How does the construction industry work?

. 5 min read
How does the construction industry work?

India is set to become the world’s third-largest construction market in five years. The Government has undertaken many infrastructural projects expecting to boost the construction industry. In India, the construction industry is highly fragmented and specialised. The industry is controlled by both private and public parties through reliable networking channels. Furthermore, with environmentally sustainable construction given a lot of importance, a whole new market directed towards making green buildings is emerging.

  • Construction Sector’s Gross Value Added is estimated to be the US $192 million for the financial year 2019-2020, this industry is the second-largest in India. With 35 million workers, it is the second largest employer in India.
  • In India, 40% of development investment has been accounted for by the construction sector.
  • The Construction Industry contributes more than 5% to India’s GDP and 78% to Gross Capital Formation.
  • Highest growth in the construction sector is predicted to come from the following activities; highway construction, export and import of cargo, power generation, and port trading. All of these activities are intertwined with infrastructure development.
  • The main sub-sectors in the construction industry are real estate construction, infrastructure, and industrial construction. Real estate construction includes residential and commercial construction.
  • Indian construction industry experienced an average annual growth rate of 3.5% during the FY 2012-16.
  • Oil and gas refineries, pipelines, steel mills, coal-mines, nuclear power plants etc all come under industrial construction.
  • Infrastructure construction is responsible for bridges, roads, airports, waste management, water resources, dams, electricity generation and transmission, telecommunication etc.
  • Most construction projects are handled through sub-contracting and channelising the work to many players in the industry. Very rarely does one company handle every single aspect of construction.
  • Some of the many different kinds of construction businesses to choose from are; industrial infrastructure, construction contracting, heavy engineering, real estate, commercial construction, hospitality construction, sports facility infrastructure, re-development, maintenance construction, roads and railways construction, civil engineering services, restoration, internal electricity and waterworks, refurbishment, sewage and mechanical works, sewage plans, rapid structures, etc.
  • Manufacturing construction materials is another lucrative avenue to be explored such as; cement manufacturing and retail, tiles manufacturing, electrical products, brick supply, interior decoration, etc. Construction Equipment Industry is another vital ancillary sector on which the construction industry depends, this sector has seen a rapid growth over the past ten years.
  • Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) program was established in order to invest in the construction of power plants and transmission grids to provide electricity to every part of the country by 2022.
  • The Bharat Mala Program was launched in 2016, with the intention of building roads to connect the East of India to the West. Other interconnectivity projects include the National Highways Interconnectivity Improvement Project and the Logistic Efficiency Enhancement Program (LEEP).
  • All construction companies in India are registered under India’s Company act (2013), all construction businesses need to get registered with the Ministry of Corporate Affairs( MCA). the company has to get registered as a private limited, sole proprietorship, partnership firm, LLP (Limited Liability Partnership), company partnership, public limited company etc.

The National Infrastructure Pipeline (NIP)  has seen unprecedented growth in investments, the Indian construction sector offers a large captive market and low cost labour. NIP has been undertaken by the government  for FY 2019-25, it aims to provide world class infrastructure to Indian citizens. The NIP plans to take up construction projects in transport, logistics, water, waste management, sanitation, tele-communications, and commercial infrastructure.

The ARHC (Affordable Rental Housing Complex) scheme was recently launched by the government, promising in terms of large scale investments, under this scheme nearly 20 million low-cost houses shall be built. The private infrastructure sector has greatly benefited from public-private partnerships and BOT undertakings. BOT (Build-Operate-Transfer) contracts are characterised by concessions granted to private companies by the government. The private companies make use of these concessions to build, operate, and finance a construction project. Once the project is up and running, the company operates it for a fixed period of time, nearly two or three decades, before handing it over to the government. For the time that the company operates the project it can recover all the investments it put in while building said project. BOT or BOOT (Build-Own-Operate-Transfer) projects are exclusively large scale, greenfield infrastructure projects.

Conclusion  

  • The Construction Industry is growing exponentially because of India’s rapid urbanisation drive. The state of  a country’s construction industry is a measure of development.
  • The government has planned several smart cities, six mega ports, five industrial roadways corridors, twenty seven four-lane highways and more than a dozen railway stations along with 3,500 km line addition.
  • This makes India a great place for a construction business to flourish. There is job stability in this sector, owing to the immense market demand.
  • Even though this is such a vast sector, the unorganised side of this sector continues to dominate the bulk of business transactions especially in terms of raw material acquisition, this needs to change.
  • With the innovations in technology, there are new avenues opening up for skilled labour and innovative start-ups equipped to handle the new, advanced construction techniques and machinery.
  • Currently, as with other industries, the construction industry is going through technological evolution, with Building Information Modelling (BIM), document management systems, mobile construction software, drones, and many more innovations taking the centre-stage.
  • Due to Covid-19 the building construction industry will not see a lot of growth in the next eight quarters. The residential sector has not been largely affected.
  • New construction companies must adapt to the future of the industry and accommodate these emerging changes to achieve success in this industry.

Also read:

1) How Do I Start My Own Construction Company?
2) The-5 Biggest Markets / Industries In The World
3) How Does The Real Estate Industry Work?
4) How Does The Mining Industry Work?

FAQs  

Q. What is Building Information Modelling (BIM)?

Ans. BIM is a 3D- digital modelling tool which can be used to create and visualise construction projects by many industry professionals. This tool can be used to get a digital representation of every single aspect of the building.

Q. What are PF and ESIS?

Ans. PF (Provident Fund) is a pension fund, when people leave their establishment of employment they are provided a lump-sum of money called the PF. ESIS is the Employees State Insurance Scheme. This is a social security system aimed at protecting the socio-economic rights of the working population.

Q. What is Gross Value Added?

Ans. Gross Value Added is an individual industry’s contribution to the GDP (Gross Domestic Product).

Q. What is Gross Capital Formation?

Ans. GFCF (Gross Fixed Capital Formation) is also called investment, it refers to acquisition of produced assets. The assets in question involve second hand assets, purchases, and production of assets by the producers for their own use.

Q. What are greenfield infrastructure projects?

Ans. A greenfield infrastructure project is a term used for  infrastructural, industrial, manufacturing and urban development projects which were built from scratch. These types of projects are built on land which has never been used. Contrary to this, there are brownfield projects which are undertaken on land which has been used for construction purposes before.

Q. What is a green building?

Ans. A green building is environmentally sustainable. All the various steps that go into creating a green building uses the least resources and causes negligible pollution.