Business Tycoons - Construction sector industry analysis

The construction sector plays quite an important role in the growth and development of any economy as this sector creates vital investment opportunities. This in turn creates more revenue for the country which helps the economy grow. So important is the sector to the economy that in January 2019, the Indian construction sector contributed over INR 2.7 trillion to the country’s GDP. This was the highest ever contribution recorded by the sector.

Another reason why it is vital for the construction sector to thrive in the economy is because all the infrastructure and real estate we see around us today is because of the construction sector. And it is no secret as to how important infrastructure and real estate sectors are to the economy.

Some Important Updates in the Construction Sector:

The Construction sector is expected to record a growth rate of 15.7% and will reach $738.5 Billion by 2022. Also, India’s GDP from the Construction sector increased to INR 2,670 Billion in the first quarter of 2020.

Another important update is that the global construction industry will be worth a staggering $12.7 trillion by 2022 and India’s contribution to this would be about $640 billion! The Government of India will have a huge role to play in this, thanks to the various schemes and plans initiated by it in the infrastructure development and affordable housing.

Effects of COVID-19 on Construction Sector:

Also, the COVID-19 pandemic has severely affected the construction sector as well. The obvious reasons for this are factors like lack of construction labourers due to social distancing norms, shortage of raw materials due to manufacturing plants being shut down during lockdown, etc.

And it is not only the construction companies that are facing severe losses. The workers who are dependent on this sector for their livelihood have also received a huge blow to their incomes.

Realtors Provide Financial and Psychological Support to Labour Families:

However, there is a silver lining to this as realtors like the M3M Group have decided to pay the construction workers incentives if they provide uninterrupted construction work. Also, the group’s support is not limited just to paying incentives. They will also provide psychological support to not only the workers but their families as well.

Payal Kanodia, trustee of M3M Foundation said that it was very difficult to engage with the workers on a psychological level as they feared losing their jobs due to the pandemic. They had to be reassured time and again that their jobs were safe and that the group has even started a referral scheme. Under this scheme, if a worker brings in a new worker to work at the construction site, then they would be paid a referral bonus of INR 2000. Currently, the realtor group supports 9,515 labour families.

Reduction in State Capital Expenditure Will Hit Construction Sector:

State-run Capital Expenditure (CapEx) makes for around half of the total Government CapEx of the entire country! However, various states in India are set to cut down the CapEx budgets, credit rating agency ICRA stated.

The states had created a CapEx budget of INR 5.7 lakh crores for FY 2021. But, with the entire country being under lockdown for a very long time, it was of no use to keep the budget that high, as the states would not incur a high Capital Expenditure during this time. Hence, they have taken this decision.

Now, this would adversely affect the construction sector as lesser money will be pumped for new projects. Moreover, the states are not very keen on starting new projects given the unfavourable situations the pandemic has created for the same.

The Maharashtra Government has stated that it will release only 33% of the total state CapEx budget. The Government explained that this move will increase the duration of the receivables cycle, thus giving construction contractors more time to get their invested money back.

Hence, with the pandemic here to stay for a long time, there are certain highs and lows that the construction sector will experience.