1. How is your sector facing in this lockdown, the reviving measures taken to rebuild economy, Rebuild India?
Real estate sector is indeed facing a challenging time with twin assaults. The pandemic induced lockdown has resulted in shortage of skill labour , Liquidity crisis, shortage of essential raw materials which has impacted the cost of construction on the higher side . The situation looks grim on the back of muted demand & lack of fiscal impetus. The sector contributes around 7 to 8% of the country’s GDP and is the second largest employer in India. The revival of the real estate sector will have a multiplier effect on 270 ancillary industries. The turnaround of the sector is imperative to ensure its survival and deal with the pandemic crisis.
Industry pegs hope on government timely measures and radical steps to recoup the estranged labour intensive sector of the economy. Many of the industries like hospitality, tourism are badly affected due to the pandemic outbreak. The need to reconsider the extension of NCLT period by another 6 months to avoid a rise in NPA’s.
2. What recovery measures are taken by government for rebuilding your sector so far? The government’s recently announced National Infrastructure Pipeline of around INR100 trillion. How could it be re-prioritised for pending and ongoing construction, infrastructure and related projects?
Infrastructure is one of the key elements for the growth of any economy. To spur activity, create demand for goods and services, and increase additional employment opportunities, the central government is increasingly focussed on investing in building robust infrastructure, which will be decisive in realising India’s Aatmanirbhar Bharat and ambition and boost its economic growth.
The government wants to trigger a spur in economic activity by infusing additional funds into robust infrastructure development. The great expenditure will have a cascading effect on economy , employment generation and consumption demand by creating transport oriented development and interlink infrastructure network across India will have to aliment the logistic cost. Such a seamless infrastructure network will propel manufacturing activities and help to build a stable supply chain network.
The government has identified around 7000 infrastructure projects across various parts of the country under the National Infrastructure Pipeline (NIP). These infrastructure projects will see financing by spend of around Rs 111 lakh crore till 2025. The fast-track of these projects will give a boost to the sagging economy and offset the effects of the pandemic. The central government is also in talks with the global fund house to assess their views on the recently taken policy reforms and also attract long-term investment to finance such potential projects. Hence it also necessitates the need of long-term financing.
The positive government’s intent was reflected in Union Budget FY 21–22 which announced the setting up of a National Bank for Financing Development to expedite the process of infrastructure financing in the country.
The both central and state governments has taken various measures to resurrect the sluggish real estate sector. The measures like extension of RERA deadline, stamp duty waiver , status quo of ready reckoner /circle rate, extension of CLSS scheme under PMAY-U , low home loan interest rate , availability of long term home loans acted as a growth levers. The sector witnessed optimistic consumer sentiments in H2 FY 21-22 riding high on sales velocity. The resurgence of the second covid-19 wave acted as a dent to the upward growth curve, which needs re-intervention of government and apex authorities. A fiscal stimulus will go a long way in waning anomalies wavering in the economic atmosphere and make the market environment more conducive for all the concerned stakeholders.
3. Due to this it can soak up relatively greater levels of employment? Despite an impressive economic recovery over the last quarter, share with us about challenges faced by the sectors, in the present times including yours?
State governments have been taking course correction steps to revive their economy by announcing various booster doses. The rampant vaccination drive is immunizing people and businesses to get back to normalcy. However, challenges like access to low financing credit and liquidity crunch still continue to plague the sector. The business continuity requires a long term solution from a macro aspect to help the sector transpire out of the gloomy situation. Though the unemployment rate had surged during the first wave, but now with mission unlocking and resumption of business activities will score up jobs creation.
The covid-19 pandemic has revolutionized the way business operates across the globe in the backdrop of flexi –remote work culture and digitization. This has stimulated the growth of the gig/informal economy among the labour sector. New labour law has to be framed to streamline the work economy and safeguard the interest of the workforce.
4. In 2019-20, the States spent a combined 2.9% of GDP on capex while the Centre spent 1.65%. How does this help or impact your business?
The Government of India has announced several proactive measures to deal with the dips in economic growth and simultaneously uphold the welfare of its citizens. Increase in government expenditure acts as a growth catalyst to strive for demand, consumption, GDP growth and employment generation that helps to negate the pandemic disaster. However, the government faces a perplexing situation to rightly strike a balance between monitoring growth and the financial deficit at the same time.
An increase in the capex by both the centre and state government would have a rippling multiplier effect across the industries and help the economy recover faster. Unlike earlier, governments have managed to strike a healthy balance between the capex and social spending. An increase in infrastructure spending would help in creating job opportunities and increase the purchasing power of the people.
5. The budgeted capital outlay for 2020-21 is Rs 5.7 lakh crore and 12 major States have to cut capex by Rs 2.7 lakh crore in FY 21. What kind of impact will it have on your business?
There has been an improvement in the revenue collection for the government since the pandemic. So capital spending would be one of the key priorities for the government to revive demand and boost the growth prospects as the economy grapples with recession. The government has also rationalised a lot of central schemes and centrally sponsored schemes in this regard.
In the union budget, 2021-22, the finance minister too increased the capital expenditure share which was the highest in the last one decade.
During times of crises, when the private sector investments remain subdued, the government does increase its capital outlay. The central government is also nudging states with specific mechanisms to increase its infrastructure spending to boost the demand for goods and services.
6. There are projects facing a funding challenge from banks. According to RBI, bad loans have rose to estimate to 20-year high by March 2021. Is this an alarming signal for new or pending projects when the banks shy away from funding new projects?
Due to the pandemic the banking sector too has been in shambles. There are reports that for the financial year 2021-22, there would be a rise in the non-performing assets to the tune of around 13-15 percent. The number would have been much higher had the central government not announced the loan moratorium relaxation. However, we believe that in the short term there would be an increase in the non-performing assets (NPA) of the bank. There is a further need to suspend the Insolvency and Bankruptcy Act (IBC) in the wave of the second wave to keep the rise in the NPA in check. However this is certainly not an alarming signal for any new or pending projects.
In the real estate sector too, the central government through its SWAMIH investment fund has announced a budget of Rs 25000 crore to fund the completion of all RERA registered affordable and middle income housing projects which were stuck due to the paucity of funds. The real estate sector today needs around 1.25 lakh crore to complete its stalled projects. We believe that additional liquidity measures would be required to fill the gap.
7. What are the future plans to manage and maintain healthy profitability to rebuild India towards stable and sustainable growth?
The keyword going forward for rebuilding India towards a stable and sustainable growth would be collaboration. It is important now for all the stakeholders like the government and industry to cohesively work together with commitment as equal stakeholders. The goal would be to join forces, using all its resources and pulling in the same direction with singleness of aim and oneness in the effort.
The objective of this integration would be to identify opportunities that will enhance existing value chains and identify future ecosystems to be developed as scalable and sustainable collaboration initiatives. We would need collaborative efforts to bring the economy back on track to generate the necessary employment and business opportunities with a minimal human cost.
8. Globally large EPC player’s manage projects in different corners of the world with production hubs strategically located in several continents. Nationally how have EPC contractors expanded their roles and adopted the roles of project consultants?
In the pandemic, digitization has emerged as a key word which has powered change in work dynamics. Engineering, procurement and construction industry too has evolved continuously since the last decade and a lot of change is happening due to the business and technology segment of this industry.
Today the EPC is now gearing up as a role of Project consultants offering a wide variety of services all at one stop destination. Also, they bring global best practices on board, with worldwide innovations, technologies, human capital, and insights in practice. Consulting role is more integrated with the company's goal and offers best solutions as a co-working cohort. Even in India, Business models have also been changing immensely over the years. In addition, there has been an emergence of new players and expansion of established and global players has led to a boundaryless business world.
9. What proactive role policymakers need to play to achieve their ambitious infrastructure plans and activities for big-budget turnkey projects? How will EPC contractors benefit from them?
The infrastructure sector today has become the biggest focus of the government to have sustainable development. However, to be successful, it needs to be vigilant about the implementation and concentrate on projects with quick turnaround time.
In this regard, the central government has also approved the setting up of an infrastructure financing bank that would be dedicated to the financing needs of all long-term infrastructure and development projects. This development fund institution (DFI) aims to raise around Rs 3 lakh crores over the next few years. It may be known that earlier too the government set up three long term infrastructure banks namely IFCI, ICICI and IDBI, but all three turned commercial in the long run.