Infrastructure development is a crucial aspect of both advanced and developing economies. Construction of transportation networks, installation of electricity grids, and water plant installation are the major construction activities involved in the construction industry of the emerging economies. Renovation of the old infrastructure to keep pace with the rising demand for new and upgraded infrastructure is the major construction activity involved in the developed and advanced economies. The construction industry imparts a direct impact on the growth of the global economy as the industry offers employment to a large population base.
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As per the World Economic Forum, in March 2018, the construction industry as a whole offered employment to more than 100 million people across the globe. With total annual revenues of almost $10 trillion and an added value of $3.6 trillion, the industry held for 6% of the global GDP. More specifically, it accounts for about 5% of total GDP in developed countries, while in developing countries it tends to account for more than 8% of GDP. The industry is expected to grow considerably in the coming years, to estimated revenues of $15 trillion by 2025. The Asia-Pacific region is anticipated to hold a major market share in the global construction industry. The Middle East and African region are anticipated to showcase considerable growth in the construction industry owing to the rapid expansion of construction activities in Dubai and other countries of the region. Rising urbanization, rise in Investment for construction projects, and government support for infrastructure development are the key drivers of the global construction industry.
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Rising urbanization-Driving the Global Construction Industry: According to the United Nations Population Division, around 54% of the global population was living in the urban area in 2014 that was estimated to be around 3.86 billion. The population is expected to reach 66% by 2050 which will be more than 6.0 billion people. As per the World Urbanization Prospects by the UN, the largest urban growth will take place in India, China, and Nigeria by 2050. The increased urban population in the cities creates a new standard for better infrastructure requirements which in turn will drive the global construction industry.
Challenges of Construction Industry
- Lack of innovation and delayed adoption of advanced technologies
- Insufficient knowledge transfer from project to project
- Shortage of young talent and people development
- Little collaboration with raw material Suppliers
- Weak project monitoring by the project managers
India Construction Industry
According to the India Brand Equity Foundation, India is anticipated to become the third-largest construction market across the globe by 2022. For this, the country will create demand for nearly $777.73 billion investment in infrastructure development by 2022. India’s construction industry is the second largest industry after agriculture. The construction industry in India accounts for nearly 9% of the country’s GDP and contributes to the national economy by offering employment to a large population base. Real estate and urban development are the major segments of the construction industry in India. The real estate segment covers hotels and leisure parks, office, retail, residential, and so on. The urban development segment is composed of sub-segments such as water supply, sanitation, urban transport, schools, and healthcare.
The construction industry in India is highly fragmented with the presence of several local or unorganized players and multinationals in the country. The private sector is a major player in the construction industry across various industrial verticals, ranging from roads and communications to power and airports. The government of India had made a single-window clearance facility to accord speedy approval of construction projects in the country. The speedy approval for construction activities in the country has made it to rank second in the 2019 Agility Emerging Markets Logistics Index. According to the Department for Promotion of Industry and Internal Trade (DPIIT), construction development and infrastructure activities sectors received the FDI inflow amounting to $25.66 billion and $16.84 billion, respectively, between April 2000-March 2020. Furthermore, favorable valuations of infrastructure properties in the near future make the industry more optimistic.
Current Trend in Indian Construction Industry
- Huge Adoption of Digital Technologies to Improve Construction Safety
- Rising Use of Autonomous Construction Vehicles to Improve Productivity
- Rising Investment in Renewable Energy Infrastructure
Recent Developments
- In July 2020, iQuippo, India’s first digital platform for infrastructure equipment purchase had entered into a strategic partnership with Kobelco Construction Equipment India Pvt. Ltd. for the marketing and selling of the construction and mining equipment manufactured by the OEM on its platform.
- In July 2020, the Chief Minister of Tamil Nadu Edappadi K Palaniswami had inaugurated 12 projects with a cumulative investment of $4.3 billion. Through this investment, the Chief Minister laid the foundation stone for Tata Chemicals, Radial IT Park, NISSEI Electric, Ussu Susira, Steel Shoppe, Dinex, Sri Raajarajeshwari Life Care and MRC Mills.
Initiatives by the Government of India
The infrastructure of a country plays a critical role in supporting the growth of other relevant industries such as IT and healthcare of the country. The government of India is, therefore, focusing on the development of infrastructure and construction services through focused policies such as open FDI norms, schemes & mission, potential budget allocation, and so on.
Open FDI Norms
The government of India currently allows 100% FDI through the automatic route for the several construction projects including development of townships, construction of residential/commercial premises, roads and bridges, hotels and resorts, hospitals and educational institutions, recreational facilities, and for the construction of the city and regional-level infrastructure. In addition, the FDI limit for real estate projects within Special Economic Zones (SEZs) is 100%. Hines Interests Limited Partnership, Veolia Environnement S.A., Ascendas REIT, Aqualyng ICES, the Trump Organization, Alstom, and The Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH are the major foreign investors in the Indian Construction Industry.
Schemes & Missions
In June 2015, Prime Minister of India, Narendra Modi had launched a project named, “100 Smart Cities Mission” in the country. As per the mission, a total of $14 billion was approved by the Indian Cabinet for the development of 100 smart cities and the rejuvenation of 500 others in the country. Presence of different government schemes in the country such as Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Pradhan Mantri Awas Yojana (Urban – Housing for All), GST regime implications, Heritage City Development and Augmentation Yojana (HRIDAY), and soon are highly supporting the growth of the construction industry in the country.
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