Union Budget 17-18: promising outlook for the Construction Industry

/Union Budget 17-18: promising outlook for the Construction Industry
  • Construction Industry Expertise in India

The Indian Construction Industry valued at $126 billion and employing around 40 million people, accounts for approx.  8% of the country’s GDP. The construction industry ranks third in terms of direct, indirect and induced effects in all sectors of the economy. Thus, it plays a pivotal role in the economic growth of the nation.

About 50% of the demand for construction comes from the infrastructure sector. Union Minister of Road Transport, Highways and Shipping, Nitin Gadkari said India’s Infrastructure sector has the potential to boost GDP growth by 2-3%. Finance Minister Arun Jaitley is seeking more private investments in the infrastructure sector and has announced an 80% increase in Infrastructure allocation to $58.64 billion in the Union budget 2017-2018, released on 1st February 2017. In regards to the Government’s aim of the ‘Housing for All by 2022’, the Finance Minister in his Budget speech proposed to give ‘infrastructure’ status to affordable housing. Banks can now lend money to affordable housing projects under infrastructure category – this move is expected to boost the volume of construction activity across the country. Other highlights from the Budget that will boost the Construction Sector:

  • Construction of 10 million houses for homeless by 2019
  • Pace of roads construction has increased to 133 km per day against 73 km in 2011-14
  • 2,000 kms of coastal roads identified for construction and development
  • A new Metro Rail Act will be enacted by rationalising the existing laws – will facilitate higher private investment in construction.

Talking about construction equipment, Asia-Pacific is projected to register the highest growth in the heavy construction equipment market from 2016 to 2021 with India projected to be the fastest-growing market in the region. Overall volumes of construction equipment have increased to a four year high with 41.5% growth accounting to 52,100 units in 2016 compared to 36,800 units in 2015. With the Indian Government’s target of investing about $377 billion in infrastructure by 2019, the construction equipment market is expected to witness a high growth in this period. According to Avinash M. Patil, President of the Builders Association of India, the Indian construction equipment revenues are expected to cross $23 billion.  The Government is working on a Construction Equipment Manufacturing (CEM) legislation and will soon place before the Parliament separate regulatory norms for off-highway construction equipment. For the wheeled construction equipment, the Road and Transport Ministry is making regulations.

Construction projects nationwide have slowdown due to the recent demonetization of high currency notes. However, the industry holds a positive outlook and is expecting the impact of demonetization to wear off in the coming months. At a recent pre-budget meeting, the Construction Federation of India (CFI) submitted a memorandum on key issues relating to direct and indirect taxes impacting the construction sector. With the anticipated implementation of GST in July 2017, the industry is expecting resolution of anomalies in tax laws in the Construction Industry and rebate on construction materials. Power Minister Piyush Goyal urges policy makers to provide indigenous solutions for construction that are relevant for India.

As per estimates, India has built only one third of the buildings it will have by 2030 and so a 200% expansion is expected. The Indian Construction Industry will remain buoyant and with the Government’s focus on creating world class infrastructure in the country, India is witnessing significant interest from international investors in the sector.

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