In the midst of doom and gloom in the global economy 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, an ASSOCHAM-TARI study 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 India (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, D S Rawat. Others who spoke at the event included: Kshama V Kaushik,
director, TARI and Babulal Jain, senior member, ASSOCHAM Managing Committee in
Noida.
“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 Rawat.
“With the union government liberalising Foreign Direct
Investment (FDI) rules in realty and construction sectors, 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 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 sector’s contribution to GDP in India 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 – 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 India 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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