‘Outlook for construction sector is very positive’

Builders Association of India (BAI) National President HN Vijaya Raghava Reddy shares with BusinessLine the details of the tumulus phase the construction and real estate industry underwent after the regulatory reforms and how the industry is looking to the 28th annual BAI convention to take the industry forward.

How are builders coping with the new regulatory framework?

The regulatory framework will bring more order to the sector. Operators who depended on capital from the market and the buyers only will no longer be able to operate that way. Only players who are organised and plan their projects and capitals in a professional manner can survive now. Being a small player or big player does not matter. What matter is being organised, having proper project development plans, capital procurement systems and adhering to the rules.

The Centre has recently announced massive spending on infrastructure, housebuilding and others. What is your view on it?

The recent spending announcement by the Central government is very encouraging. But the announced spending has to be translated into realised projects within the timeline. Post-tender acceptance and project clearance by the government, and land acquisition issues often hold up projects. We cannot avoid paying interest on the capital generated through bank loans during the deadlock period and it threatens our survival in certain cases.

What is the level of skill shortage in the sector? What measures has BAI taken to address it?

Construction industry expects to employ 80 million workers by 2020. The productivity of Indian construction workers is very low currently. If we can enhance productivity, it will bring down project execution time drastically. BAI, in association with the government as well as private bodies, has taken up training of construction workers. For the construction industry, we have formed Construction Skill Development Council of India (CSDCI), and Builders’ Association of India is one of the promoters. To train construction workers, huge funds are needed. The government has collected more than ₹40,000 crore as on September 30, 2017, from the contractors towards ‘Labour Welfare Cess’, and a minimum of 20 per cent of this amount should be made available for skilling the construction workers.

How is the credit flow from banks?

Credit flow from banks has significantly reduced and is more stringent following demonetisation and RERA. Many projects held up by the combined impact of demonetisation and RERA could not pay back the debts as the major part of their inventory went unsold. This has prompted the banks to be more stringent in sanctioning loans.

What is the current scenario in construction and building industry?

Demonetisation has affected the economy. It has hit liquidity adversely and impacted real estate and construction industry acutely. Being primarily a non-organised sector, 70-80 per cent of the real estate transactions were in cash.

At the ground level, workers are paid their wages in cash. GST ensured that we don’t have to pay multiple tax components amounting to 32 per cent. GST was later brought down from 28 per cent to 18 per cent, encouraging the industry.

RERA brought real estate developers under the ambit of certain regulations primarily to protect the interest of buyers, implying a certain order and clarity into the sector.

However, at the implementation level, there are failures; RERA too has serious failures hampering the functioning of the sector.

The Centre had given certain flexibility to State governments only to bring minor changes/deviations in the RERA Act, but some State governments attempted meddling with the Act.

What is the outlook for the construction and building industry?

The outlook for the construction sector is very positive with the government ready to mobilise $1 trillion investment plan over the next five years.

About 80-100 per cent of this plan can be a reality if the core issues are addressed from the root level. We hope that that 2018 Budget will be reflective of the recommendations made by us.

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