Top 8 Reasons Construction Spending Is Exploding
Given the size of India’s growing economy, a population of 1.2 billion people and their growing needs it goes by default that heavy expenditure on infrastructure is required to meet the exponentially growing needs of the country. Given the large expanse of India’s geography, it has become increasingly necessary to ensure adequate connectivity across the country we aim to become a developed country some day. Given that development of both urban and rural landscapes across the country have become vital for the country’s economy let’s take a look at the top 8 reasons why construction spending across the country is exploding.
Transport infrastructure is the back bone of any growing economy to grow. The government has plans of billions of dollars being spent on development of new airports, harbours, development of new roads, expansion of existing national highways, and over all connectivity across the nation. Existing 4 lane highways are being expanded to 6 lane highways. New highways are being charted across the country to ensure connectivity between major cities. Newly created ports, air ports and railway stations themselves requires heavy expenditure in addition to expenditure on interconnectivity between them. Expansion of Railways is another major arena bringing billions to the construction industry.
Increased housing requirements:
India is the world’s fastest growing economy and has the youngest working population in the world. India’s middle class has exploded in the past few years and now constitutes half of India’s population if reports from the World Economic Forum are to be believed. With an exploding middle class comes a wave of increased disposable income and investments which also come in the form of improved housing. There is major migration of population from the rural parts of the country to cities and developing cities in search of better opportunities in a growing economy. This had led to an increased demand in housing requirements across the major cities in the country as cities start expanding outwards and upwards to meet the increasing demand for housing of an aspiring population.
Under the Smart Cities mission, 100 plus cities were selected through a “City challenge competition” that links financing and the ability to achieve multidimensional objectives of urban infrastructure development like solid water management, clean water supply, sanitation, efficient urban mobility, public transportation, power supply, robust IT connectivity, affordable housing for the poor, governance, e-governence, heath, sustainable urban environment, security and safety of citizens, education. At least 99 cities have been identified with an approximate outlay of USD 31.38 Billion and is expected to impact the lives of 99 million people. Given the long array of facilities and amenities that will be required, it is safe to say that a hefty budget will be allocated to all kinds of construction spends.
Swatch Bharat Mission:
India has the world’s highest number of people defecating in the open. The swatch Bharat Mission was created with the aim to eliminate open defecation, eradicate manual scavenging, implementation of scientific Municipal solid waste management. Creation of adequate toilets both public and private and the necessary sanitation facilities has seen a robust growth in the recent times and is being opened to the private sector for participation in Capex (Capital expenditure) and Opex (operation and maintenance). Similar to increased spends in housing requirements and smart cities, sanitation requires hefty spends in terms of on ground infrastructure construction, maintenance and renewal.
Interlinked with the smart cities mission the AMRUT ensures that basic infrastructure basic infrastructure services relating to water supply, sewerage, septage management, storm water drains, transport and development of green spaces. Given the dismal state of existing infrastructure and the lack of it in various parts of the country, billions are all set to be spent on creation of water supply pipelines, sewage lines, drainage systems, to name a few in addition to focus on development of connectivity infrastructure. State levels plans of 11 billion USD have been approved for 500 cities across states will add to the spending across the construction industry.
Make In India:
The Make in India campaign pushes for extensive spends to develop manufacturing sector. As more and more companies set up manufacturing plants across the country, it brings in more spends in the construction of the necessary infrastructure to support the industrial growth.
Foreign Direct Investment in the infrastructure construction sector has always been restricted in the past with too many restrictions on the investors. The Government has finally opened up more FDI in the sector in addition to loosening the laws that apply. Development projects including development of roads, bridges, hotels, resorts, recreational facilities, townships, construction of residential and commercial premises, city and regional level infrastructure all finally allow 100% FDI through the automatic route. The FDI limit for SEZ’s has been raised to 100%. FDI allowed for single brand retail trading and construction development segment is again up to a full 100%.
Focus on Rural infrastructure:
70% plus population of India still lives in rural parts of the country that lack even basic infrastructure. This has led to a major migration crisis within the country with thousands of people moving into cities on a daily basis in search of employment. This over burden’s the city’s existing resources making additional resources a necessity in very crowded places. If India has to grow, then the rural parts of the country need to be developed as ferociously as its urban contemporary. Basic infrastructure like housing, water supply, irrigation, dams, sewage, power supply, education and health facilities account for most part of the spend eventually adding to the construction industry spends.
The Government policies in and around the sector have been relaxed and changed to allow for more transparency in the process of project and fund allocations from the start to the end, giving all possible competitors a level playing field. Also stringent measures have been bought in place to curb corruption and bureaucracy which generally kept the big money from the private sector out of the industry. Transparent policies and systems make the industry more enticing to the big players. Also incentives are being awarded for timely completion of projects at different levels of project completion in addition to exemptions from various taxes at different levels will add to the increased spend in the construction industry.
Heavy focus on development of infrastructure makes for very nice investment opportunities. Investments in Infrastructure development in the residential, retail and commercial sectors make for enticing investments as the ROI is generally very good given the ever soaring prices of properties across the country. Given the increased demand for smart homes and townships, green building solutions, low cost affordable housing make for very good investment opportunities even for the smallest of players, cumulating to big spends in the industry. Additionally Skill development of workers in the industry has also attracted a lot of investment options for people to earn their moolah
These are just some of the reasons adding to the explosive boom of billions of dollars of spends in the construction industry. Lesser known factors like migration to cities, vertical and horizontal expansion cities, increasing spend capacity, and the aspirations of the country’s young all demand hefty investments in the development of infrastructure across the country irrespective of the geography.