FY2012-17). Investments of `10.2 lakh crore and `10 lakh crore were made in fiscal years FY18 and FY19, respectively. Power, Roads, Railways, Water Supply & Irrigation were the main beneficiaries of this investment.
The government increased its expenditure towards infrastructure development by 20.9% to INR6.0 trillion (US$89.2 billion) in FY2018-2019 with continued investment in transport infrastructure, energy and residential projects under flagship programs as mentioned above. Though the economy experienced slowdown in 2019, India showed a huge demand for Infrastructure projects in Power, Roads, Railways, Ports, Airports, Water Supply and Irrigation.
A year later, COVID 19 impact froze the entire global economy in the year 2020. It was devastating on the Indian economy in particular. For the major part of 2020, the construction sector in India was overcoming the labour shortage and supply chain disruptions of their raw material. India’s GDP growth declined for five consecutive quarters and touched 3.1% in the fourth quarter of FY20- the lowest since 2004. However, even in 2020, just the real estate sector itself received foreign investments of over US$5 billion. This came in the backdrop of the plans to craft an ambitious National Infrastructure Pipeline – which should prove to be a real game-changer. Dwelling specifically on the real estate sector, the Knight Frank reports, reported that the real estate industry encompassing construction and development of properties has grown from entities with a focus on single products and having only market presence in one area into corporate entities with multi-city presence having a range of products. There is a considerable shift from traditional financing methods to an era of structured finance, private equity, and a public offering. This has led to the contribution of the private sector in total infrastructure investment.
The situation started to improve in 2021 as the industrial operations were getting back on track. There is a pressing need for the home construction and maintenance industry to renovate the existing spaces. The work-from-home format became the norm for the entire 2021. There was a surge in demand for the home renovation, maintenance, and interior designing sector. The business disturbances and insecurities created by the pandemic further magnified the risks to India’s economic outlook. However, industry experts feel that the formation of a `Department of Construction’ as a nodal point for the construction industry within the PMO will consolidate the issues faced by the construction industry under one umbrella rather than requiring coordination with multiple ministries. This is already been practiced in countries like South Korea, Japan, etc. as International best practice dictates one nodal point.
The progress of physical infrastructure in India and, subsequently, the construction sector has been in focus for over last decade. It is a well-known fact that the influence of the construction industry extends across several sub-sectors of the economy as well as the infrastructure development, thus, it becomes the basic input for socioeconomic development.
By 2025, India will be the third-largest construction market and will contribute approximately 13% to the country’s GDP. It should hit US$1 trillion by 2030. These positive forecasts are due to the consistent growth of the sector.
Currently, the Construction industry is expected to record a CAGR of 15.7% to reach $ 738.5 billion by 2022. Commercial construction activities are expected to further support industry growth in India. Construction activities in the commercial sector are expected to provide further momentum for the growth of the industry in India from the short to medium-term perspective. Several large and big commercial construction projects are being undertaken by both central as well as state governments. For instance, the Maharashtra Government has approved an investment of INR 95 Crore for the construction activities of the Maharashtra National Law University in the Nagpur district. Notably, the investment is expected to be used for the construction of hostels and residential buildings at the Maharashtra National Law University. A total of 13 buildings are to be constructed under the project by the state government. The publisher expects similar commercial construction projects to provide support for the industry growth in India over the next four to eight quarters.
Apart from this, the Central Vista project and the new parliament building project of the Central Government are also expected to offer support to the growth of the construction industry in India from the short to medium-term perspective. In the ongoing FY 2021-22, the Government has allocated a total of INR 1,289 Crore for the development and re-development of the Central Vista project. With both the state and the central government expected to increase their spending on the commercial construction projects, the analyst expects it to keep supporting the industry growth over the next four to eight quarters in the country.
Furthermore, the central government is expected to approve more housing units under the PMAY scheme over the next four to eight quarters, the publisher expects the affordable housing scheme of the Indian Government to keep supporting the growth of the residential construction sector from the short to medium-term perspective, which will subsequently assist the growth of the overall industry in India.
GlobalData expects the residential construction market to retain its leading position over the forecast period, with a share of 28.7% of the industry’s total value in 2022. In a bid to provide affordable housing to meet demand from lower- and middle-income groups, the government sets a target of constructing 20 million social housing units in urban areas and 30 million housing units in rural areas by 2020 under the Pradhan Mantri Awas Yojana.
Further, various foreign economies have joined hands with India for infrastructure development through finances and technology such as India-Japan for developing North-Eastern states and India-Sweden for developing smart cities. By injecting FDI into this sector, the government aims at breaking domestic monopolies, creating a competitive market, and bringing international best practices into the sector. This is expected to push firms to strengthen their processes and improve their offerings. Businesses become exposed to the latest international tools and technologies, as well as operational practices. Gradually, this will result in enhanced efficiency and effectiveness of the industry as a whole.
Further, various foreign economies have joined hands with India for infrastructure development through finances and technology such as India-Japan for developing North-Eastern states and India-Sweden for developing smart cities.
The government plans to construct 8,500 kilometres of roads and an additional 11,000 kilometres of National Highway corridors in the country in the year 2022. With the government’s support, the industry is expected to grow significantly. For further development of the infrastructure in the country, the Indian Government and the Dubai Government have signed an agreement for the construction of industrial parks; IT towers, logistics centres, medical colleges, multipurpose towers, and a specialized hospital in Jammu & Kashmir.
Additionally, the Union Ministry of Road Transport and Highways has also planned infrastructure projects worth INR 700,000 Crore (US$91 billion) over the next two to three years. Further enhancing the growth of the construction industry from the short to medium-term perspective.
Conclusion:
Presently, there is a need to alleviate the challenges by introducing innovation and scaling up the labour force. In the years ahead, the construction industry in India has to overcome various challenges with respect to housing, environment, transportation, power or natural hazards. Professionals/Technocrats associated with the Indian construction industry need to employ innovative technologies and skilled project handling strategies to overcome these challenges. Continuous private sector housing boom will create more construction opportunities. Industry experts feel that public sector projects through Public Private Partnerships will bring further opportunities. Furthermore, developing supply chain through involvement in large projects is likely to enhance the chances in construction. Renewable energy projects will offer opportunities to develop skills and capacity in new markets.
The country is rapidly undergoing social and economic changes. This will give rise to substantial increase in the country’s population and size of the cities resulting in huge demand for the construction industry. India will soon have one of the largest shares of the world’s building stock, encompassing primarily new developments.
In few last years:
- In November 2017, the logistics sector was given the status of infrastructure, to boost investments in the sector.
- For funding and development of infrastructure, the government of India has decided to rely on off-budget sources and Public Private Partnership (PPP)”.
- For creating an eco-system to make India a global hub for electronics manufacturing a provision of US$115.62 million in 2017-18 in incentive schemes like M-SIPS and EDF.
- Introduction of the National Steel Policy in 2017 to aim at higher spending on infrastructure and construction through government initiatives.
- Total allocation for infrastructure in the Budget of 2019-20 stands at Rs 4.56 lakh crore (US$ 63.20 billion).
- In June 2018, the Asian Infrastructure Investment Bank (AIIB) announced a US$ 200 million investment into the National Investment & Infrastructure Fund (NIIF).
- Japanese investment has played a significant role in India’s growth story. Japan has pledged investments of around US$35 billion for the period of 2014-19 to boost India’s manufacturing and infrastructure sectors.
- As of October 2018, the US government’s Overseas Private Investment Corporation (OPIC) is planning to invest in India’s infrastructure, port, and solar energy sectors.
- With every sixth urban person globally being an Indian, the real estate and construction sector holds significant opportunities for both global and domestic companies engaged across the value chain.
- India will need to construct 43,000 houses every day until 2022 to achieve the vision of Housing for All 2022. Hundreds of new cities need to be developed over the next decade.
- This has the potential for catapulting India to 3rd largest construction market globally. The sector is expected to contribute 15 per cent to the Indian economy by 2030.
- The recent policy reforms such as the Real Estate Act, GST, REITs, steps to reduce approval delays, etc. are only going to strengthen the real estate and construction sector. NHAI records the highest ever construction of national highways! The infrastructure sector got a big boost in the financial year 2019-20, with the National Highways Authority of India (NHAI) accomplishing the construction of 3,979 kilometers of national highways across the country. According to the Ministry of Road Transport and Highways, this is the highest highway construction ever achieved by the NHAI in a financial year. With 3,380 kilometers of highway construction in the financial year 2018-19, the construction pace as noticed in last years has seen steady growth. With the development of a total of 3,979 km of national highways during the financial year 2019-20, the NHAI has achieved an all-time high construction of highways since its inception in the year 1995, claims the ministry.
