Indian Construction Industry – Great Initiatives but a Long Road Ahead By Virender Kumar (IPMA – B)

Virender Kumar is a senior business manager and a certified project professional (IPMA- B) with complex project management certification from France. He has more than 28 years of professional work experience in engineering design and supervision, construction, and project management consulting work.
He has worked at senior roles in leading firms like AECOM, EGIS, Yooshin Engineering corporation etc. 

The construction industry plays an important role in a country’s economy, contributing significantly to the GDP, capital formation, and employment generation. It is referred to as the engine of a country’s socio-economic growth on account of activities related to the promotion of infrastructure investment, job-creations, consumption of intermediate products, and related services in other industries. Its growth is a key measure of a country’s progress and prosperity in various sectors. The Indian construction industry is among the biggest drivers of the Indian economy with an INR. 50 trillion of planned investment in infrastructure by 2025. is the second-largest industry after agriculture in terms of capital formation and providing employment opportunities. However, it faces strong criticism for its poor performance, ineffectiveness, and inefficiency.

Indian Government’s Push to Infrastructure Sector

India is currently one of the fastest growing economies in the world and is perfectly poised to be the global epicenter for engineering and manufacturing in the future. The construction sector is the sixth-largest economic sector in India. It is the second-biggest employer (after agriculture) and the second-largest recipient of FDI after the services sector. The Government of India is taking several initiatives to push for infrastructure development like allocating ten lakh crores in union budget 22-23, focusing on Prime-Minister Gati Shakti program (a National master plan for multi-modal connectivity to economic zones), relaxation in FDI norms across certain infrastructure sectors, and setting up of National Bank for Finance Infrastructure and Development (NaBFID). With initiatives like ‘housing for all and ‘smart cities mission’ the Government of India is working on reducing bottlenecks and impeding growth in the infrastructure sector.

The Indian Government’s renewed focus on affordable housing, game-changing regulatory reforms, and infrastructure status to the warehousing from the year 2018 onward a proving to be a turning point for the Indian real estate sector and business sentiments have become positive. India is increasingly seen as a rising marketplace for large-scale investments in megaprojects. All these developments are opening up great opportunities and heavy capital investments in the Indian construction industry. As per the Ministry of Commerce and Industry, Government of India, the Infrastructure and construction sector has the 2nd largest share in FDI inflows with cumulative FDI inflows in the Construction Activities sector. KPMG, in its infrastructure report (2017) has projected India as the third-largest market in the world by 2025.

Achieving success on large infrastructure projects is very crucial since the failure of these projects imposes significant costs on the country’s economic and industrial growth.

Infrastructure Projects: Long road ahead

Large infrastructure projects involve considerable cost and long-time frames and are more prone to schedule delays and cost overruns. Budget overruns and time delays have long been regarded as the norm for large infrastructure projects. The continuous high exposure to inflation further adds to cost overruns. The inherent difficulty, ambiguity, and complexities of large infrastructure projects cause problems for even seasoned managers and result in scheduling disruptions, cost overruns, and compromised conditions. The delays in their execution can be very expensive since it adversely affects project cost and profit margin. Nowadays, project teams are facing unprecedented changes, and achieving success in these projects is increasingly becoming problematic.

As per the Ministry of Statistics and Programme Implementation, report (July 2022) on central sector projects (costing INR150 crore and above) out of 1505 monitored projects, 661 projects (43.92%) reported delayed, 386 projects (25.70%) reported cost overrun and 222 projects (14.75%) reported both cost and time overrun with respect to their original project implementation schedules. These continuous high number of project delays and cost overruns are a matter of serious concern. Some major causes of project delays and cost overruns on these large infrastructure projects include faulty DPRs, ambiguities in specifications, ineffective planning and scheduling, non-coordination among project stakeholders, frequent changes in designs & drawings, delayed approvals, delayed payments, unpredictable geological conditions, low productivity, shortage of labour and materials, legal disputes, claims and variations among others. Therefore, to effectively reap the full benefits of the initiatives taken by the Indian government, sincere efforts are required from all stakeholders to work together towards resolving all these issues to increase the success rate of large infrastructure projects.