Page 58 - DMGT522_SERVICES MANAGEMENT

Unit 2: Emergence of the Services Economy

With a share of around 8.2 per cent, the construction industry has contributed an estimated Notes
` 670,778 crore (at current prices) to national GDP at factor cost in 2011-12. While its growth rate
(at constant prices) in 2010-11 was 8.0 per cent, in 2011-12 it decelerated to 4.8 per cent due to both
external and domestic factors like the imminent recession in Europe, hardening of interest rates
in India, and challenges associated with land acquisition in some places. The sector is labour
intensive and, including indirect jobs, provides employment to around 33 million people. It is
estimated that about 70 per cent of these are employed in the infrastructure segment and the
remaining 30 per cent in the real estate segment. According to industry estimates, the industry
is expected to generate additional employment of 47 million, with the total number of persons
employed in the sector reaching 83 million persons by 2022. The sector is critical for enhancing
the productive capacity of the overall economy as on average it accounts for more than half the
investment required for setting up critical infrastructure like power projects, ports, railways,
roads and bridges.
Since the sector was given industry status in 2000, there have been more initiatives by the
government to undertake projects on PPP basis. These initiatives have resulted in more private
ownership of build-operate-transfer (BOT), build-operate- own-transfer (BOOT), and build-
operate-lease-transfer (BOLT) projects. FDI up to 100 per cent under the automatic route is
allowed in townships, housing, built-up infrastructure, and construction of development projects
(which include housing, commercial premises, educational institutions, and recreational
facilities). The construction sector is not handled by a single nodal government department. By
their very nature, infrastructure construction projects are supervised by respective ministries at
union and state levels while the real estate sector comes under not only the Ministry of Urban
Development but also by urban development departments at state level and municipal
authorities further down. The Planning Commission has taken initiatives in creating model
engineering procurement-construction (EPC) and PPP contract documents. The Draft Public
Procurement Bill 2011 is in the public domain for comments and discussion. The Bill aims at
creating uniformity and introducing transparency in the bidding process. Union Budget 2011-12
allocated 23.3 per cent more funding to this sector. Meanwhile, authorities involved in
infrastructure development have been allowed to issue tax-free bonds and restrictions on foreign
institutions and investors wishing to purchase infrastructure-related bonds have been relaxed.
To augment flow of funds into this sector, the government has also increased the FII limit for
investment in corporate long-term infra bonds, created Infrastructure Debt Funds (IDFs), and
introduced a take-out financing and credit enhancement scheme by the India Infrastructure
Finance Company Limited (IIFCL). Recently the Government of India has decided to fast track
clearances for eight mega infrastructure projects, including some in the crucial power sector, to
arrest slowdown in growth and uplift business sentiment.
The construction sector is fragmented, with a handful of major companies involved in
construction activities across all segments; medium-sized companies specialising in niche
activities; and small and medium contractors who actually work on subcontract basis and carry
out the work in the field. The sector has major linkages with the building materials industry
since they account for sizeable share of construction costs (approximately 40 per cent to 50 per
cent). With plans to enhance infrastructure investment to US $ 1 trillion in the Twelfth Plan, the
construction sector is all set to become one of the growth engines of the Indian economy in the
foreseeable future. Government’s initiatives to develop mass rapid transport systems (MRTS) in
cities with 20 lakh population will also boost the demand for construction activities. The potential
of the construction sector is very high in urban infrastructure, particularly MRTS and water
management. Starting of new projects like dedicated freight corridors in railways and
construction of airports in Tier-II and Tier-III cities, clearing pending projects in ports, and
development of real estate in urban infrastructure will also generate sizeable opportunities for
the construction sector. Some other issues in this sector that need to be resolved include the need
for setting up consortiums to bid effectively for international projects, credit-related issues, and

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