The Indian Construction Industry: A Brief Summary
The Indian construction industry is the engine of the Indian economy. The Indian construction sector is responsible for propelling the country’s overall development as good infrastructure is the basis for all other projects, and it enjoys prime attention from the government.
The Indian construction industry, in value terms, is expected to record a CAGR of 15.7% to reach $738.5 bn by 2022. It contributes a 55% share in the steel industry, 15% in the paint industry, and 30% in the glass industry.
The activities within the sector that have registered the highest growth include export cargo (10%), highway construction/widening (9.8%), power generation (6.6%), import cargo (5.8%), and cargo at major ports (5.3%).
Foreign Direct Investment (FDI) in this sector, between April 2000 and March 2020, stood at $25.66 bn as per the records of the Department for Promotion of Industry and Internal Trade (DPIIT), and the Indian construction industry was projected to grow at 5.6% during 2016-20, compared to 2.9% during 2011-15.
By 2022, India is expected to become the world’s 3rd largest construction market.
To this end, the government of India has been developing and implementing policies that ensure the time-bound creation of world-class infrastructure within the nation - from power plants to bridges to dams, roads, and other urban development projects.
In 2018, India was ranked 44 out of 167 countries in the World Bank's Logistics Performance Index (LPI) and in 2019, it ranked second in the Agility Emerging Markets Logistics Index.
In 2019, the Indian construction industry also witnessed seven merger and acquisition deals worth $1,461 mn. The largest PE investment worth $1.9 bn was also closed in the acquisition of Pipeline Infrastructure India by Canadian asset management firm Brookfield’s.
Last year as electricity production in the country reached 1,252.61 BU, the National Highways Authority of India (NHAI) also completed the construction of 3,979 kilometres of highways, its highest ever figure.
But this is not enough. To achieve the target of a $5 trillion economy by 2025 as well as meet the demands of its entrepreneurial citizenry, building and upgrading existing infrastructure is essential.
The National Infrastructure Pipeline (NIP)
To do this, a first-of-its-kind, whole-of-government exercise was envisioned by a High-Level Task Force under the chairmanship of the Secretary, the Department of Economic Affairs (DEA), and the Ministry of Finance.
The National Infrastructure Pipeline (NIP) has a mission to improve project preparation and attract investments into infrastructure. The aim is to provide world-class infrastructure to Indian citizens, thereby, improving their quality of life.
The NIP wants to provide a positive and enabling environment for significant private investment in infrastructure at all three levels of government. It also seeks to design, deliver, construct, and maintain public infrastructure projects to meet efficiency, equity, inclusiveness, and disaster resilience goals.
The pipeline creates a fast-track institutional, regulatory, and implementation framework for infrastructure and benchmarks infrastructure performance as per global best practices and standards. It makes use of the latest technology to enhance service standards, efficiency, and safety across the Indian construction industry.
The NIP will support and encourage even more infrastructure projects and create jobs. The idea is to improve citizens’ ease of living and provide equitable access to infrastructure, thus, making growth more inclusive.
Well-developed infrastructure within a country enhances the level and scope of its economic activity and the NIP will provide better-prepared projects and reduce aggressive bids and failures in project delivery. It will also ensure enhanced access to sources of finance. And for financial institutions and investors, the NIP will increase investor confidence as identified projects are better prepared and there is active project monitoring by a competent authority.
As of April 2020, the Government of India has set a target of constructing roads worth INR 15 lakh crore ($212.80 bn) in the country over the next two years.
This is in line with the Union Budget 2020–21 which gives a massive boost to the Indian infrastructure sector by allocating INR 1,69,637 crore ($24.27 bn) to develop the transport infrastructure.
This is in addition to the INR 72,216 crore ($10.33 bn) allocated to the Indian Railways and INR 50,040 crore ($6.85 bn) to the Ministry of Housing and Urban Affairs to continue and enhance their efforts.
The Indian energy sector is expected to offer investment opportunities worth $300 bn over the next 10 years. The communication sector has been allocated INR 38,637.46 crore ($5.36 bn) to develop the post and telecommunications departments.
Initiatives like “Housing for All” and the “Smart City Mission” are also major efforts by the government of India to reduce bottlenecks in the infrastructure sector.
It is necessary for India to overcome deficiencies in its infrastructure and improve service quality in both urban and rural areas. Most importantly, India must utilize the full potential of its growing urban economy in order to raise its contribution to the national GDP.
While the Covid-19 pandemic has hampered short-term growth in the Indian construction industry, when the economy resurges as it is projected to, exciting opportunities for infrastructure investment and development in India will be made available to market players.
The Indian government, as we have discussed, plans to spend about $1.4 tn worth of investment on the country’s infrastructure. These large investments across major sectors of the Indian construction industry will create opportunities for both national and international stakeholders.