Construction industry share in GDP to stay below 8%: ASSOCHAM [September 02, 2011]

The contribution of construction industry in GDP will stay below eight per cent during the current fiscal 2011-12 as against 8.1 per cent in 2010-11 owing to an unregulated price hike in key construction material together with rampant shortage of workforce at all levels, apex industry body ASSOCHAM said.
Domestic construction industry has been jostling with steep and steady rise in prices of cement, steel rods, bricks and other input material which has risen by over 30 per cent since 2009, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Besides, the industry is also facing severe shortage of about 40 per cent skilled construction workers and construction projects are getting delayed, cancelled or halted in progress all over the country, highlights an ASSOCHAM study on ‘Current trends in Indian construction industry.’
Cost of construction labour has increased by over 30 per cent during the course of past couple of years, according to the chamber study.
"Inflationary pressures leading to an abnormal price rise in food and basic cost of living have pushed the price of labour upwards. Besides, depletion of migratory workforce owing to improved locally generated employment opportunities from government welfare schemes have led to scarcity of labour and increased costs," said Mr D.S. Rawat, secretary general of ASSOCHAM.
Steel, cement and labour are the key components and they alone make for almost 75 per cent of overall construction cost, points out the study.
“Increase in costs are largely due to rising global demand for goods and commodities, besides ever-increasing transportation and energy costs are collectively responsible for such a hike in the sector,” said Mr Rawat.
ASSOCHAM interacted with about 1,500 people from the industry including contractors, developers, building material manufacturers, traders and real estate consultants to ascertain the impact of soaring construction prices and labour deficit on India’s real estate and construction sector.
The survey was carried out at: Ahmedabad, Bangalore, Chandigarh, Chennai, Delhi-NCR, Hyderabad, Kolkata, Lucknow, Mumbai and Pune between April to August.
About 60 per cent of respondents said that upward spiralling costs of significant construction materials has been putting a great pressure on project execution as they find it difficult to keep their margins intact.
All the raw materials have been hit by rising prices, besides, sharp rise in lending rates by banks has hit the realty sector severely, said majority of the construction material manufacturers and traders adding that instead of passing on the raise in raw material cost to end consumer they are cutting down the production.
“Construction material manufacturers and traders are not only coping with eroding profit margins but reportedly their stocks have also lost the market capitalisation by 15 to 20 per cent over the period of last four to five months,” highlighted the ASSOCHAM survey.
Over 25 per cent of respondents said that labour crunch is the biggest hurdle in their development as they are grappling with shortage of skilled labour since, various government projects like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) are encouraging migrant labourers from states like Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan to shift from private employment.
“Introduction of technology like pre-fabricated buildings, brickless technology is a feasible solution to aid faster construction and counter the labour crunch faced by the industry, considering the labour intensive nature of the construction practices across India,” said Mr Rawat.
About 55 per cent of respondents representing the real estate firms said that access to capital is getting difficult by the day as banks have reduced lending to realty players forcing them to take money from expensive sources.
Almost all the associates, builders and developers interviewed by ASSOCHAM said that it is a double whammy as their current projects are getting delayed by 20 to 24 months and are witnessing slowing sales as their losses rise. ASSOCHAM foresees revival of real estate projects across India with onset of the annual festive season during September-October.

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