The construction industry contributes about 9% share in India’s GDP. The sector is expected to have a CAGR of 15.7% to reach $ 738.5 billion by 2022. India was expected to become the world’s third-largest construction market by 2020. The industry was also expected to grow at 5.6% during 2016-20, compared to 2.9% during 2011-15. Moreover, a budget of about $ 454.8 billion was required on infrastructure development over five years (2015-20), with 70% of funds needed for power, roads and urban infrastructure segments.
Growth drivers for the industry:
- Smart cities – 100 smart cities to be developed by 2020
- Industrial corridors– Five industrial corridors planned
- Railway stations/ lines – 25 railway stations re-development besides 3,500 km line addition
- Mega ports – 6 mega ports planned
- Increasing demand for commercial space– Construction of office spaces, hotels, retail and entertainment units.
Several factors spur the construction sector in India. The spurring starts with the focus on government initiatives. It has introduced two main things in the infrastructure and construction sector that have led to prosperity –
- A huge network of communication whether it is road rail or telecommunication.
- Policy support for “Housing for All” and Smart City mission
The Government of India, Niti Aayog along with the Indian Construction Industry has set up the Construction Industry Development Council (CIDC) to take up activities for the development of the construction industry in India. The Council, for the first time in the country, provides the impetus and the organisational infrastructure to raise quality levels across the industry. This helps to secure wider appreciation of the interests of the construction business by the government, industry and peer groups in society. This industry has previously suffered negligence and as a consequence, the infrastructure remained a poorly developed sector in India. But recently, the sector has started to show some progress. This was made possible by the collaboration between the top tire organisations.
Exports and Investments
Investment is required in infrastructural projects to support the growth rate of the Indian economy. The amount of actual investment in these areas would depend on the willingness of private and foreign investors to invest in the construction and related services. India’s export of these services include export of skilled services for project management, consultancy, design, engineering, and maintenance services as well as unskilled and semi-skilled labour services for construction and repair activities. It is, however, difficult to state precisely the total number of firms engaged in construction and related activities since the size of firms range from one-man operations to large public limited companies and there are a large number of private players in this sector.
The biggest challenge for India is how to bring more private investment into the infrastructure and construction sector. There’s an almost insatiable appetite amongst investors to invest in infrastructure. They want to be sure that they’re investing in stable long-term contracts. The Indian government is working towards creating a framework that will make the country interactive with private investments.
The construction development and infrastructure activities sectors received FDI inflows amounting to US$ 25.69 billion and US$ 16.97 billion, respectively, between April 2000-June 2020. Still, the country requires investment worth US$ 778 billion in infrastructure by 2022 for sustainable development within the nation. The activities that registered the highest growth include export cargo (10%), highway construction/widening (9.8%), power generation (6.6%), import cargo (5.8%) and cargo at major ports (5.3%).
As per the reports published by the National Investment Promotion & Facilitation Agency:
- By 2025, the Construction market in India is expected to emerge as the third-largest globally.
- By 2025, The construction output is expected to grow on average by 7.1% each year.
- This sector employs over 51 million people in India.
In a paper published by Arpita Mukherjee, she explains how Indian companies can explore the possibilities of joint ventures with foreign construction and engineering companies whereby Indian consultants can provide the detailed engineering and development of requisite software while the foreign company can provide the conceptual design and process know-how.
She further mentions that given India’s considerable infrastructural needs, there is significant scope for expanding imports of construction and related services. Foreign collaborations in turnkey projects will facilitate the transfer of technology, ease financial constraints and expedite industrial and infrastructural development. Many infrastructural projects have already been opened up for privatization and foreign investment.
India has its own set of challenges and opportunities. One of the biggest challenges is to maintain the growth that Indian construction industry has seen over the past 5 years. With the outbreak of the Coronavirus, the challenge has intensified. The global turmoil due to the pandemic and the kind of impact that it is having on the supply chains and value chains is becoming a significant issue all across the world. This was bound to affect all industries in all countries but as for the construction industry, it is still predominantly a domestic business. There’s no reason why it should specifically affect the pace at which we can invest in infrastructure in individual countries.
There is substantial scope for increasing trade (both exports and imports) in India for construction and related services resulting in productivity and efficiency gains for the sector and the economy as a whole.