Indian Construction Sector The Great Leap Forward
Residential and Commercial
Mechanization and Project Management to Increasingly Address Cost, Time and Quality Issues.
| The boom in India's IT and ITeS sector in the recent past opened new vistas of growth for the country’s construction sector. As one multinational after another opened shop, the earthy Indian soil got dotted rapidly with sophisticated buildings, the likes of which Indian eyes were seeing for the very first time.The expansion of the services sector has led to an increase in disposable incomes, and in turn this has brought about lifestyle changes.Keeping in step with the changing times, the Indian construction sector has |
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been quick to adapt to the situation. Sections of the construction industry have introduced contemporary international standards to give customers the best that money can buy, both in the residential and commercial segments.
Whether in their homes or offices, the buyers want functionality and ambience that is at parwith- global-standards. As a result, innovative practices in construction, design, technology and interiors are bringing in a sea-change in the very composition of the sector. Several of the traditional concepts of construction are being replaced with first- time ever practices in mechanization, design, materials and construction technologies.
All the above concepts do come with a price tag, thus increasing the cost of construction. The quality and type of materials used, and the design of construction impact on making a commercial or a residential |
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building more functional and contemporary. In the residential segment, while for some customers the price tag is not a constraint, for many others, the dream of a makaan could be just that, as the cost of construction continues to rise.
Given the trends of the last decade and the expected ones in the next, it is clear that the construction sector is undergoing a modern day manthan.
If the construction industry is at the cross-roads, then where is it headed in the future? Who will become history and who will rule the game? Will mechanization transform the industry as is being anticipated by senior professionals? Are the players of the sector too caught in the survival game to read the writing on the wall?
This report on the construction sector, the first in the series on various sectors, attempts to answer some of the questions raised while forecasting the future. The report throws light on the importance of the sector, not only for its stakeholders, but also for the country, as the fortunes of the construction sector is closely linked to the country's GDP (Gross Domestic Product).
The Construction Sector - Engine of India's Growth
India's robust and resilient services sector has been instrumental in successfully navigating India's economy from the turbulence of the recent financial crisis. The services sectors' growth is closely interlinked to the construction sector, which has seen an increase in the GDP contribution, up from 10.4 per cent in 2009-10 to 10.6 per cent in 2010-11.
At a global level, the construction sector can propel India to realize its potential of becoming the country with the third largest GDP in the world in just two decades. |
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As per the projections of the Development Policy and Perspective Policy (DPPP) Division of the Planning Commission, based on data computed by the International Monetary Fund (IMF), in 2025, the share of the developing and emerging countries in the Global GDP will be 48.9 per cent of which Asia's share will be 28.9 per cent. Among the Asian countries, India’s share will stand tall at 7.1 per cent.
The fortunes of many a sector including cement, steel, sand, chemicals, paints, tiles, fixtures and fittings, wood based products, plastics etc, will be closely intertwined with the ups and downs in the construction sector.
To keep the sector steady, it is imperative for stakeholders to imbibe efficient management practices, while the government should develop pro-industry policies to provide the required impetus. The report mentions how despite strong recommendations from the construction sector, the 2012 Budget failed to meet many requirements in the wish list of the sector.
Budget 2012 Speak on the Construction Sector
During the Twelfth Plan period, investment in infrastructure is planned to go up to INR 50,000 billion with half of this expected from the private sector. This will increase opportunities for the construction companies.
Tax-free bonds limit have been doubled which is a boost to the construction sector. (Rs 600 billion for 2012-13). !is measure will ease financing constraints faced by certain infrastructure segments and improve the investment scenario for construction sector.
On the other hand, the budget proposed an increase in service tax from 10 per cent to 12 per cent which will only increase the overall construction costs as well as commercial rentals.
Wish list of the Real Estate and Construction sector
Allow infrastructure status
Allow for (ECB) External Commercial Borrowing funding
Removal of levy of multiple taxes on the same property transaction
Ease in interest rates
Shifting Sands of Change
The Indian Construction sector and the real estate (residential and commercial properties) are in the throes of an unprecedented change. There are many factors responsible for this change. The evolving preferences of the globe savvy customers have deeply influenced the design sensibilities and construction practices of the sector. At the same time, the shrinking labour market and the spiralling costs of materials are making the
sector innovate strategies to keep within cost and time schedules, and yet deliver quality. Given the above, the Report looks at some of the key reasons that made the construction sector shift" gears in the last decade.
Shrinking Labour Force
There was a time when the construction sector was the largest traditional employer of labourers. Today, the shortage of labour has led to a paralysis of sorts in many construction projects, be they residential or commercial. Gradually, one is witnessing more of machines than men on a construction site. With the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), where villagers are entitled to 100 days of work, and wages as per the Minimum Wages Act, the migration of labourers to metros for work has reduced to some extent. As a growing number of labourers preferred to earn in their native place, the number of days spent in the cities as construction labourers reduced significantly.
GenNext Breaking Tradition
The Generation Next (GenNext) is a generation which is independent in thinking, forward-looking and lot more worldly-wise. GenNext is breaking away from tradition; hence there is a pronounced trend where the children do not normally follow their parents' vocation. The son of a mason or a carpenter or a tile layer or a painter does not necessarily become one. Many in the next generation of traditional workers in the construction sector and related industries prefer to be educated, be employed or start their own enterprise.
Demand by Clients to Replicate International Benchmarks
With a growing number of multi-nationals breaking the coconut on Indian soil, the first winds of change blew across the construction sector in the mid 90s. As the multi-nationals wanted similar global benchmarks to be replicated in India, international expertise and materials gradually found their way into the offices and homes of people. The trend triggered an irreversible process of a change in not just design but also in the mindset of people.
New Blood Carrying the Old Baton
Unlike the labour sector, developers, builders and other entrepreneurs find their next generation carrying on the baton, considering that some have them struck it real good. Far from basking in the warmth of a professional complacency, many new developers as well as the second generation of existing developers are eager to implement the learning gained in reputed national and international universities, and in multi-national construction firms. Having returned to their home turf, the new
age developers are eager to push the envelope, given the evolving but exciting potential in India. At present, senior developers in India feel that the country's capabilities in the construction sector are at about 30 per cent of Singapore’s or the Middle East.
| Spiraling Cost of Materials and Construction
The ever-northward bound prices of materials and cost of construction is one of the reasons for the sector going through the pangs of change.
Machines Replacing Men
About a decade ago, if 700 to 800 construction workers were required on site for constructing about half a million sq ft, today, the same work can be done by about 1/4 of the labor force. In the next decade, the number will come down even further. Sophisticated mechanical arms are rapidly constructing buildings reaching for the skies. The |
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increased trends of mechanization are irreversible and indispensable, changing the dynamics of the construction sector in a significant manner.
Timeline of Change - Past, Present and Future
It is not only in the methodologies and technologies that the Indian construction sector has, and still is, undergoing an unprecedented change. Synergy estimates that the global influence on the sector has gone by about 30% to 40% as of 2012 when compared to about 5% in 2002. It also anticipates a 70% to 80% increase in global practices being adopted by the sector by the end of the forthcoming decade (2022). The prices of core materials have witnessed significant escalation in prices, as indicated in the table given (Cost of Core Materials).
What does the future hold for one who is looking forward to buy that dream house or commercial property? An investment in the present could very well be a timely one, and save the buyer the pangs of pain caused by inflationary trends. In this scenario, adoption of global practices and project management will help to streamline the sector and address issues related to cost, quality and time of construction.
The Indian Construction Industry - Needs to get its Own House in Order
The construction sector, especially residential and commercial property segments, which is at the cross roads, is due for a shake-up. This will lead to correction in different aspects such as cost of materials. Although many developers will continue to build buildings and make money, there will be others who will become history. The ones to survive will be those who are gearing themselves now so that they can anticipate and cater to the rapidly evolving market requirements in the future. As said earlier, the mega stakes of the construction sector involves all the stakeholders of the sector including clients, developers, builders, suppliers of materials, secondary vendors etc in a significant way. The considerations of cost, quality and time are deeply impacted with every little change in the sector. So what are the mantras for survival and what should the construction sector do get its own house in order?
Protect the client
In order to ensure implementation of laws, the system must make a provision that unless all approvals are obtained, registration of residences and commercial complexes must not be permitted. This is a trend prevalent in many countries, including those much smaller than India.
Make the Building Safe
Structural consultants are accountable for the structural safety of the building, including its foundation. In case any negligence is detected in this aspect, then there must be a provision for suspending the license of structural consultants.
Ensure Quality in Building
All materials used in construction must meet the stipulated standards in terms of quality and safety. This includes not just raw materials but also fittings, pipes, plumbing, electrical cables, paints, etc.
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Improve the Efficiency of the Labour
The large body of unskilled workers, who constitute bulk of the workforce, can benefit by professional training. Some initiatives have been taken in this regard, e.g. National Skills Development Corporation (NSDC) is facilitating a Sectoral Skill Council (SSC) for the construction sector. An ambitious target of training-cum-certifying 35 million construction workers by 2022 has been fixed and the process of formation of the Skill Development Council for the Construction sector is already underway.
Safety of the Labourers
Safety of the labourers or the people involved in the construction has been totally neglected. There needs to be mechanisms or guidelines for workers safety. There is no law to fine or take a contractor to task if he or she does not ensure safety at the work spot. |
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Mechanization – The Trickle Needs to Become a Flow
| Estimates indicate that the percentage of mechanization in India is around 20 per cent in comparison to the 60 and 70 per cent in developed countries. The presumption in India is that mechanization is cost intensive, especially in comparison to labour which is cheap. In reality, this argument does not quite stand on a strong wicket as a surge in demand for labour would translate to wages going up. While there will be a marginal increase in cost of construction due to mechanization, project management companies and seasoned developers feel |
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that the benefits will help to address issues of quality, cost and time in the long run. Their vision is the reason why increasing number of construction sites and projects are increasingly engaging world class batching plants, tower cranes, hot plant mixers, earth moving equipment, stone crushers.
At the same time, there has to be a concerted effort on the part of various builders, architects, engineers etc to encourage their clients to adopt mechanization. Global exposure on the latest trends in construction, construction equipment etc will motivate them further.
What is the Future of the Construction Sector?
| The construction sector, and in particular, the residential and commercial properties, are in dire need of a one-stop solution to prevent cost and time overruns and ensure quality in construction. Is there one solution to address these three priority concerns of the industry? Probably not but certainly, the primary solutions can be found in effective management and in mechanization. Mechanization will bring down the time of construction, and thereby reduce cost overruns caused by delay. |
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Given below are a few of key management trends and technologies that the industry is slowly but surely adopting. These hold promise to become a lifelines for the sector in the future.
Project Management
As per the Ministry of Statistics and Programme Implementation, out of 601 projects undertaken between 2004 and 2009, the government delivered only 54 either on time or ahead of schedule. The factors responsible for the delay in the rest of the projects included delay in supply of equipment, slow pace of construction, fund constraints, and land acquisition issues etc. The private sector in the construction sector too grapples with many of these issues, especially labour shortage. These led to cost and time overruns on projects, disturbing the overall planning and implementation for commercial and residential complexes.
Issues related to quality of construction plague the sector. There have been several instances where, within weeks, if not months of moving in, occupants of an office or house begin to face problems due to faulty or poor quality construction. These range from frequent fusing of bulbs to leaking of roofs, to even reaction of flooring with the daily practice of mopping.
These problems can arise if the client does not have the requisite in-house expertise to examine the issues in detail. A project management firm undertakes A to Z responsibility of implementing a project, bringing in a value-add in every aspect of the project. This upgrades the project to a whole new level in terms of design, quality, construction, and finishes.
Why project management
Paves the way for mechanization,
Increases efficiency
Brings the industry at par with global practices
Has the potential to be the preferred one-stop solution to deliver on time, and within budget
Project Management – Growing Gradual But Strong Roots
| Despite its benefits, the construction sector has given a mixed response to mechanization. In this regard, project management firms are most suited to impress upon the developers the positive impact of mechanization on quality and cost. It may, therefore, be necessary to introduce higher specifcation and technical conditions in the bidding process to encourage adoption of superior technology.Ten years back, there were no project management firms in India but only architect firms and they were the only de-facto managers of construction |
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projects. Since its advent in the late 90s, the concept of project management has grown in leaps and bounds. Today, a growing number of clients prefer to engage project management companies to manage their projects.
Mechanization
The shortfall of skilled and semi-skilled workers in the next decade could go up to 65 per cent. If the construction sector has to find methods to replace the shortage of labour, work faster and better, then it has no other option but to mechanize. At many construction sites, the presence of backhoe loaders, excavators, soil compactors, pneumatic drilling machines etc are becoming common. Even though mechanization is expensive, many companies insist on it as it goes a long way in ensuring timely delivery of the project. By repeated usage in the long run, the returns help to recover the cost of investment.
Precast construction – a sunrise concept with a bright future
The concept of pre-cast or pre-fabricated construction means majority of structural components are manufactured in factories or plants situated at a distance from the construction site, and then transported to the site for assembling. These components, manufactured on a mass scale, facilitate the construction of a large number of buildings in a short time. Overall, pre-cast building systems are more economical when compared to conventional methods of construction.
Conclusion
While project management, mechanization and pre-cast hold the potential to become the preferred best practice, there are several other changes expected in the construction sector. In particular, the residential and the commercial sector would welcome them as their respective customers have mega bucks at stake. Some of these changes are given below
The low cost housing, which is being neglected now, will catch the attention of the developers.
Mechanization will be visible in a significant way in the low cost housing segment in the next five years.
Companies will rely less on individual brilliance, and become more corporatized.
Temporary backlogs in the demand-supply paradigms will be created as the volumes are high but the vacuum will get filled by Indian players.
FDI and joint ventures between multinationals and Indian companies will increase.
The increase demand for good quality materials and finishes, which are presently mostly imported, will see companies start manufacturing facilities on Indian soil.
These changes are not without pangs of growth, but in the long run, they are expected to bring about a much needed positive restructuring of the sector.