Recession plagues construction industry

Sanjay Thapa

New Delhi, May 16: DASHING expectations of soothsayers, who pinned hopes on the construction sector to provide the much-needed kickstart to the economy, it is now official that the sector itself is down in recession.

It is now known that the sector has already entered a recessionary phase having touched (-) 4 to (-) 6 per cent growth in the very first month of the current fiscal. Ruling out any major reversal of this dismal picture in the coming months, Construction Industry Development Council of India (CIDC) director general PR Swarup told The Financial Express: ‘‘At the most, the industry would be able to just touch last year’s turnover of Rs 210 crore, that is if other things remain constant.”

Prevalent supply-side bottlenecks as well as techno-legal complexities are bound to take the toll of the sector’s growth prospects in the coming months in the current fiscal. Any extraneous intervention like the expected rehabilitation exercise of the earthquake-hit Gujarat, which was anticipated to spur growth in the sector has also taken a setback with the government’s feet-dragging in initiating the work. “By the first month of the current fiscal, we have not yet got any major order,” said highly-placed sources in the National Building Construction Corporation (NBCC). Topping the list of the industry’s woes are the high cost of funds, delay in according industry status to the sector, non-notification of the new Rent Control Act as well as long-lead time between procurement and acquisition of work. To add to this, even a bullish housing finance sector with an across-the-board reduction in interest rates, following the soft interest rate regime, has had a mellowed impact on the sector.

With the yearend housing loan disbursal targets for 2001-2002 expected to see a jump of 40 per cent over that of the previous fiscal, housing finance institutions like the National Housing Bank (NHB) witness a spurt in housing finance. “But as of now there seems to be no real spurt in the credit offtake scenario,” NHB executive director RB Verma said. “The cut-throat competition of the housing finance sector has not in real terms led to any spurt in the construction activity as of now,” said sources in the Housing and Urban Development Corporation (HUDCO).

On the exports front too, heavy interest loans burden on borrowed euro-dollar loans, non-availibility of counter guarantees from the government to bid for overseas contracts as well as fall in projects from the Southeast Asia and the Middle-east Asia is bound to hit the sector hard in the coming months. With the order book a yet to see any major entries, industry observers like Swarup say that except for the contracts under the Union ministry of surface transport through the the National Highway Authority of India, there are no orders.