Nimesh Patel, President, BAI & Managing Director, Maruti Infrastructure Limited, discusses the challenges and issues faced by the construction and real estate industries of India; why BAI is propagating a Unified Standard Contract Document, and how the Association is furthering the cause of the Indian construction industry and its constituents.
How do you see the current scenario of construction and real estate sectors for civil construction companies, contractors, developers, and builders?
Things have been changing post-Covid and the industry is gradually coming back to the pre-Covid levels. If you look at the government data, the second quarter for the year has been fruitful, and despite the global downtrend, the country seems to be gaining momentum, especially in the Infra/CE sector. According to the government data, Infrastructure output in India increased 7.9% year-on-year in September 2022, following an upwardly revised 4.1% rise in August. During the April to September period, infrastructure output, which accounts for nearly 40% of industrial output, rose to 9.6%.
Over 1021 new projects were tracked for October 2022 that includes 680 building projects (of which 288 are currently under construction and 392 are early-stage projects) covering a total area of 190.59 million sq. ft. and amounting to a construction cost of Rs. 80,508 crores, as well as 341 industrial and infrastructure projects.
Moreover, there are 218 Infrastructural Projects worth Rs. 37,808 crores and 123 Industrial Projects covering a total area of 87.91 million sq. ft., amounting to a total construction cost of Rs. 22,963 crores. Among the states, Gujarat topped the industrial projects chart - grossing 29 projects, followed by Maharashtra, Rajasthan, Madhya Pradesh, and Tamil Nadu.
In the road infrastructure category, 37 projects entailing a construction cost of Rs. 32,681 crores and 164 water infrastructure projects, amounting to a total of Rs. 4,600 crores, were tracked. Kerala attracted the highest number of waterprojects with 58 projects, followed by Maharashtra, Himachal Pradesh, Madhya Pradesh, and Uttarakhand.
What are the challenges and issues faced by the construction industries in India?
The Construction sector contributes around 9% to the national GDP and accounts for around 60% of the total plan outlay of the government. However, despite this, the construction sector is not conferred the industry status. We have been making the demand but it is as yet only partially fulfilled when the affordable housing segment received industry status in 2018. Earlier we have had instances in 2020 wherein the Uttar Pradesh government accorded industry status to the warehousing and logistics sector, followed by Mizoram becoming the first State to accord industry status to sports.
The biggest hurdle in construction today is the cost of capital. Anything that contributes towards a reduction in the cost of capital would impact the overall project cost positively, and this benefit can in turn be passed on in part to the buyers.
The prices of most inputs, including cement, steel, cables, wires, polyvinyl chloride, pipes, and plumbing fixtures and fittings have risen by up to 60% in the last 12 months, leading to significant erosion in operating margins. How is this impacting the small and medium-sized players who are operating on thinner margins and are struggling to the point that India’s construction sector is contracting, and any talk of a revival is premature. What type of intervention is BAI and realty developers seeking from the government on the rising raw material prices?
As stated earlier, it’s high time that the construction sector is conferred an ‘Industry’ status. BAI has been following up with MSME for the same along with many other related things - be it inclusion of Works Contract, MSME Benefits, Dispute Resolution through MSEFC’s, etc. We all know that sectors that have been conferred an industry status do have special schemes and subsidies and are also privy to legal and procedural benefits such as capital and interest subsidies, single window/fast track clearance processes for licenses, exemptions or relaxations from stamp duty, tariffs, and other duties that create a conducive atmosphere for growth.
As for the construction sector, the immediate benefits would be: getting loans with less trouble at lower interest rates; enabling large investors to be financing partners; attracting equity investment in the sector; and enabling developers to refinance their existing debts.
How are the increased construction costs and higher interest rates affecting the real-estate market? Are buyers delaying their decision, and thereby forcing developers to go slow on launching new projects?
No, I don’t think so. On the contrary, there has been record sales in real estate housing filling higher stamp duty. The property registration in the first 11 months of 2022 have surpassed the entire 2021 transactions, recording 1.12 lakh deals so far. Interestingly, despite the rising interest rates and stamp duty, and the ominous ‘Pitru Paksha’ falling during this period, September 2022 turned out to be the best performing month in the last 10 years.
Mumbai city recorded property sale (conveyance deed) registrations of 8,628 apartment units in September 2022, as per the latest property assessment registration records with the Department of Registration and Stamps Government of Maharashtra. The record registrations contributed to over Rs 734 crore to the state exchequer and the government’s revenue rose to 39% YoY. According to Knight Frank India, as much as 57% of registrations were in the price band of over Rs 1 crore, and buyers mostly preferred homes between the size of 500 and 1000 sqft.
BAI is propagating a Unified Standard Contract Document across India. Do you think that it is feasible and easy to implement, since every department and work authorities in every state have their own requirements and methods?
Nothing is easy but then at some point one needs to make a beginning. We have been following up regularly with the authorities as well. Also, let’s not forget that once the real estate and the Indian construction sectors are accorded Industry status there would be a demand for uniformity. I am sure that gradually it would work out, perhaps with amendments.
India has now become the third largest construction industry in the world after the USA and China. As the representative body of builders and civil engineering construction companies, where do you see India’s CE industry stand today in terms of technology advancements vis a vis developed markets?
As you would be aware, the Indian Construction Equipment industry registered a 14% quarter-on-quarter (QoQ) decline in sales in the first quarter of the current financial year (Q1 FY 2022-23), but things have changed gradually. Union Minister of Road Transport and Highways, Shri Nitin Gadkari, had recently said in the Rajya Sabha that by 2024, road infrastructure in India will be similar to that of the United States. Nevertheless, the Indian Construction Equipment Market size is projected to grow at a CAGR of 23.3% during 2021-27. The growth can be attributed to rising investment in the growing public and private infrastructure, FDI reforms for construction sector, and highway projects.
India’s growing economy has led to an overall surge in the construction equipment market of India. In addition, the government’s ambitious projects such as the Smart City, Bharatmala, Sagarmala, NIP, the Golden Corridor, Housing for All, Restructuring and Expansion of Railways, etc. will bolster growth of construction equipment during the forecast period.
What are the latest technological developments in the construction industry that are impacting infra development activities positively?
The construction industry is evolving world wide, including in India. Shri Nitin Gadkari has been propagating various initiatives like following the principle of 3R’s (Reduce, Reuse Recycle), using plastic waste in roadmaking, CRP/SRP fabrications, 3D printing, use of Green and Innovative materials etc. Besides these, technology driven Virtual reality, Augmented reality, Robotics, Sensors, and Cloud-based collaboration tools will definitely play a crucial role in days to come.
What steps are being taken to encourage skill upgradation of workers for the CE Industry?
Being one of the promoters of the Construction Skill Development Council of India (CSDCI), BAI is equally concerned about skill upgradation in the industry and has been regularly organizing seminars, educative and informative programs twice a week. In this year itself, till date, we have had over 100 such online programs on various topics.
With over 20,000 direct members spread over 200 centers across the country and its various regional associations and affiliations adding another 1,50,000 indirect members, how is BAI furthering the cause of the Indian construction industry and its constituents?
Builders’ Association of India (BAI) is the apex body of the Indian Construction Industry, having around 20,000 companies (mostly MSMEs) as its members, including large corporates. BAI has more than 200 chapters spread throughout the country. BAI acts as a bridge between the Government and the Construction Industry on policy advocacy of the Government. Time and again we have been providing the inputs and the suggestions for the betterment of the construction industry. Recently, we have suggested some amendments and are hopeful that they would be given consideration.
How do you see bauma CONEXPO India 2023 creating a positive impact on the Indian Infra Construction industry?
We are very hopeful about bauma Conexpo India 2023 as the recently concluded bauma Munich 2022 was quite successful given the political and economic constraints the world wide. With the Indian Industry all set for revival, we are looking forward to a successful year ahead with major transactions.
bauma CONEXPO INDIA has been playing a pivotal role in the inculcation of new construction technologies. Our association with the trade event will further encourage mechanization of construction processes across India, especially in states like Arunachal Pradesh and Sikkim in the north-east, where BAI is establishing itself more strongly. BAI National Members Meet can be planned alongside with bauma CONEXPO INDIA 2023 with maximum participation.