Dilip James: Millennium profits via medieval practices

The construction industry is in urgent need of a strong regulator and a Bill to control its practices

The Competition Commission (CCI) levied a mammoth fine late last year on a prominent builder for allegedly indulging in monopolistic practices and it is now under appeal. That got me to look in some detail at how this industry deals with its customers, labour, society, minority shareholders and so on.

Have you reviewed the sale agreement of a builder? As with the CCI case, agreements are mostly one-sided with little protection for the buyer. While buying an apartment from a reputed builder we were going back and forth over clauses pertaining to delayed delivery, change of specifications and the like. The builder’s standard agreement had no penalty for delayed delivery, though it had onerous ones for delay in payment by the buyer. At one point, the managing director of the company told me he could save time and easily agree to all the changes I wanted. Do you fancy pursuing this in a civil court where the average pendency is over seven years and by when you would have paid me most of the money, he asked. In that lies the crux of why this industry so blatantly gets away with one-sided agreements. Actions we are now seeing from CCI are welcome and hopefully will lead to more desirable practices over time.

Observe the construction of a building even in a residential area. Dumpers move in and out of the property, covering surrounding roads with mud and debris. By the time construction is over, most surrounding areas end up with broken roads and clogged drains. Those in government who talk of making our cities into Shanghais of the future would do well to go see how construction sites there are managed. Construction sites in that city have platforms for dumpers and trucks to come to and they are cleaned with water before they move on public roads, otherwise stiff fines are levied. If we want to install a generator at home, there are guidelines on permissible noise levels and so on. There seems to be none for construction equipment used in residential areas that emit mind-numbing sounds. Construction activities increase particulate, noise and related pollution, albeit in a smaller area but when this is repeated in over hundreds of sites in a city, the cumulative impact is heavy. A specialist in respiratory diseases says he sees significant increase in the incidence of bronchial infections around areas with construction activities. He laments the lack of monitoring by government agencies to analyse the collateral damage of this to the citizen’s health.

Take the use of labour at construction sites. Even basic minimum facilities are mostly not provided. Sites employing hundreds of labourers have minimal sanitary facilities or arrangement for food and refreshments. No sooner does construction begin than informal “food suppliers” arrive. It leads to the inevitable consumption of food on the footpaths and results are more garbage on the roadside and stray dogs scrounging for leftovers. Work times, overtime and other provisions are paid scant heed and noisy work even during night times is common. Labour, if it gets transport at all, is brought packed like cattle in trucks. Builders get away with this approach since most labourers are migrant workers without a forum to air their grievance. One often hears of auto industry workers at Gurgaon and Manesar with medical, retiral and other benefits going on strike. These employers are easy targets for unions supported by political parties. Have any of them thought it worthy to focus on construction labour who work in poor conditions and easily outnumber those in the organised sector? When was the last time one heard of a strike at a construction site?

Many of the top builders in India are also now listed companies having raised thousands of crores of public money. A perusal of their annual reports is an education in weak corporate governance practices. Most of them have dozens even hundreds of subsidiary companies with cross-holdings and myriad intercompany transactions. The level of detail provided is abysmal and meant to perfunctorily meet disclosure norms. It is common to see the boards of these companies stuffed with former senior bureaucrats or ex-regulators — there is no mystery as to why the promoters wants them on the board! Many close relatives of the promoters are employed in their companies. While this in itself is not abnormal, what can explain crores of rupees paid as compensation to the inexperienced relative, as much as five to six times that of the wizened 50-year veteran design or project head of the same company? Since 2008, citing business downturn and tough economic conditions many of these companies have had their loans from public banks restructured with interest moratorium, repayment roll overs and so on. However, during the same period they have paid out handsome dividends principally benefitting the promoter group!

So does it not sound like a joke when this industry opposes the appointment of a regulator insisting that self-regulation suffices? If there is an industry that is in urgent need of a strong regulator and a Bill to control its practices, here is the leader of the pack.

Dilip James is a Bangalore-based independent corporate advisor