Govts. plans, PLI scheme, could set off multi-billion dollar construction boom

The Budget has allocated more than $75 billion for infrastructure. Another $27 billion has been set aside to attract MNCs to shift their factories from China to India. And the real estate sector is poised to boom again. The coming years could very happy ones for construction companies.

The Modi government’s massive infrastructure push will open up large and lucrative opportunities for domestic and foreign construction companies. In her Budget for 2021-22, Indian Finance Minister Nirmala Sitharaman has allocated more than $75 billion for capital expenditure from its own resources. This is a huge 34.5 per cent increase over the capex budget in the revised estimates for the current year.

Then, the government’s $27-billion production-linked incentive (PLI) scheme for smartphones and 12 other sectors is expected to attract a host of foreign companies to set up factories in India. Already, Apple, through its contract manufacturers Foxconn, Pegatron and Wistron, Samsung and some Indian smartphone makers have started shifting production lines from China to India.

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The government expects many others – in sectors such as textiles, chemicals, medical devices, electronics, solar power equipment, etc. – that are looking to de-risk their global supply chains from their current over-reliance on China to follow suit.

“For this, the government has committed nearly Rs 1.97 lakh crore, over 5 years starting FY 2021-22. This initiative will help bring scale and size in key sectors, create and nurture global champions and provide jobs to our youth,” said Sitharaman in her Budget speech.

Opportunity worth billions

All of them will have to spend billions of dollars on setting up high and medium tech factories in this country to cater to domestic demand as well as feed their global supply lines. This, too, will open up a humungous market for construction in India.

Since there are only a few companies in India that have the expertise in and experience of carrying out such assignments, companies from the US, the UK, the EU, Japan and Korea will find a new market opening up for them.

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The fine print of the Budget

The Finance Minister has allocated more than $15 billion to the Indian Railways for capital expenditure. She has also provided $6.9 billion to the Ministry of Housing and Urban Development, $3.8 billion to the initiative to provide housing for every Indian by 2022, $1.8 billion to the Smart Cities Mission and $1.7 billion to the Swachh Bharat Abhiyan, among other major allocations.

All of these involve construction projects on a massive scale, matched, perhaps, only by the infrastructure building spree in China from the early 1990s onward.

Then, the Ministry of Roads, Transport and Highways has been allocated $15 billion, a large part of which will be spent on enhancing connectivity across various parts of the country. A large part of this money will necessarily have to go to Indian and foreign construction companies that are present in or aim to enter this sector.

More than $10 billion has been allocated to the government’s initiative to deliver piped water connections to every household by 2024. This, too, offers opportunities for companies to build the infrastructure necessary to treat the huge amounts of water that will be required but also in the distribution chain that will be necessary to deliver this water to every last household in the country.

Real estate sector opening up

Apart from these government-funded projects, construction firms will find a huge market for their products and services in India’s real estate market that is expected to be valued at $1 trillion by 2030. This sector, which is projected to account for 13 per cent of India’s GDP by 2025, is coming out of a prolonged slump and showing signs of coming back to life. Though the current situation cannot yet be called a “boom”, it could get there with another few quarters of robust growth.

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Demand is once again picking up both for residential as well as commercial real estate. And this should bring happy tidings for the construction sector.

“The Indian real estate sector has shown green shoots of recovery post the lockdown driven by interest rates being at historic lows and some state governments lowering stamp duties, circle rates and statutory levies. The commercial segment has withstood the pandemic, which is evidenced by firstly, two recent successful REITs, one of which was launched during the lockdown and secondly, large transactions undertaken by global funds in the latter half of 2020,” Gaurav Karnik, National Leader (Real Estate), EY India, told the media.