The Construction Industry is considered as an essential part of India’s economy. It is accountable for overall growth and the Indian Government claims to develop world class infrastructure by focusing on the implementation of enforceable policies. The Construction sector has benefited from strong economic growth since 2009, considering the global economic crisis in 2008 and today, one of the key drivers for the sector is Foreign Direct Investment (FDI). The infrastructure sector contributes 8% to India’s GDP and is on the verge to touch 10%. Also, it is ready to take a big leap and will stimulate the investment opportunities for foreign investors considerably. Presently, the Construction sector in India is valued at over $126 billion and is expected to become the third largest Construction market worldwide by 2025. What is the current position of the Indian Construction Industry and what are the latest developments that encourage growth?
Urbanization and a change in lifestyle is leading to rise in demand for real estate and infrastructure in India. The Government’s plan to transform India will help the Construction Industry to grow rapidly. The Construction sector is the second largest employer (employing more than 35 million people) and economy driver, after the agriculture sector. This sector has the second highest FDI inflow trailing only the service sector. In order to encourage the growth of the Construction sector, the Indian Government has lately relaxed the FDI regulations to allow 100% FDI under the automatic route for urban infrastructure areas, such as urban transport, water supply, sewerage and sewage treatment. It also provides External Commercial Borrowings (ECB) for the companies to invest in this sector with a minimum maturity of five years and a borrowing limit of $750 million.
In the coming decade, several sectors in India will create more than 90 million jobs and to accommodate them 8 million square feet of office space will be required. The Indian Finance Minister, Arun Jaitley, considers infrastructure as the key to economic growth. He mentioned that, the investment in the infrastructure sector may go up to $1 trillion in the coming years, out of which 70% is expected from private and foreign companies. Over the coming decade, the required investment in this sector is more than $1.8 trillion and this will be the chance for foreign investors to do business in India. The Indian Government announced an investment target of $376 billion in infrastructure over the next three years which includes the industrial sector, road & railway as well as port connectivity projects. The Government of India plans to give tenders of 100 highway projects to the private sector under the Public Private Partnership (PPP) model. As a matter of fact, foreign investors are likely to invest in the National Highway Development Project (NHDP) offered by National Highway Authority of India (NHAI).
Modernization of cities would require development in every sector and need of the hour is to adapt latest technology to make the cities smarter. The ‘Smart Cities’ mission initiated by the Government of India aims to upgrade cities that provide core infrastructure as well as to give citizens the opportunity for a better quality of life, a cleaner environment and an application of smart solutions. The proposed mission covers 98 cities in the following 5 years and 20 cities are already at their first phase of development. To initiate the Smart Cities Mission, the Government has already assigned $1.5 billion for the renovation of modern infrastructure. The Mission plans to attract up to 100% FDI for developing the selected cities with the help of loan assistance from Asian Development Bank (ADB), the World Bank and the BRICS Development Bank. Around $15 billion is required to fast track the projects which have already started or are to be launched soon. The Urban Local Bodies (ULBs) can also enter the partnership agreement with a foreign player, either through Joint Venture (JV), private sector partner or through other models.
The Government’s policies, such as Make in India, Smart Cities and liberalized FDI will supportthe Construction Industry to consolidate its importance in India. Funds and trusts, such as the National Investment and Infrastructure Fund (NIIF), the Real Estate Investment Trust (REITS), Infrastructure Investment Trusts (INVITS) and Infrastructure Debt Funds (IDFs) will further encourage the positive development of this industry. By relaxing FDI norms, introducing above mentioned policies and projects, the Government clearly aims to attract more investors and eventually enhance the economic standing of the construction market in India.
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