The inception of this decade carried with itself the most unsettling healthcare crisis of the modern times namely COVID-19 or SARS-COV-2. Originating in the wet markets of Hubei province in China, the virus has affected nearly 181 countries of the world. Read more to learn about the coronavirus impact on Indian construction sector.
This exponential pattern of its spread along with associated morbidity and mortality lead the World Health Organisation to declare it as a pandemic and a global health emergency. Till now, the world has witnessed two stages of its progress.
In the earlier stage, China had been the epicenter. But the second stage leads to a shift towards the European countries and the USA. The USA accounts for nearly 25% of the total number of global infected cases while Italy has nearly 26%of the global deaths caused due to the virus.
Besides these two countries, Spain and Germany have also surpassed the affected cases that were originally seen in China. India’s position, considering its population, is not so grim.
With 3500 infected cases and 109 deaths, the country has shifted towards a preventive and precautionary mood with lockdown and stringent containment directives.
Although being biological in nature, the implications of COVID-19 are not limited to the medical field only but have affected nearly every aspect of the human world.
From the economy to education, market trends to the sports world, Governmental policies to household living patterns, everything has been displaced from the normal routine into times of uncertainty and despair for many.
Coronavirus And Economy
Assessing the impact of coronavirus, the resultant economic effects have been the major cause of concern worldwide. With the setting in of the global recession, it won’t be wrong to say that the biological virus is slowly evolving into a sort of economic virus and causing substantive damage.
In the absence of a possible vaccine, social distancing has been advocated to be the safest way to contain the spread. However this, by default has lead to a curtailed movement of goods and people, sluggish economies and hence a negative growth pattern.
China is the largest exporter and the second-largest importer of goods worldwide. Chinese economy accounts for nearly 19% of the global GDP at purchasing power parity(PPP). Hence it is implied that any negative trends in the Chinese economy will manifest as a “domino effect” of a plunging global economy that is actually being witnessed throughout the world today.
The stock markets throughout the world have witnessed a massive negative shift since the outbreak in December with investors fearing an excessively receding economic growth.
Although the banking sector is trying to stabilize the market downfalls by introducing various instruments excessive unemployment and resultant less consumerism may override the progress that this move intended to create. Safer investments eg; gold has also stumbled.
Likewise, oil demand has significantly reduced and prices have slumped to the lowest since 2001. This all points to slower economic growth for 2020 and if the virus continues to spread, the growth chart may show a steep fall in the months to come.
Closer home, the Indian stock market has crumbled with market indices pointing to 3-year low values. The value of the Indian rupee against the dollar has also deteriorated. Foreign investors are nervous regarding any long/short term investments and hence safe haven doctrines are kicking in.
The unprecedented market trends and travel prohibitions have affected trade too. The import and export of commodities are literally at halt throughout the world. Crisil states that nearly 18% of India’s total merchandise imports are from China, hence a significant decrease in the availability of such merchandise is seen.
These include key components of electronics, organic chemicals, active pharmaceutical ingredients, mobile phones, auto components, printers, certain ores, optical and surgical instruments, mechanical appliances, etc. Absence or shortage of these items will automatically affect the associated industries as well as markets in India.
The Indian companies that have outlets in China, due to the virus, are also major sufferers. These industries mainly deal with logistics, travel and tourism, IT sector and outsourcing. The lockdown has also rendered them functionally impaired.
The stress in capital markets has also been detrimental to the banking sector. With the already suffering banking health of the country, the lockdown has further added to the Non-Performing Asset(NPA) load and lead to a liquidity crisis.
RBI as a regulator has kicked in measures to stabilize the economy but long term lockdown is impossible to be tackled with such steps.
With 90% of the Indian workforce being in the unorganized sector, the lockdown has lead to a major spike in unemployment levels. With orders of home quarantine by the government, the local daily wager is not able to earn anything which in turn has decreased consumer demand and hence consumption.
It is been estimated that if the consumer demand doesn’t kick in soon after April, the growth rate for the financial year 2021 may be less than 5%.
The electronic Industry of India is under excessive stress as a significant share of inputs required in the manufacturing of electronic items traditionally comes from China. Even the supplies that have already reached India require careful handling and disinfection before they are exposed to the market.
Likewise, India’s overdependence on China in the pharma sector is also a cause of concern. About 85% of active pharmaceutical ingredients (APIs’) are imported from China and since the lockdown, the dearth of raw material supply and price volatility have been encountered.
These APIs’ are key ingredients in various commonly used antibiotics and if not restocked in the coming months, may lead to problems within the pharma industry.
Travel and Tourism industry has been crippled with the government advised prohibitions and visa cancellations. The tourism industry in all geographical aspects–both national and international, has witnessed losses of thousands of crores of rupees. The same can be said for the associated hospitality sector.
The workforce in this sector may also face a large scale job lay-off due to overbound losses. Businesses that rely on the physical assembly of the employees are the worst sufferers.
Coronavirus And Construction Sector
The impact of COVID-19 pandemic on the global markets and commercial activity is responsible for exposing the construction sector to a number of challenges– challenges that may worsen if the disease spread is not curbed.
According to the GlobalData report, estimated growth for the construction industry in 2020 has been predicted to go down to 0.5%. Hence, for the time being, it’s quite hard to anticipate a possible recovery programme that is fool-proof.
Perhaps the biggest concern is regarding the ‘stalled projects’. Lockdown enforcement is turning quite antagonistic to the timely fulfillment of various projects. For government-commissioned projects, a missed deadline may not be severely dealt with but for private sponsors-it’s going to take a huge toll.
This may end up creating a number of legal problems for renewal or penalty percentages, especially in the case of various ‘time-bound’ projects. A serious issue is arising in terms of fixed cost procured by construction firms beforehand in terms of money spent on land lease, site facilities, electricity charges, etc.
A number of stalled or canceled projects will automatically result in losses for the company.
Getting projects from paperwork onto the ground sites is another challenge in many spheres. This mainly depends on two factors– availability of labor and availability of material.
The labor force currently can’t be commissioned as their presence at a site clearly defies the social distancing protocol that needs to be followed. However, in projects that follow the distancing protocol, construction firms need to keep a thorough check on their employees- both permanent as well as commissioned.
This is critically important for the unorganized workforce employed in the form of daily wagers. Construction firms need to keep their accommodation, sanitation, and more importantly, their travel history (state/regional) documented so as to prevent any spread while working on a project.
This involves scenarios where construction firms need to spend extra bucks to provide masks, gloves, PPE gears, sanitizers, etc to the workers. Thermal scanners, medical facilities, disinfection tunnels need to be kept available 24*7.
The availability of material and the associated supply chain bottlenecks cannot be overlooked in these turbulent times. Depending on the region of availability, material procurement is yet another herculean task.
The present stocks of specialized construction materials, processed equipment ( that are imported from foreign countries) are our only respite till the lockdown is lifted. Even materials obtained locally are not accessible due to government curbs on the interstate and interdistrict movement.
A number of stalled projects in bigshot construction companies like KEC International, L&T, Ambuja cement speaks volumes about the issue. The unavailability of materials (mostly China-based)is also creating a need to venture into other possible markets and this may involve a lot of paperwork/ contracts/ agreements in a relatively short period of available time.
Another challenge faced by the construction sector is the overburdened contractor who is responsible for maintaining the proper functioning of not only his key staff but also at the subcontractor level. The subcontractors who are critical for the delivery of any project are currently under immense stress.
Many are on the verge of bankruptcy that may occur either immediately in case of a site shut down or after a period of time. In case a site shuts down, the construction sector workforce is left vulnerable to the vagarities of the market as most of the work must take place on-site and cannot be done remotely.
Investment and funding in the construction sector is yet another problem being encountered. With the world slipping into a phase of recession and clients delaying investment decisions, a number of MNCs‘ are lying low and adopting safer practices, the same is the case with bank investments.
So an investment deficit may be encountered in the coming times and it won’t be wrong to predict potential acquisition of a distressed/ insolvent firm due to major work shortage or abrupt cessation of projects due to monetary issues.
With the changes encountered in the methodology of day to day work, traditional routes for businesses to create or upgrade their profiles are no longer employed, instead, alternative methods are being sought.
This is evident in way of client-firm interaction or online business meetings which may not be a long term option since the construction sector is site-specific.
The construction sector is also facing the challenge of bringing about necessary changes that need to be carried out for both the capital and corporate cost budgets. The companies presently need to review their expenses so as to create a balance in this turmoil.
This also involves the need to lay off the workforce which yet again exposes the employees to an unprecedented future and may increase with worsening of the disease severity.
The present picture is overall very grim, however, it does carry a small percentage of optimistic value to it.
This situation has enabled the construction companies to realize the importance of the consulting/ advisory department. Currently, the consultants are holding the fort and re-devising management strategies to minimize the impact of coronavirus on the construction sites.
This has also enabled us to reconsider our over-reliance on a handful of countries especially China. For future security, policymakers will definitely chart out strategies to widen the import markets and also increase the usage of locally available resources, if possible.
In present circumstances of drastic climate change, the shutting down of industries worldwide has somewhat lead to a substantial decrease in the carbon dioxide emissions along with other greenhouse gases. This is another sphere where countries can work forward to develop technologies involving cleaner fuels.
Government stimulus actions along with steps taken by the Reserve Bank of India may momentarily throw a pulse of revival in the economy especially the construction sector. Steps like tax benefits or direct cash disbursals are necessary especially at the subcontractor levels.
A customized stimulus package similar to the one devised by the US to mitigate the crisis may prove to be a breather to the sector, at least for a short period.
An overall picture of the current affairs clearly depicts that in this time of uncertainty, our plans and strategies can only be short term. Time will tell if the global picture of the spread gets better or worsens further. Till then, a careful planning, optimistic approach and more importantly – individual efforts to contain the virus should be our priority in the present time.