Construction materials market: Future growth & demand drivers

Ans Hariharasudhan states that Indian construction majors are producing materials such as cement, steel and glass that have shown strong growth of around 10% per annum – this is indicating sustained demand.

Ans Hariharasudhan

Ans Hariharasudhan

Construction Industry in India is the second largest economic activity after agriculture. India’s Construction industry has grown at 11.1 per cent Compounded Annual Growth Rate (CAGR) over the last decade on the back of massive infrastructure investment and rapid rise in housing demand. Investment in construction accounts for nearly 11 per cent of India’s Gross Domestic Product (GDP) despite a fall in growth from pre-2008 period.

Growth Drivers:

The Indian Construction sector has well and truly moved out of its nascent stages. Government has identified Infrastructure as one of the key drivers of economic development in the country. This has proven to be major driving force behind growth of construction industry. Half of the demand for construction sector in the country comes from the Infrastructure sector, while the rest comes from Industrial activities, residential and commercial development etc.

Majorly there are two main contributors to the Construction sector’s growth:

1)      Infrastructure: Transportation, Urban development, Utilities

2)      Real estate: Residential, Commercial/Corporate, Industrial and Special Economic Zones (SEZs)

Infrastructure:

The present government’s focus on infrastructure development along with the active participation of the private sector, this segment is set to grow rapidly. The Power, Irrigation, Transportation including Roadways, Railways, Airports and Ports, Telecommunications, Urban Development as promised with the 100 smart cities is set to see around Rs. 15 trillion investment in coming years from public sector. In order to attract such investment, the Indian government has eased foreign direct investment (FDI) norms for quite a few sectors of infrastructure development recently.

Transportation: India has one of the largest road networks in the world, behind only the United States and China. Roads account for 80 per cent of passenger traffic and 65 per cent of freight traffic in India. The annual growth of road network in India is projected at over 12 per cent for passenger traffic and over 15 per cent for cargo traffic. There are around 454 airports in India, out of which around 90 are open for commercial services and 16 are designated as international airports. Indian Railways has the world’s fourth largest rail network and is one of the largest systems of passenger carriers in the world – the major chunk of its earning comes through freight services. India boasts of a long coastline of more than 7500kms and countess opportunities for natural ports. Presently there are about 13 major ports in India. Additionally, there are more than 180 non-major ports of which only about 60 of these non-major ports are currently operational. Thus we can see the immense potential of the transportation sector.

Urban Infrastructure: The major impetus has been given on developing the urban infrastructure by the new government with announcement of 100 new smart cities. The decision to create smart cities is primarily attract fresh investments and job creation. The government should also focus on developing existing infrastructure putting impetus on sustainable infrastructure development in existing metros as well. Many of the smart cities will be hub for various development initiatives, which can provide recurring business for construction industry.

 

Real Estate:

Other than infrastructure, the construction industry in India has seen sustained demand from the Industrial Sector and Real Estate Sector. The Real Estate sector has had a steady demand from construction industry after the unprecedented boom in the last decade.

The real estate developers have traditionally employed contractors for construction of projects. However, several large contractors are now transitioning towards becoming real estate developers. Such developers with their experience in the construction sphere are willing to undertake complex and complicated projects where the competing factors will not only be cost efficiency but also technological competence and efficiency in construction. This has led to newer and more advanced construction technologies being implemented even in the housing real estate sector like the pre-cast technology as well as their has been demand for latest innovation in environment friendly and cost effective construction materials that suit such technologies.

Precast (prefabricated) construction technology has already been used internationally. In India, thus far this technology has been used in constructing large projects like bridges, metro rail and commercial buildings. But its various benefits have made some of us in the real estate industry to embrace this technology in housing sector as well.

Precast components are fabricated or assembled offsite, transported to the project site, and installed on a prepared foundation. Apart from the low cost and timely delivery, buildings constructed using this technology are more robust than traditional brick and mortar constructions. As the construction is done in a controlled factory environment the delays and issues caused by environmental factors like bad weather are also eliminated. The precast wall panels extend into a building’s footings, which helps these buildings cope with interior fire, water damage and accidental impact. Though precast construction industry is still at its nascent stage in India, it’s rapidly coming to the forefront of the construction industry.

Impact on construction material and equipment industry:

High impetus and investments in construction have had a positive domino effect on construction material supplier industries such as cement, bricks, steel, chemicals, paints, tiles, fixtures and fittings.

One of the latest advancements in construction materials is Fly Ash Brick (FAB). FAB is a material used for constructing buildings, specifically masonry units, containing class C fly ash and water. It is made of extremely fine ash ‘flying’ along with flue gases is trapped in Electro-Static Precipitators (ESP) and is collected. Ash consists of PCA (Pulverized coal ash) which gets generated during the combustion of coal in thermal power plants. It is a waste product for power industry but it’s a primary raw material in construction. The advantages of the bricks is that they absorb less water, Zero efflorescence, uniform size of bricks reduces plaster almost by 50 per cent, Gypsum plaster (plaster of Paris) can be directly applied and no emission of greenhouse gases during production. This way this type of bricks saves the environment from a harmful chemical effect.

Some other construction materials that are used to build cost-effective and environmentally friendly homes are interlocking bricks, hollow concrete blocks, rubble filler blocks, stabilized mud-based blocks and funicular shells. Using these alternate construction materials and methods both construction costs and time can be reduced considerably. The costs can be reduced by about 10-15 per cent in materials and up to 20 per cent in terms of construction time.

The construction equipment sector as well has been growing at a scorching pace of 30 per cent annually driven by the same demand drivers. Many international players have been looking for importing and selling complete equipment in India. The construction equipment-rental business has become another growth driver.

Conclusion:

The construction materials industry is has been experiencing liquidity constraints due to tightening funding norms being employed by institutional financers during the recent market slowdown. Still, Indian construction majors are producing materials such as cement, steel and glass that have shown strong growth of around 10 per cent per annum, indicating sustained demand.

With advent of latest technical methods of construction availability of skilled labour at locations is also becoming increasingly challenging. Government have taken a serious note of this need gap and have put an active emphasis on undertaking skills development programs to meet this unfulfilled gap.

Major steps have been taken by the government to improve the industry sentiment. They have scraped the service tax for under-construction projects, higher tax exemption limits and providing tax holidays are some key beneficial steps that will put further impetus.

One of the major focus areas of the government has been on bringing transparency in policy decisions. A structured policy framework with transparency is the need of the hour for infrastructure, construction and real estate industries. It will boost investor confidence who will in-turn fuel the growth of the industry.

 

(The author is Business Development Consultant, Weckenmann Anlagentechnik GmbH+Co.)

 

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