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Current scenario of the Indian construction industry in 2021

Last Updated on August 4, 2021 by Admin

The Indian Construction industry is categorized by Commercial Constructions, Residential Constructions, Industrial Constructions, Infrastructure, Transportation Constructions, and Energy and Utility Constructions.

The infrastructure sector is a crucial driver for the Indian economy. The industry is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure the country’s time-bound creation of world-class infrastructure. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development.

Market Size

India is expected to become the world’s third-largest construction market by 2022. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDIs in the construction development sector (townships, housing, built-up infrastructure, and construction development projects) and construction (infrastructure) activities stood at US$ 25.93 billion and US$ 23.99 billion, respectively, between April 2000 and December 2020.

Highlights of Union Budget 2021 for Construction Sector 

The Union Budget 2021, touted as one of the essential budgets in 100 years, is set to create new employment opportunities and act as an engine of global growth. Some of the Key measures and reforms announced for the Real estate and Smart city space in the Budget include:

  • Jal Jeevan Mission is urban to be launched with an outlay of INR 2,87,000 lakh crore over five years aiming at a universal water supply in all 4,378 urban local bodies, with 2.86 crore household tap connections and liquid waste management in 500 AMRUT cities.
  • Swachh Bharat Mission 2.0 with an outlay of INR 1,41,678 crores over five years from 2021, focusing on water waste treatment, source segregation, management of waste from urban construction, bioremediation of legacy dumpsites.
  • Budget 2021 proposed an amount of INR2,217 crores for 42 urban centers with a million-plus population to tackle the ongoing problem of thriving air pollution in cities.
  • A “National Monetization Pipeline” of potential Brownfield infrastructure is intended to be launched. Warehousing Assets of Central Public Sector Enterprises (CPSE), such as Central Warehousing Corporation and NAFED, were proposed, among other core infrastructure assets.
  • Finance Minister Nirmala Sitharaman proposed to extend efforts over the One Nation One Ration Card scheme for the unorganized labor force migrant workers by launching a portal that would collect information on gig, building, and construction workers, among others, to formulate welfare schemes such as Health, Housing, Skill, Insurance, Credit, and food schemes for migrant workers.
  • Budget 2021 proposed to introduce the Ujjwala scheme to be expanded over one crore more beneficiaries. The expansion would include adding 100 more districts in the next three years to the city gas distribution network and gas pipeline project in the newly formed UT of J&K.
  • Budget 2021 proposed to extend the eligibility of additional deduction of interest, amounting to Rs 1.5 lakh, for loans taken to purchase an affordable house as provided in the Budget of 2019-2020 by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up until March 31, 2022, to purchase an affordable house. This will help bring in new supply within the segment.
  • The Budget also gave provision for tax exemption for notified affordable rental housing projects. This move is intended to ease migrant workers’ life in cities by supporting them to remain in urban areas during times of financial distress.
  • Reduction of customs duty to 7.5% on steel will boost real estate developers as it will give them some headroom in easing pricing pressures.
  • Budget 2021 proposed setting up a Development Financial Institution (DFI) called the National Bank for Financing Infrastructure and Development, which is expected to have a capital base of Rs 20,000 crore and a lending target of Rs 5 lakh crore in three years. This would enable FPIs to finance debt REITs, which would likely assist cash stressed real estate sector. 

Government Initiative and investment

In Union Budget 2021, the Government has given a massive push to the infrastructure sector by allocating Rs. 233,083 crore (US$ 32.02 billion) to enhance the transport infrastructure. The Government expanded the ‘National Infrastructure Pipeline (NIP)’ to 7,400 projects. ~217 projects worth Rs. 1.10 lakh crore (US$ 15.09 billion) were completed as of 2020. The key highlights of the Budget 2021 are as follows:

  • In March 2021, the Parliament passed a bill to set up the National Bank for Financing Infrastructure and Development (NaBFID) to fund infrastructure projects in India.
  • Indian railways received Rs. 1,10,055 crore (US$ 15.09 billion), of which Rs. 1,07,100 crore (US$ 14.69 billion) is for capital expenditure.
  • Rs. 1,18,101 crore (US$ 16.20 billion) has been allocated towards the road transport and highway sector.
  • In Budget 2021, the Government announced the following interventions under Pradhan Mantri Aatmanirbhar Swasth Bharat Yojana (PMANSY):
    • An outlay of Rs. 64,180 crore (US$ 8.80 billion) over six years to strengthen the existing ‘National Health Mission’ by developing capacities of primary, secondary & tertiary care and healthcare systems & institutions to detect and cure new and emerging diseases.
    • This scheme will strengthen 17,000 rural and 11,000 urban health and wellness centers.
    • Setting up integrated public health labs in all districts and 3,382 block public health units in 11 states.
    • Establishing critical care hospital blocks in 602 districts and 12 central institutions.
    • Strengthening the NCDC (National Centre for Disease Control) to have five regional branches and 20 metropolitan health surveillance units.
    • Expanding integrated health information portal to all states/UTs.
    • Rolling out the pneumococcal vaccine, a ‘Made in India’ product, across the country.
    • Rs. 35,000 crores (US$ 4.80 billion) has been allocated for COVID-19 vaccines in FY22.
  • The Government announced Rs. 18,998 crore (US$ 2.61 billion) for metro projects.
  • Mega Investment Textiles Parks (MITRA) scheme was launched to establish world-class infrastructure in the textile sector and establish seven textile parks over three years.
  • The Government announced Rs. 305,984 crore (US$ 42 billion) over the next five years for a revamped, reforms-based, and result-linked new power distribution sector scheme.

The way forward

The Indian construction industry is expected to register a growth of 13% in real terms in 2021 – following a decline of 12.4% in 2020. However, the outbreak of the Coronavirus (COVID-19) pandemic and subsequent lockdown restrictions weighed on the industry’s output last year. 

As reported by Business Standard, the Industry chamber of Assocham said the Construction industry might resume operations by mid-June 2021as several states started easing COVID-19 related restrictions; the employment-intensive construction industry should witness resumption in operations by the middle of June, though at a curtailed level.

The chamber said it would take about two weeks for the contractors to put together again the material and manpower at the sites after the disruptions of about 40 days in major states like Delhi, Maharashtra, Uttar Pradesh, Rajasthan, Bihar, and Haryana, among others.

Acknowledging that the second wave of the pandemic affected initial recovery, Chief Economic Advisor (CEA) K V Subramanian has expressed hope that the country’s economy will turn around by July 2021. The economic activity can come back once the pandemic-related strictures are removed, Covid-appropriate behavior becomes a part of life, and the pace of vaccination accelerates, he added. 

Therefore, the CEA does not foresee much impact of the Covid-19 wave on the Government’s fiscal deficit and disinvestment targets for 2021-22. He further stated that when the situation improves, the Government will start spending as per the provision of the Budget. 

Commenting on the stock market situation in the country, Subramanian said that the prediction of good economic growth and investment by developed nations in the Indian stock market had led the market to a record high. Kindly check this

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Construction Industry Job Outlook 2021

As reported by the CMIE economic outlook, 15 million jobs lost in May 2021. the real estate and construction industry took the biggest hit in employment during April-May 2021. It saw employment shrink by 8.8 million on a base of about 64 million in March 2021. Most of the job in this industry is informal.

https://twitter.com/_CMIE/status/1401262080355979268

Manufacturing industries took a hit of 4.2 million jobs on a base of 30 million. It is possible that most of these were in medium and small-scale enterprises. Hotels and tourism took a hit of 4 million on a base of 22.5 million. 

And wholesale and retail trade saw employment fall by 3.6 million from 58 million in March. However, these industries are also employers of large numbers of informally active labor.

A feature that stands out in the current job losses is that its age composition is substantially different from the composition earlier. And this could be an additional source of worry. 

In the past, job losses were concentrated in younger age groups. However, this is not the case this time. Instead, job losses are concentrated in the elder age groups.

CMIE reported the age group of 15-29 years did not see any job losses during April-May 2021. However, the age group of 30-39 years visited a net loss of 5.9 million jobs, and those of 40 years of age or more saw a loss of 18.7 million jobs. 

Most of the job losses were borne by men. Therefore, it can be conjectured that these middle-aged men were the main bread-earners of their families. However, it requires more significant data analysis to conclude that the people who lost jobs during April-May 2021 were the primary breadwinners of their households. 

But, at the cost of some admittedly stereotyping of workers, it may be worth worrying that the economic impact of these job losses on the households is more severe than it would have been in the job losses were mainly among the younger men and women.

As infections have started to decline, lockdowns started easing in the various stats. So, some jobs may come back. But, recovery to the 2019-20 levels of 404 million jobs still seems very distant.

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