Bright prospects for India’s Construction Industry

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    Bright prospects for India’s Construction Industry-M+V Altios

    The Indian Construction industry is one of the most important industries and a major driver of India’s economy. Its activities contribute more than 8% to India’s GDP. Due to the increasing demand from real estate and infrastructure projects, India’s construction sector will remain on the rise especially owing to government projects that offer significant up-side thrust to the sector.

    One of the currently largest projects is the expansion of the metro rail network that is likely to provide sizeable opportunity over the next three to five years. With an agenda of realizing metro rail projects in over 30 Indian cities, investment opportunities are abundant. According to K. Ravichandran, Senior Vice-President and Group-Head, Corporate Rating, ICRA,”roads and urban infrastructure, including metro rails are two key segments which have witnessed robust order inflows for the construction companies. Further, with sizeable pipeline of projects in these segments, the construction sector is expected to have sufficient order inflows and companies with strong track record and healthy balance sheet are expected to exhibit strong growth going forward.” Approved metro rail projects amount to over $39 billion and those with a pending approval are estimated at approx. $31 billion. Thereof, the construction industry can expect orders of $12 billon – $14 billion over the next three to five years.

    Once a niche branch, green building solutions now is a growing trend. Being the world’s third-biggest emitter of greenhouse gases, India launched a campaign to make new housing developments sustainable by 2022. As the construction industry naturally has a major impact on the environment, the country has identified it as a good target to meet its ambitious climate goals. The campaign is led by the Sustainable Housing Leadership Consortium (SHLC) comprising builders Godrej Properties, Mahindra Lifespaces, Shapoorji Pallonji, Tata Housing and VBHC Value Homes and supported by the Ministry of Housing. India’s biggest construction companies have announced to make at least 20% of new housing projects sustainable by 2022. Additional driving factors for the uprise of green building solutions in the construction sector are newer technologies and great demand. These have lowered the difference in cost compared to traditional construction to a bare minimum. As a relatively new market for green housing, entry opportunities for foreign companies with relevant know-how could not be better. Another attractive option is investment through gree financing. India so far has issued almost $ 4.5 billion worth of green bonds.

    The construction industry in India is rapidly developing. R Shobha, National Director, Project Management, Colliers International India, expresses that “The construction industry in India is at the cusp of disruptive change with new materials, building technology, software, digitization and artificial intelligence changing the way we conceptualize, build and use our buildings”. As per Colliers Research, to realise the government’s ambitions goal of “Housing for All” by 2022, it is imperative to adopt newer technologies at a much faster pace. Use of innovative technologies will not only reduce the turnaround time of project completion but also improve the quality and durability of construction and help in generating more interest in affordable housing projects among buyers.

    Construction equipment has also witnessed innovation, with industry players introducing new technological features in products like excavators and motor graders to deliver value and stay ahead of the competition. Focus is on improved features like lesser noise, vibrations and dust, lower fuel consumption, reduces operating costs, minimal maintenance, improved safety, etc. Construction equipment previously attracted an excise duty of 12.5%, plus state taxes that ranged from 6% to 13.5% – which totalled to a tax of not more than 26%. After the implementation of GST from 1st July, 2017, construction equipment now attract a tax of 28%. This will lead to a 6-8% increase in the prices of construction machines. The industry however doesn’t seem to be concerned about this. Backed by the government’s focus on infrastructure development, industry executives from companies like JCB India and Tata Hitachi, expect sales of construction equipment to grow by 10-15% to a record high in the end of 2017.

    According to the `Global Infrastructure Outlook’ report by Global Infrastructure Hub, India requires infrastructure investments of around $4.5 trillion by 2040, making it the second largest infrastructure market in Asia after China. There is enormous potential and opportunity for innovative technology and sustainable practices. It is seen that in metro cities, few developers have already started using technologies like self-climbing formwork, precast concrete technology, and dry well systems. These provide various advantages – cost-efficient, minimize labour force, higher earthquake resistance, higher durability, lower maintenance, etc. Construction equipment sales (unit) on the other hand grew at 25% in FY2016-17 and the industry is positive on steady further growth. Owing to the government’s inclination towards investments in smart cities and infrastructure projects such as highways, railways, metro rail, seaports, airports, etc., industry experts expect growth in the sector to gain further momentum in the next three to five years.

    To read the latest news on the Construction Industry in India click Construction Newsletter.