Governments Are Pushing Towards Environmentally Sustainable Practices
Mr. Rajesh Nath
Managing Director, VDMA India
Civil Engineering and Construction Review: Have the government’s various initiatives for the growth of Indian construction sector been helping the construction industry?
Rajesh Nath: The demand for Indian construction equipment grew by 24% in FY 2017-18, and the sector crossed 90,000 units for the first time. Demand continued to grow mainly due to the increase in infrastructure spends. The industry grew despite the hiccups of emission and GST during April and July 2017, respectively. Demonetization also had a negligible effect on the industry growth.
Government, which is a major demand driver, also plays a facilitator’s role through policy and regulations. It is the largest end customer accounting for nearly two thirds of the demand for CE products and hence has a very significant impact on the industry. Also, its role in setting policy and regulation has a further impact on the industry. Be it GST or ‘Construction, Earthmoving, Material Handling, Mining (CEMM) Act’ or the RERA Act for the Real Estate sector or the sand mining policy or the ‘concrete site mix usage, land acquisition guidelines’, the ICE industry looks to the Government to act as an enabler. Its policy for facilitating export growth helps the ICE manufacturers reach out to existing and new markets. It monitors imports allowing for domestic manufacturing activity to flourish.
CE&CR: Are you pleased with the current regulations that are being implemented?
Rajesh Nath: Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
The Government has given a massive push to the infrastructure sector by allocating US$ 92.22 billion for the sector in this year’s union budget. Planned outlay for the road sector is US$ 18.69 billion while allocation of US$ 10.97 billion has been made for development of national highways across the country. The Indian Railways received the highest ever budgetary allocation at US$ 22.86 billion. Out of this allocation, US$ 22.55 billion is capital expenditure that will be used for capacity creation and redevelopment of 600 railway stations.
A new committee to lay down standards for metro rail systems was approved in June 2018. As of August 2018, 22 metro rail projects are ongoing or are under construction. Moreover, Rs 2.05 lakh crore (US$ 31.81 billion) will be invested in the smart cities mission. All 100 cities have been selected as of June 2018.
Highway construction (Roads) has been one of the key drivers for equipment growth. Earthmoving & Mining equipment are largely used for initial land clearing for Road construction. Similarly, Concrete equipment witnessed a growth thanks to Concrete roads, Railways and Metro. MHE growth was from a mix of Road & Railways, Metro segment. Material processing was largely led by the Quarry segment, which supplies aggregates to Road Construction, Railways, Irrigation sector and Real estate.
CE&CR: How did our construction industry fare in 2018, when compared with the foreign markets?
Rajesh Nath: The boom in the construction equipment sector is continuing, as more and more regions around the world are experiencing growth. This trend is expected to continue for the rest of 2018, and is consistent with very strong business sentiment in surveys amongst equipment manufacturers. In Europe, the year started in line with expectations, with a slightly slowing rate of growth, resulting in a 5% increase in sales in the first three months of the year.
India is the second largest sales market in Asia for the German engineering industry. Top sectors attracting FDI inflows from Germany are Automobile industry (20.6%), Services Sector (15.9%), Construction (infrastructure) activities (15.6%), Industrial machinery (6.2%) and Drugs & pharmaceuticals (6.2%). These top 5 accounted for about 64.5% of total inflows from Germany during the last fiscal.
India is witnessing significant interest from international investors in the infrastructure space. Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) and Infrastructure Activities sector from April 2000 to June 2018 stood at US$ 24.87 billion and US$ 13.11 billion.
CE&CR: What are the challenges, which the Indian construction industry is facing when it comes to the process of construction?
Rajesh Nath: The construction industry is the second largest contributor to India’s GDP. Not only does it accompany huge economic potential but is also among the biggest employment providers. While all of this seems encouraging, there are innumerable challenges that have been limiting the growth prospects of the construction industry in India.
The construction industry offers a lot of opportunity for employment but most of it is restricted to manual jobs. Due to the low wage expectancy of workers, who mainly come from the rural areas in search of work, contractors still follow traditional work practices. This doesn’t just reduce the efficiency of the process but also makes it a lot risky. As many as 70% contractors believe that there is lack of skilled workforce and qualified/certified professionals.
The cost of construction materials, especially after the implementation of GST (Goods and Service Tax) has undergone changes. Most materials used in the construction industry, especially those in the high-end category fall in the 28% GST slab. This has grown up to be a big challenge for all stakeholders.
CE&CR: Are there any concerns that the members of our construction industry should be vary of, in the future, to prepare for a better tomorrow?
Rajesh Nath: The infrastructure sector has become the biggest focus area of the Government of India. Under Union Budget 2018-19, US$ 92.22 billion was allocated to the sector. Increased impetus to develop infrastructure in the country is attracting both domestic and international players. Private sector is emerging as a key player across various infrastructure segments, ranging from roads and communications to power and airports. In order to boost the construction of buildings in the country, the Government of India has decided to come up with a single window clearance facility to accord speedy approval of construction projects.
However, the construction industry is responsible for 25-40% of the carbon emissions on a global scale. In the Indian perspective, this is even more pressing as traditional means of manufacturing and construction is a large part of the process even today. Climate change and environment is a global agenda and governments across the world are pushing towards environmentally sustainable practices. New norms and regulations require companies to become more technology advanced and acquire skilled manpower. Caring about the environment is no more just a social obligation but a legal requirement.
The years ahead are crucial for the Indian construction industry, especially when it’s trying to make headway into the global standards. Technology and training will become the key answers to the problems and to bring back the confidence in its growth.
CE&CR: What do you anticipate, will be a significant growth area for your organisation in 2019?
Rajesh Nath: Looking into the future, India’s national highway network is expected to cover 50,000 km by 2019. National highway construction in India has increased by 20 per cent year-on-year in 2017-18. India and Japan have joined hands for infrastructure development in India’s north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
As of April 2018, 56 new airports are expected to become functional in the country over the next few years. In the road sector, the government’s policy to increase private sector participation has proved to be a boon for the infrastructure industry with many private players entering the business through the public-private partnership (PPP) model.
India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country. Sectors like power transmission, roads & highways and renewable energy will drive the investments in the coming years.
Many German companies have set up and are setting up manufacturing in India in addition to the sale and service office. Several German companies and VDMA members are planning towards more investments in India. German construction equipment and building material machinery manufacturers like Liebherr, Schwing Stetter, Putzmeister, Wirtgen, ZF, Beumer and Thyssenkrupp to name a few have invested substantially in the last 5 years.
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