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Construction industry can help India cope up with global doom and gloom: Study

Capital Market 

Realty projects with investments over Rs 10 lakh crore remained stuck as of FY15

In the midst of doom and gloom in the with consequential impact on India, highly job-oriented construction industry can give quite positive results in terms of stepping up economic growth, more employment and raising tax revenue for the government, if the stress-ridden sector is provided immediate succour, a just-concluded ASSOCHAM-TARI study has pointed out.

Construction sector, which is the second largest employment generator after agriculture, comprising roads, ports, airports, bridges and real estate, has the multiplier potential to create benefits at least double the size of direct inputs, highlighted the study titled Construction industry: Contributing to Make in India, conducted by The Associated Chambers of Commerce and Industry of (ASSOCHAM) jointly with Thought Arbitrage Research Institute (TARI).

The output multiplier demonstrates how an increase in demand of Indian construction sector can lead to an increase in overall output of the economy by 2.4 times thereby showcasing strong backward linkages of the sector with ancillary and complementary industries such as cement, steel, iron, bricks, sand, chemicals, heavy machines and equipment, sanitary ware, wood, electrical and other fixtures, paints and others, noted the study.

Over 75 percent of real estate projects of the total investments worth over Rs 14 lakh crore remained non starter (under implementation) as of FY15 owing to plethora of issues like delays in environmental clearances, project approvals, acquisition, lack of finance and carrying the baggage of badly executed public-private-partnership (PPP) models that are crippling growth of construction in India, said ASSOCHAM Secretary General, Mr D S Rawat while addressing a press conference along with Ms Kshama V Kaushik, director, TARI and Mr Babulal Jain, senior member, ASSOCHAM Managing Committee in Noida today.

"One of the major problems facing the industry is a high level of debt on their balance sheets, resulting from project delays which, in turn, were caused by things like environmental issues both at the state and Central levels," said Mr Rawat.

"With the union government liberalising foreign direct investment (FDI) rules in realty and construction sector, we are hopeful that it will lift the affordable housing space, revive steel, cement and other related sectors, rev up employment scenario and boost the GDP (gross domestic product) growth," he added.

The kinds of benefits which can accrue to the economy are worth pursuing rigorously, at this point of time when Indian economy is no more insulated from major problems facing the world.

"Look at the way, the market has melted with Sensex nose-diving , further curtailing the ability of the companies in the construction to tap the market and reduce their debt burden while fresh projects are difficult to launch in the wake of huge funds locked in delayed projects," said Mr Rawat.

He added that financial results of most of the listed firms in the construction sector for the third quarter are going to disappoint investors.

Production process is closely associated with employment, value addition and taxes. In the long run, the future looks promising.

Rise in employment across the economy because of a rise of ' 1 of demand is roughly 3 times the rise in employment within the sector. Similarly, rising demand can lead to: increase in value addition of the economy by roughly three times the value addition within the sector; and increase in indirect tax collections in the economy by approximately two times that of the tax collections from the sector.

It is an acknowledged fact that construction has the potential to drive and revive manufacturing in any economy. The construction sectors' contribution to GDP in has stayed fairly constant at around 7-8% for the last five years.

These factors along with strong backward and forward linkages of the sector with other manufacturing industries, make this sector a natural priority sector for the government and the focus of this report.

Besides, construction industry also has strong linkages with other manufacturing industries C it absorbs 40-45% of the steel industry's output, 85% of the paint industry, 65-70% of the glass industry and a significant share of the automotive, mining and excavation equipment industries.

The ASSOCHAM-TARI study has estimated the output multiplier of the construction sector to be 2.384, this means, an increase of ' 1 in final demand in the construction sector will lead to an increase of the overall output of the economy by two times

It has estimated the employment multiplier of the construction sector to be 2.88, which is means, employment generated in the economy because of rise in demand of the construction sector is 2.88 times of the employment created in the sector itself

The study has estimated the tax multiplier of the construction sector to be 1.962.This means that rise in indirect tax collections generated in the economy because of rise in demand of the construction sector is approximately double the rise in indirect tax collection from the sector itself.

Real estate investment scenario in UP as of FY15:

UP has attracted about 16 per cent of the total investments worth over Rs 12 lakh crore attracted by real estate sector from private investors (including both domestic and foreign) as of FY 2014-15 in and has managed to increase its share from just 0.1 per cent to 16 per cent during the last decade in this regard.

Within UP, private players accounted for over 98 per cent share in total investments attracted by real estate sector.

Real estate investments in UP have grown at a compounded annual growth rate (CAGR) of about 32 per cent during almost a decade (b/w 2005-06 and 2014-15).

Over 86 per cent of real estate projects in UP remained stuck and are facing a delay of about 35 months on an average.

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First Published: Fri, January 22 2016. 11:28 IST