Guest author: Varun Khetarpal | Director | Hps Concrete Noida
India will become the world’s third largest construction market by 2025, adding 11.5 million homes a year to become a USD 1 trillion a year market according to a new study by Global Construction Perspectives. 50% of the demand for construction activity in India comes from the infrastructure sector; the rest comes from industrial activities, residential and commercial development etc. The construction industry is the second largest industry of India after agriculture. It is valued at over USD 126 billion and therefore, it is a priority for the government’s economic policy.
Going by the current trends, the Indian Government realizes the importance of developing the infrastructure of Asia’s third largest economy to maintain a double digit growth rate. The infrastructure spending has seen an upward trend in the past few years, with the total share in bank funding increase from 3.74% in 2002 to approx 10.40% in 2015. The Construction Industry in India has developed a sustainable demand from the industrial and real estate sector. The existing urban infrastructure is inadequate to meet the demands of the growing urban population. However, due to the lack of funds, the realty industry is facing a terrible slowdown, with sales down drastically and the inventory of unsold flats piling up. The real estate prices have dropped by 30% and yet there are no buyers in the market. The growth of this industry is very important because the middle class and even the small traders make investments in this sector.
Nevertheless, The Construction Industry should see an upward trend post the initiatives taken by the Indian Prime Minister for the “Make in India” program but the results will take time. The Government of India in the Union Budget 2014-15, has announced a project to develop “One Hundred Smart Cities” as satellite towns of larger cities by modernizing the existing mid-sized cities in the country. INR 70.6 Billion has been allocated in the current fiscal year for the same.
Another important growth driver is the construction equipment industry, where revenues are estimated to reach USD 22.7 billion by 2020 from USD 5.1 billion in FY12. Unit sale of construction equipment is expected to grow to 82,000 units by 2016 from 61,745 units in FY12. Construction equipment forms approx 7-8% of gross domestic product (GDP) and gives employment to more than 30 million people in the country. It also accounts for more than 60% in total infrastructural investment. The Government of India has de-licensed the material handling equipment industry and has allowed 100% FDI under the direct route. It has also given approval to some financial institutions to raise money through tax-free bonds. In the interim budget 2014-15, excise duty was cut by 2%. The norms for FDI in the construction development sector are being eased as well, which in turn has generated high interest levels from not just the foreign investors but also domestic players.
The future of the building and construction industry appears bright. The Construction industry in India expects a growth rate of 7-8% per annum over the next 10 years. Nevertheless, the industry remains highly fragmented though the share of the ‘organized’ players is growing rapidly –accounting for about 50% of the industry today.