The government is likely to review the high incidence of direct and indirect taxes which plague the construction sector, and rationalise levies while eliminating multi-source taxation. It is also expected that Budget 2008-09 will revisit the regulatory system governing the sector to simplify and streamline procedures to encourage enhanced private sector participation. Hopefully, the sector would soon be clearly demarcated as either an industry or service for taxation purposes.
The sector, which contributed 6.9% to GDP in 2006-07, is also likely to have a unified construction law (UCL) soon. The law would include chapters pertaining to the national construction policy and plan, constitution and functions of central and state construction authorities, grants and funds, accounts, audits, registration and other provisions.
At present, an organisation seeking to engage in construction in the country has to register under five different legislations, obtain licences under three enactments and undergo inspection under 12 laws. Over and above all this, there are at least 27 statutes relating to labour issues alone. The proposed UCL is expected to address the issue of this multiplicity of laws and authorities and address the anomalies existing in the legal system leading to complexities in the sector.
Another major issue in the sector is the absence of institutionalised procedures and practices, which have resulted in arbitration which continue to be costly and time consuming. According to a survey by the Construction Industry Development Council in 2001, the amount of capital blocked in construction-related disputes was over Rs 54,000 crore. Therefore, the Planning Commission has suggested the introduction of proper project planning processes and detailed project reports before technical sanctions are granted.
The construction sector is gaining greater significance as the government places enormous thrust on building infrastructure, particularly roads, ports, power plants and airports. The importance of construction activity in infrastructure, housing and other asset building activities can be seen from the fact that the component of construction comprises nearly 60-80% of the project cost of certain infrastructure projects like roads.
In terms of magnitude, construction activity is second only to agriculture. With around 27,770 enterprises involved directly in the activity of construction in 2005, the industry is one of the largest employers in the country. The employment figures have more than doubled from 14.6 million in 1995 to 31.46 million in 2005.
Though the employment numbers have shown an impressive rise, the limited availability of engineers and technicians in general and the greater demand in sectors like IT, there has been a substantial drop in the proportion of qualified engineers employed at work sites from 4.71% in 1995 to 2.65% in 2005. At sub-engineering levels, too, the decline has been from 2.46% in 1995 to 1.85% in 2005.