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Construction costs rising rapidly across cities as inputs turn pricier

Arvind Jayaram BL Research Bureau | Updated on May 15, 2014

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Delhi tops the list, Chennai and Bangalore see moderate spike in costs

The cost of construction has been rising rapidly across Indian cities.

The latest Construction Industry Development Council (CIDC) data reveal that road construction costs shot up by 14.7 per cent between May 2012 and March 2014. The trend is more evident in the national capital, New Delhi − where they rose by 18.9 per cent − than in Chennai, where the rise was only 10.6 per cent, or Bangalore (11 per cent).

Explaining the trend, Priya Ranjan Swarup, Additional Director of the CIDC, said that the Construction Cost Index is compiled on the basis of cost data for construction materials, oil, fuel and lubricants, wages and salaries which can be uneven across States.

For instance, rising input costs could have a bigger impact on infrastructure facilities in hubs distantly located from raw material sources. In addition, the minimum wage implemented by different States could have a bearing on project costs.

Rising fuel costs

One factor that is bound to have impacted construction costs across the country is rising fuel costs, which would be further exacerbated by State taxes and levies like octroi in Maharashtra. In this regard, exclusion of land and other acquisition-related costs positions the index as a measure of actual construction costs for infrastructure projects in the territories it covers. The index has been brought out since 1998, but was relaunched with a new base year (2007) and more cities in May 2012.

On the other hand, urban infrastructure construction costs have seen the least increase in prices among the various infrastructure categories. During the period under review, urban infrastructure costs in Chennai have gained 2.5 per cent, but in Kolkata and Mumbai, the escalation was much greater, at 10.7 per cent and 9 per cent, respectively.

On average, urban infrastructure costs across 22 major industrial cities and districts rose by 8.1 per cent in the 23-month period.

Elaborating on the data, Swarup said, “The share of factory made goods is higher in the urban infrastructure sector. This has resulted in comparatively low pace of price rise. In the case of the Chennai region, the costs of locally produced materials and worker/administrative costs are low, thereby showing the moderate hikes in prices, compared with other metros.”

The data reveal the divergence between cities too.

For instance with a 14.5-per-cent rise in infrastructure construction costs over the 23-month period under review, establishing facilities is clearly becoming a more expensive proposition in States like Delhi.

But in Bangalore, costs have only risen by 8 per cent during the corresponding period. What is more, the cost of building bridges in Bangalore has actually fallen in the past two years. Costs for setting up medium industries have seen the lowest rise in Chennai, at 5.4 per cent, compared to 12.8 per cent in Delhi and 11.9 per cent in Kolkata.

The Construction Cost Index indices define the trend of growth of employment potential, consumption patterns, purchasing power of average consumers and demand/supply parameters.

They have been used for projections and forecasting by the CIDC on behalf of the Planning Commission.

Published on May 15, 2014

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