Skip to main content

How will policies affect the construction industry?




Mr. Japnit Singh, Senior Director, Singapore and India, Spire Research and Consulting



India, as the world’s seventh largest country by area and second biggest by population, is one of the most dynamically growing, but largely untapped construction equipment markets. From 2013 to 2020, it is estimated to grow six times to a size of USD20 billion to USD25 billion.

The Planning Commission, Government of India, jointly with the Indian construction industry has set up Construction Industry Development Council (CIDC) to take up activities for the development of the Indian construction industry. The Council, for the first time in the country, provides the impetus and organizational infrastructure to raise quality levels across the industry. This helps to secure wider appreciation of the interests of construction business by the government, industry and peer groups in society. CIDC is a change agent to accelerate a process of self-reform that should enable the industry to answer the challenges of the future.

In India, construction is the second largest economic activity after agriculture. Construction accounts for nearly 65 per cent of the total investment in infrastructure and is expected to be the biggest beneficiary of the surge in infrastructure investment over the next five years. Investment in construction accounts for nearly 11 per cent of India’s Gross Domestic Product (GDP).

The construction industry has been witness to a strong growth wave powered by large spends on housing, road, ports, water supply, and rail transport and airport development.

While the construction sector's growth has fallen as compared to the pre-2008 period, it has picked up in the recent past. Its share as a percentage of GDP has increased considerably as compared to the last decade. To put things in perspective, the total investment in infrastructure - which in this case includes roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation – is estimated to have increased from 5.7% of GDP in 2007 to around 8.0% by 2012.

Boom in construction equipment –

The construction equipment sector in India has been growing at a scorching pace of 30% annually, mainly driven by the huge investments being made by the government and the private sector in infrastructure development. The growth of this sector is directly interlinked with the growth of the Indian economy and indirectly with the growth of infrastructure. The last few years is a phase of restructuring in the industry through acquisitions and joint ventures. This also reflects the active interest of international majors in the domestic market. Many international players have been looking for importing and selling complete equipment in India. Some international companies are looking at the prospects of enhancing their market presence based on higher investment in mining and infrastructure and also using their Indian operations to meet demand in India. The construction equipment-rental business in India, which currently accounts for only around 7 to 8 per cent of the size of the global industry, is another growth driver.

FDI norms to be eased –

A draft note to be submitted to the Cabinet once it is finalized, is proposing to ease conditions under entry guidelines, minimum area requirement and minimum lock-in period for investments. Current FDI policy permits 100% foreign investment, including in housing, townships and construction infrastructure with several restrictions. These include a three-year lock-in period for investments in housing and townships, a minimum built-up area of 50,000 square meters and minimum capitalisation of $10 million for wholly-owned subsidiaries.

To make the sector more attractive, the Housing Ministry has proposed that the minimum lock-in period be reduced, the built-up area required be brought down to 20,000 sq. m and minimum capitalization reduced to $5 million.

Procuring capital from foreign investors for projects in India

As opportunities in the sector continue to come to the fore, foreign direct investment has been moving upwards. The real estate and construction sectors received FDI of €216.53 million in the first half of the current fiscal year.

To maintain consistent growth, foreign investment is crucial for India. The Indian Government has indicated its intention to create an environment, friendly to foreign investors by allowing foreign direct investment (FDI) up to 100 per cent in 2005 in townships, built-up housing and construction development projects with the liberalization of FDI regulations. Also, the recent decision of Indian Government of opening up retail in multi brand will not just benefit the retail industry but will also push up the demand for commercial real estate throughout the country.

According to statistics available with Department of Industrial Policy and Promotion, Construction development (including townships, housing, built-up infrastructure & construction-development projects) sector has attracted a cumulative foreign direct investment worth USD 22,007.67 million from April 2000 to February 2013. FDI flows into the construction sector for the period April 12 - February 13 stood at USD 1,260 million. The Indian Construction Industry is an integral part of the economy.

Liberalization of policies and a deliberate attempt made by the Indian Government can open several doors to the construction companies. Opening up of FDI in relation to township, housing, built-up infrastructure and construction of development projects by allowing FDI upto 100% under automatic route was the first step towards promoting the participation of the foreign investors in construction industry.

Challenges:

·         Poor penetration of construction equipment and a large dependence on skilled labor

·         Current economic situation may have an adverse impact on construction industry.

·         High cost of capital coupled with a lack of options for rental equipment

·         Poor transportation infrastructure to move equipment and material opportunities

·         Continuous private sector housing boom will create more construction opportunities.

·         A hunger for technology amongst investors who are frustrated about long turnover time and project delays

·         A growing demand for prefabricated construction.

·         Public sector projects through Public Private Partnerships will bring further opportunities.

·      Developing supply chain through involvement in large projects is likely to enhance the chance in construction.

·         Renewable energy projects will offer opportunities to develop skills and capacity in new markets.


Comments

  1. Very valuable post about the policies in construction equipments! Generally people are not aware of these kind of policies!

    ReplyDelete
  2. Very important policies one should know who is sailing in the field confined to construction equipments

    ReplyDelete

Post a Comment

Popular posts from this blog

The European Union-Vietnam Free Trade Agreement (EVFTA) is set to open doors for Vietnamese exporters

On 30 June, 2019, the European Union signed its first free trade deal with a developing Asian country – Vietnam, one of the fastest growing economies in Southeast Asia. The EU-Vietnam Free Trade Agreement (EVFTA) would reduce 99% of tariffs on goods and services traded between European and Vietnamese markets. WVietnam’s exports to the EU were valued at 50 billion euros in 2018. This figure is expected to increase by 40% by 2025 under EVFTA. Between the years 2024 – 2028, the agreement would boost Vietnam’s gross domestic product by 5 to 6% annually. Will the EVFTA herald a closer economic relationship between Vietnam and Europe? For more information :  https://www.spireresearch.com/newsroom/spirethoughts/the-european-union-vietnam-free-trade-agreement-evfta-is-set-to-open-doors-for-vietnamese-exporters/

2022: Recovery or Resurgence?

  The Covid-19 pandemic officially marks a grim second year this year. Nonetheless, there is some optimism among scientists that while the virus will become endemic, its threat to human life could reduce over time.  In the first of a three-part Spirethoughts instalment examining analysts’ predictions for the new year ahead, we look at 3 economic and social trends that are likely to affect the global economy in 2022.   Debt and inflation to grow . Global debt accelerated during the pandemic as governments continued to borrow. Twenty-five nations, including the US and China, now have total debt amounting to more than 300% of GDP, as central banks contribute to inflation by printing money, deepening the debt trap. Inflation, while on the rise, seems unlikely to hit the historic double-digit levels of the 1970s, as government spending should ease in 2022.   Industries overheat amid global warming “greenflation”.  The other continuing story with global imp...
Confidence key to Singapore’s success Can Singapore cultivate a culture of confidence as it turns 53? Leon Perera, CEO of Spire Research and Consulting shared his insights in The Business Times – Views from the Top section on 6 August 2018 on Singapore’s future. As Singapore ushers in another year of independence, more confidence needs to be instilled. Intelligent risk-taking will be key to the next phase of Singapore’s development. Perera highlighted that familiarity with past successes should not inhibit fresh, innovative thinking and experimentation with new strategies. Therefore, it is crucial for leaders to inspire trust and also for Singaporeans to cultivate greater trust in one another to be good citizens, thus engendering the social capital necessary for national success. The text of Perera’s comments are provided below. A comprehensive Korean peace treaty and denuclearization agreement are worthwhile goals to pursue. But it is unlikely that the North ...

Game markets: Asia and China

In recent years, the Asia Pacific gaming industry has attracted the attention of investors, developers and analysts. Within Asia, Japan, South Korea and China are the leading markets. The Asia Pacific remains the largest games market and is expected to reach USD71.4 billion in revenue, with a spectacular 39 per cent growth in 2018. By 2021, domestic market revenue in China is poised to increase from USD27 billion to USD35 billion. Asia’s gaming market is being transformed by Augmented Reality (AR) and Virtual Reality (VR) technology as well as gaming on social media platforms. Above all, Esports looks set to transform the industry. These were the findings from a study conducted by Spire Research and Consulting in Q3 2018. Gaming market in Asia Pacific (APAC) The Asia-Pacific region has been leading the global electronic game market. In 2017, total revenue from the gaming market reached USD51.2 billion, almost twice the revenue of the second-ranked North American region. ...

Spirethoughts: Saving India’s farmers

Rural farming in India could benefit immensely from solar energy, as farmers can use water pumps that are powered by solar panels to irrigate farms; balancing out the electricity provided for urban dwellers in the process. This is crucial as approximately 18 million of the country’s 25 million water pump sets are linked to the national electric grid. To address the nation’s power shortage, a joint-venture will be formed between six state-owned companies in Mumbai, including Bharat Heavy Electricals Ltd and Power Grid Corporation of India Ltd, to build a 4-gigawatt solar photovoltaic farm by the end of 2016. The price would be INR10 cheaper than the lowest power bid in India. Once the government grant has been received, this would change the way clean energy is generated; providing light through solar energy to 70 percent of the population residing in the urban areas. Is solar energy becoming a transformative resource for rural farmers? http://www.spireresearch.com/ne...