COVID-19 pandemic is likely to reduce investment in construction related projects : KPMG

COVID-19 pandemic is likely to reduce investment in construction related projects in the range of 13 to 30% which will have significant impact on Gross Value Added (GVA) and employment in this sector, KPMG in India said in a report.

Construction-related GVA and employment are expected to reduce between 15 to 34% and 11 to 25% respectively when compared to pre-crisis projections for FY21, it said.

Since, the construction sector is driven by infrastructure projects to a large extent, it is expected to be hit severely by the current levels of uncertainty, dismal business, consumer sentiments, loss of income as well as the diversion of government funds towards COVID-19 management, the report added.

Elias George, Partner and National Head, Infrastructure Government and Healthcare (IGH), KPMG in India said, “The construction sector has been critically affected by the onset of the COVID-19 pandemic. Once the projects resume post lockdown, it is important not just to navigate the recovery phase well, but also to ingrain resilience into all systems and processes, to confront similar disruptions better in future.”

To give a perspective the construction sector is a key enabler for other sectors and it contributes to around 60% of the total investments that take place in India.

An investment of ₹1 lakh in the sector contributes ₹1.5 lakh for the GDP and generates ₹3.2 lakh as total revenues.

A survey conducted by KPMG indicate that labour costs for skilled workers are expected to rise by 20-25% while that for the semi-skilled and unskilled workers the rise will be 10-15%.

While project implementation cost may not vary much for linear projects like irrigation canals, pipelines, transmission lines, roads, but for the non-linear projects, the cost may rise by 2-5%.

Projects that are under development are likely to take a severe hit with a minimum delay of two to three months depending on their geography and impact from the pandemic in and around the project site as per the survey.

In the report KPMG has suggested for aggressive rate cuts by the central bank and prioritise clearance of the pending projects (under implementation stage) and to infuse a one-time fund to expedite the completion of projects nearing completion (under development stage), which could act as quick win for reviving the economy.

To improve contractors’ liquidity and confidence, part retention amount should be released along with automatic extension of time as applicable and other tax benefits.

It has suggested for the use of advanced digital tools such as Building Information Modeling, IoT, GIS, and drones for critical projects for minimizing site visits and building efficiency and transparency in reporting.