The construction sector can be broadly divided into infrastructure (airports, roads, power, ports, railways, irrigation, telecom, urban infrastructure), industrial (automobiles, metals, textiles, paper, fertilizers, petrochemicals, oil & gas Industry) and building (residential, commercial& retail, retail, education, healthcare) construction. The industry is a major employment generator and contributes more than 9 percent to India’s GDP.
The construction sector has strong linkages with other manufacturing industries accounting for a significant share. The sector contributes 55 percent share in the steel industry, 15 percent in paint industry, and 30 percent in the glass industry.
The production of cement increased by 11.9 percent year-on-year (y-o-y) in December 2018 whereas the output stood at 28.1 million tonnes during this month. Cumulative output during April-December 2018 grew by 14.4 percent to reach 238.6 million tonnes. Real estate industry commissioned projects worth INR 502.4 billion during April-December 2018, much higher than INR 320.7 billion seen in the corresponding year-ago period. Implementation of real estate projects accelerated due to Real Estate Regulatory Authority(RERA) norms and penalty provisions. Hotels industry too saw its project completions rise from INR 17.1 billion during April-December 2017 to INR 35.1 billion during April-December 2018.
The construction materials industry announced 33 new investments valued at INR 2,77,274 million in FY19. Of these, Andhra Pradesh announced the highest number of new investments, with 11 new projects valued at INR 28,269 million, followed by Uttar Pradesh, which announced 7 new projects valued at INR 34,750 million. However, in terms of value of investment, Gujarat announced the largest investment of INR 60,100 million, followed by Orissa with investments worth of INR 42,200 million.
The Building Construction segment was valued at INR 16,725 billion as per Crisil Research, of which, 87 percent of the construction was for residential purpose, whereas Commercial & Retail (3.5 percent), Healthcare (2.9 percent) and Education (6.5 percent) accounted for the rest. Under the Pradhan Mantri Awas Yojana (PMAY) Urban, more than 6.85 million houses have been sanctioned up to December 2018.
For faster and efficient infrastructure development, partnership with private sector is essential. However, private sector participation in infrastructure has dwindled and remained concentrated on few sectors like roads, ports, etc.
Indian companies secured a total of 232 projects financed by ADB, worth US$ 1,640 million, during the year 2018. These primarily included construction and turnkey projects in Bangladesh, Bhutan, India, Nepal, Papua New Guinea and Sri Lanka, across sectors such as electricity transmission and distribution, oil and gas transmission and distribution, urban water supply, rural flood protection, irrigation, large and medium industries, urban services, renovation and protection of cultural heritage, road transport (nonurban), rural water supply services, technical and vocational education and training, urban sewerage, urban water supply, water-based natural resources management and air transport.
In 2018, Indian companies secured a total of 28 contracts financed by AfDB, worth US$ 131.20 million. Of these, power sector accounted for 96.7 percent of the total value of projects financed by AfDB, consisting of 17 projects worth US$ 126.84 million.
As regards World Bank financed projects, Indian companies secured a total of 208 contracts worth US$ 2,258.75 million during fiscal year 2018. In terms of value, 39.5 percent of the total amount of contracts secured were in the transportation sector, followed by energy and extractive sector (31.3 percent).
Foreign Direct Investment (FDI) of 100 percent is permitted through the automatic route for townships, cities. In development projects (which include development of townships, construction of residential/commercial premises, road or bridges, hotels, resorts, hospitals, educational institutes, recreational facilities, city and regional level infrastructure, townships) - 100 percent FDI through automatic route is permitted. FDI Limit for real estate projects within Special Economic Zones (SEZs) has also been raised to 100 percent. FDI of 100 percent is allowed for single-brand retail trading and construction development segment (which includes townships, housing, built-up infrastructure) under automatic route.
FDI inflows worth US$ 24.9 billion were received in construction (development), including townships, housing, built-up infrastructure and construction development projects during April 2000 to December 2018, while FDI inflows worth US$ 14.4 billion in construction (infrastructure) were received during the period.
India’s real estate market is expected to reach a market size of US$ 650 billion by 2020. India is expected to be third largest construction market globally by 2030, with its contribution to GDP increasing to 17 percent by 2040. The construction industry is poised to become the largest employer by 2022, employing more than 75 million people. As India’s urban GDP is expected to reach US$ 7.5 trillion by 2030, accruing 75 percent of India’s total GDP, the country needs to develop over 170 million houses until 2030. Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population. There is need for re-generation of urban areas in existing cities and the creation of new, inclusive smart cities to meet the demands of increasing population and migration from rural to urban areas. Future cities of India will require smart real estate and urban infrastructure.
Investment opportunities in the sector include construction development in residential, retail, commercial and hospitality sectors, technologies and solutions for smart sustainable cities and integrated townships, technologies for the promotion of low cost and affordable housing, green building solutions, sustainable and environmentally friendly building materials, training and skill development of construction sector workers, and also urban water supply, urban sewerage and sewage treatment. To achieve the target set to provide Housing for All by 2022, more than one crore houses are to be built by 2019 in rural areas. Setting up of a dedicated fund for affordable housing under the National Housing Bank to be funded by priority sector lending shortfall and fully serviced government authorized bonds
The last Union Budget (Budget 2018-19) had increased the capital outlay for infrastructure sector by 20.8 percent to INR 5.97 lakh crore. According to ICRA, the interim budget to increase the capital outlay towards infrastructure sector by 12-18 percent. A major part of this capital outlay is expected to be budgeted towards roads and railways.
