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2013-10-08

A Constructive Opportunity

In 2012, the construction industry contributed 8 per cent to total GDP of India and offered employment for more than 33 million people.

It has been expected that the Indian construction industry will offer huge opportunities for entrepreneurs and emerge as the third largest market in the world by 2020.

 

Overview

As the Indian construction industry is immensely growing, it can become an integral part of the economy. According to a report by Indian Credit Ratings Agency (ICRA), the Indian construction industry positions at third rank among the other major sectors that affects the country’s economy. Manmohan Singh, Chairman, CII Chandigarh Council, says, “The Department of Industrial Policy and Promotion estimates the sector have held Rs 1364275.82 million of Foreign Direct Investment (FDI) from April 2000 to February 2013. Whereas for the last financial year (2012-13), the money flow into the construction sector was around Rs 78108.57 million.” Overall, the investment in construction sector accounts for nearly 11 per cent of total GDP and to revolutionise this sector the government has speed up a number of reforms policies and new projects with huge investments on the construction of ports, roads, and power plants etc that has opened the way for substantial growth of this sector. Jasmeet Singh, Head, Customer Experience Programs & Defence Sales, JCB India Ltd, says, “In order to stimulate the industry growth, the government has started around 1500 stalled ‘Road & highways’ Projects recently. Moreover, fast track clearances and awarding of projects under PPP mode are in process.” Under such scenario, entrepreneurs, builders and contractors refined techniques and ideas to execute the new projects. The sector can be divided it into two segments one is real estate (residential, industrial, commercial and corporate segments) and the second one is infrastructure (railways, improved housings, urban infrastructure, airports, roads, etc). When the entrepreneurial actions are taking place in these segments, it will result a subsequent growth in overall industry performance and opens door to new ideas.

 

Growth Factors

Construction industry is growing at 5.9 per cent this year against last year‘s 5.6 per cent. Sourabh Bansal, Founder, Magicrete Building Solutions Pvt Ltd, says, “This constant growth can be attributed to the robust economy, rapid urbanisation and migration of population to Tier 2-3 cities. These are boosting the demand for residential real estate. In addition, positive uptrend in FDI and most importantly rising demand for commercial and retail spaces will drive the growth.” Moreover, the growth of this sector is associated with the development of other industries like housing, townships, buildings and infrastructure construction for retail, hotels, cinema, schools and hospitals. The industry's growth is also linked with the improved life style and rising disposal income sources.

 

Opportunities

The construction industry provides opportunities for entrepreneurs in the manufacturing, assembling, component supply, financing, after-sales servicing, etc. Bansal says, “Any product/service brining in innovation and efficiency at any level will result in time and cost saving in this industry, which are need of the hour and is a potential opportunity.” Other than this, entrepreneurs can explore options to be a contractor, dealer, banking and finance company, project developer, machinery and equipment dealing, buyers, suppliers and investors in construction equipment and technologies, etc. Moreover, many other trends are also offering opportunities for entrepreneurs.

 

Quick and Low Cost Housing

There are growing business opportunities in quick and low cost housing. Harpal Singh, Chairman & Managing Director, Synergy Group. Singh was inspired to come up with this idea after being frustrated with the long process of his own house construction. Singh shares, “Most of the building components have been manufactured at factory and we just fitted them.” This building has been certified as earthquake and shock-proof by the Center for Industrial and Scientific Research. He claims that this building is also eco-friendly and consumes less energy than a conventional building.

The biggest potential of this kind of quick building technology is that it can be very beneficial in building hospitals and schools. He thinks that this model can also be very useful in disaster-relief situations as well.

 

Innovative Building Material

Innovations and better technologies are in demand in the field of construction. Bansal says, “I started the idea after a strategic search for a product that could add value in terms of energy and labour efficiency in construction industry. Bricks appeared to be a Rs 50,000 crore industries plagued by being unorganised and rising costs due to increase in labour and fuel prices. This is where AAC blocks, our flagship product, seemed to fit the picture and address these issues.” AAC blocks are fewer prices in comparison with red bricks and allow for faster execution with less labour and reduced construction costs. They are environment-friendly also. Bansal says, “Although the use of AAC blocks is at a nascent stage in India, but it is widely used in Japan, China and West Asia and European countries.” He hopes that the use will increase rapidly in coming years.

 

Pre-Fabrication Techniques

Pre-fabrication is currently the trend catching up in the construction sector. Bansal says, “Innovation in a building made with pre fabrication techniques is that it is assembled at site not constructed. Due to the lessened dependence on manual labour, construction is speeded up. Pre-fabrication being an economical alternative for mass replications, it is catching up very fast in mass housing projects and become the need of the hour. It also saves from the costly replacement and limited conventional building materials.

 

Green Building Initiatives

The demand for green building products is increasing at global level. If we talk about India, it is projected that the values will double with the huge investment in the market for green building materials and equipment. Hence, the increase in the demand for green building will open doors for entrepreneurs who have innovative ideas and research in the development of building tools to grip the potential of this market. Except all these, there are huge opportunities for entrepreneurs in architectural design, interior design under PPP.

 

Challenges

Certain factors are hampering growth in this sector. The absence of professionals with proper domain knowledge does not allow entrepreneurs to be strengthened. Vinayak Sanger, Zonal Head, Schwing Stetter, says, “Skilled manpower remains a key challenge in this segment that calls for a skill development council at national level.” Singh says that when he planned and designed the project to complete in five months the most tedious challenge confronted was to break the conventional mindset of the public. Convincing people was the toughest challenge to overcome, that the building can be erected in 48 hours along with furnishing done.” Also, uncertainties related to regulations and policy making has resulted in muted new order inflows for construction companies. Entrepreneurs also to face challenges at the execution front due to delays in land acquisition and obtaining clearances that continue to plague key infrastructure sectors such as power, roads and ports. Apart from these challenges revolving credit in construction, industry requires a substantial amount of working capital creating an entry barrier for start-ups.

 

The Bottom Line

Due to economic slowdown, the sector has seen a negative growth in the past six months. To rejuvenate this sector, entrepreneurs should be open for partnerships and opening for new opportunities.From the government side, more emphasis should be given on the infrastructure investments and incentive-based contracts without any delay. Narendera Arora, Vice President, GBP Group emphasized, “There is a dire need of simplification and uniformity of taxes across India.” Besides, collaboration with suppliers, availability of testing centres, easy land acquisition, competitive enhancement and availability of skilled manpower will boost the growth of this sector. Furthermore, it is absolutely essential for the construction equipment industry to work closely with all stakeholders including government agencies and other organisation like CII that organises the events like Excon to make this sector growth possible.

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