Improved regulatory environment & govt. focus on infra to promote growth in the construction sector
Weakness in aggregate capex together with subdued real estate demand has resulted in decline in share of construction sector in India’s gross value added (GVA) from 9.6 per cent in FY12 to 7.4 per cent in FY18, according to a recent ASSOCHAM-ICRA joint study.
“Over last five to seven years, growth in construction GVA has been lower than the growth in overall GVA,” noted the study titled, ‘EPC Contracting – Efficiency in infrastructure creation,’ jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and credit rating agency ICRA.
The construction sector with a GVA worth Rs 10.6 trillion (FY17) is of significant importance to Indian economy as it plays a major role in economic growth, provides major employment and occupies a pivotal position in country’s development plans.
The study further noted that while public sector capex activities had picked up during the course of past few years, private sector capex growth remained weak due to issues faced in land acquisition, approvals, deferral of capex plans and overall subdued business confidence.
“The construction activity is highly dependent on government policies as part from direct projects awarded by the government institutions and approval of clearances are a must for smooth functioning of the industry,” highlighted the ASSOCHAM-ICRA joint report.
It however said that the Centre had increased focus on infrastructure projects evidently as it had increased allocation towards infrastructure in last three budgets and had also taken steps to improve the regulatory environment and funding avenues, which should lead to improvement in the construction activities going forward.
Major opportunities for EPC players are expected over next 3-5 years in railways, roads and metro rail segments.
There are huge opportunities for EPC companies in railway electrification whereby 37,000 route kilometres (km) of network is to be electrified until FY2022 and 30,000 km of the total network of 67,000 km had been electrified till March 2017. “The proposed electrification would entail a capex of Rs 350-400 billion.”
Besides, about 1,000 km of metro rail network is currently in proposal/planning stage which will provide opportunities worth Rs 1.5 trillion for the construction sector.
It further said that about 80 per cent of the highway upgradation project under Bharatmala Pariyojana with a total capex of Rs 6.9 trillion to be executed over next five years would be directly or indirectly adding to the order book of construction/EPC companies.
On the real estate front too, the study noted that incentives provided by the government for affordable housing projects and allowing 100 per cent foreign direct investment (FDI) through automatic route will give a much-needed boost to the construction sector.
The study though suggested the EPC contractors to enhance their capacity and invest in latest design, engineering and IT technologies to ensure efficient execution of these opportunities. Moreover, they need to focus on developing skilled manpower as the sector scales up.