Covid-19: Construction industry takes a big blow, investment may contract by 16%

Our Bureau Hyderabad | Updated on June 04, 2020 Published on June 04, 2020

A washout quarter likely


The country’s construction industry, which mirrors the economy, is expected to take a huge blow from the extended lockdown clamped to check the spread of the Covid-19 pandemic.

Rating agency CRISIL in a report titled Construction industry hits a wall explains how the lockdown has compounded India’s growth woes.

Along with external risks such as weak global demand, supply disruptions, and global financial shocks, the economy now faces factory shutdowns, reduced discretionary spending, and delayed capex cycle.

A CRISIL research analysis indicates a 12-16 per cent contraction in construction investments for the industry this fiscal to ₹7.3 lakh crore from ₹8.6 lakh crore in fiscal 2020.

The estimate factors lower capex by Central and State governments due to diversion of funds towards healthcare, public welfare and social obligations. This, at a time when their finances are already strained and gross budgetary support to infrastructure, is expected to decline due to lower revenue receipts.

Budgetary allocation to infrastructure by the Ccentral government for fiscal 2021, is lower compared with fiscal 2020. It also factors the lockdown impacting construction activity and movement of labour in the first half of fiscal 2021. With construction activities deferred, players in the construction sector are expected to log a 13-17 per cent drop in revenue in fiscal 2021. The EBITDA margins are also estimated at 4-6 per cent for the fiscal, down from 7-9 per cent expected in the preceding one.

With the continuing lockdown, labour issues and supply chain disruptions, the report states the current quarter will be a washout. The government has allowed construction of roads in rural belts and irrigation and renewable energy projects in virus-free zones or regions from April 20.

However, construction companies face challenges in arranging transportation and accommodation for labour, maintaining social distancing at construction sites, obtaining clearances from district officials for intra- and inter-district projects, and ensuring raw material availability.

Industries such as transportation, quarrying, steel, cement and forging need to be up and running for meeting the raw material requirements of the construction sector. Add to this the workforce issues and the need to have permits and clearances in place before construction can resume, the sector is likely to take some time to return to normalcy even after the lockdown is lifted.

The bulk of construction activity, therefore, will likely resume only in the third quarter this fiscal, according to the update.

Published on June 04, 2020
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