FCC

Scale, Sustainability & Skilling

2024-07-30

Three key messages stand out from this year’s Budget for the Indian construction sector: scale, sustainability and skilling. Development of roads, power plants, affordable housing and public infrastructure continues to be a healthy recipient of the allocation.

Key announcements* for capital expenditure:

Source: Ministry of Finance Link- PowerPoint Presentation (indiabudget.gov.in)

Additional major investment announcements include 12 new industrial corridor development, industrial parks, 1,000 ITIs and transit-oriented development, among others.

It is evident this will have a snowball effect on the construction sector in India. There would be additional capex activity by the private sector for ramping up manufacturing facilities for key construction materials, including solar cells and panels, for which capital goods would now be tax exempt. Subsequently, demand for OEMs for these upcoming facilities will surge, which may cause their capacities getting crunched.

With the 500 gw renewable power target by 2030, a slew of renewable projects is already underway and more are being announced. Aggressive targets for their commissioning would be expected, which would call for an expediting overhaul for pre-construction/development activities with the Government’s support. This is particularly relevant for pump storage, hydro, wind and other renewable projects that necessitate a large chunk of land and time-consuming approvals.

Additionally, the construction sector in India is already reeling under severe labour shortage. Surplus capex will further augment this requirement and the labour gap on major projects may widen even more. However, with construction activities spreading in the nooks and corners of our country, skilling of the rural population would take priority with new local institutes and vocational training centres.

The climate change impact from construction projects will amplify, and this may spur the movement for a green construction economy in the long run. Fuelling this, sector-specific decarbonisation roadmaps would be expected. The two carbon devils of construction – cement and steel –would start witnessing more investments and innovation in low carbon alternates. But this will be a long haul; carbon emissions will intensify on an immediate basis, calling for much-needed public reforms for controlling embodied emissions in the country.

Overall, long-term structural and institutional reforms in the construction sector are expected, mainly driven by the scale of budgeted expenditure. What we are likely to witness more of in the $ 1-t construction industry:

Private-sector spending in reciprocation to the public sector

Renewed push on construction automation, robotics and mechanisation

Digital adoption in public-sector projects with technologies such as BIM and integrated platforms

Targeted skilling and certification programs for construction labour and supervisory staff

Construction firms specialising in renewable, nuclear and defence sectors

Affordability and sustainability-driven material recycling, reuse, waste management and recycling measures, interlocked with circularity

Plug-and-play operating models for niche segments such as 3D printing, precast/prefab, affordable housing, warehouses, etc

More startups in the construction ecosystem across various fields.

Needless to say, some of these measures will require support from ministries and implementation bodies for effective Budget spending and expediting the roadmap for ‘Developed India’ by 2047.

About the author: Yash Pratap Singh is Partner – Business Consulting, KPMG in India