CONSTRUCTION

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SUMMARY

Infrastructure plays a huge role in propelling other industries and India’s overall development. The government therefore focuses on the development of infrastructure and construction services through focused policies such as open FDI norms, large budget allocation to infrastructure sector, smart cities mission, etc.1

  1. Investment of US$ 31.7 bn has been proposed by 99 cities under the Smart City initiative.
  2. The government targets to build five crore homes over the next five years
  3. Construction development and construction (infrastructure) activities accounted for approximately 6% and 3.5% of the percentage of total FDI equity inflows2 between April 2000 and March 2019. The value of equity inflows for construction development and construction (infrastructure) between April 2000 and March 2019 stands at US$ 25 bn and US$ 14.8 bn respectively.3
REASONS TO INVEST
  • Construction industry in India will remain buoyant due to increased demand from real estate and infrastructure projects.
  • Indian Real Estate sector is expected to reach a market size of US$ 180 bn by 2020 and US$ 1 tn by 2030. It’s contribution to the country’s GDP is expected to be approximately 13%.4
  • India’s construction industry is expected to grow at an annual average of 6.6% between 2019 and 2028.5
  • The share of urban population is expected to be 50% of the total by 2050.6
  • Present levels of urban infrastructure are inadequate to meet the demands of the existing urban population. There is need for re-generation of urban areas in existing cities and the creation of new, inclusive smart cities to meet the demands of increasing population and migration from rural to urban areas. Future cities of India will require smart real estate and urban infrastructure.
  • To provide quality urban services on a sustainable basis in Indian cities, the need of the hour is that urban local bodies (ULBs) enter into partnership agreements with foreign players, either through joint ventures, private sector partners or through other models.
STATISTICS
  • The share of construction in Gross Value Added (GVA) was about 7.3 for India in 2017-181. As of 2017, the construction industry employed 49.8 mn people.7
  • Investments valued at US$ 965.5 mn will be required by the infrastructure sector by 2040.8
FDI POLICY

100% FDI through the automatic route is permitted in the following construction (development) projects:9

  • Development of townships
  • Construction of residential/commercial premises
  • Construction of roads or bridges
  • Construction of hotels, resorts
  • Construction of hospitals, educational institutions
  • Construction of recreational facilities
  • Construction of city and regional level infrastructure

FDI Limit for real estate projects within Special Economic Zones (SEZs) raised to 100%.

FDI limit for industrial parks under the automatic entry route is 100%.10

SECTOR POLICY

Smart Cities Mission

The objective of the Smart Cities Mission is to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of ‘Smart’ solutions.11 

The core infrastructure elements in a smart city would include:12 

  1. Adequate water supply
  2. Assured electricity supply
  3. Sanitation, including solid waste management
  4. Efficient urban mobility and public transport
  5. Affordable housing, especially for the poor
  6. Robust IT connectivity and digitalisation
  7. Good governance, especially e-Governance and citizen participation
  8. Sustainable environment
  9. Safety and security of citizens, particularly women, children and the elderly
  10. Health and education
  • Global Housing Technology Challenge-India (GHTC-I) aims to bring the most innovative construction technologies to India through a competitive platform. It aims to give a boost through the development of domestic technological research, and building platforms for knowledge sharing and networking across the sector.13 The budget allocation for the Smart Cities Mission in the Union Budget 2018-19 was US$ 29.2 bn.14

Swachh Bharat Mission

The Swachh Bharat Mission (SBM) is a cleanliness campaign by the Government of India.15

The objectives of the SBM are:

  1. Elimination of open defecation
  2. Eradication of Manual Scavenging
  3. Modern and Scientific Municipal Solid Waste Management
  4. To effect behavioural change regarding healthy sanitation practices
  5. Generate awareness about sanitation and its linkage with public health
  6. Capacity augmentation for Urban Local Bodies (ULBs)
  7. Create an enabling environment for private sector participation in Capex (capital expenditure) and Opex (operation and maintenance).16

The SBM has been divided into two categories – Urban and Gramin (rural). The Ministry of Housing and Urban Affairs implements it in urban areas and the Ministry of Drinking Water and Sanitation implements it in rural areas. The above-mentioned ministries work with all other union ministries, state governments, local institutions, NGOs, faith organizations, media and other stakeholders to ensure the wide and proper implementation of the SBM.17

Rural sanitation coverage has increased from 38.7% in 2014 to 96.9% as of 5 December 2018.18 On the urban front, 3,574 cities have been declared defection free, 5.4 mn plus individual toilets have been constructed, 464,250 community & public toilets have been constructed and 88.4 MW of waste has been converted to energy.19

In a big boost to the SBM (Gramin), the World Bank, in December 2015, approved a US$ 1.5 bn loan for the SBM Support Operation project. The World Bank is also providing parallel assistance of US$ 25 mn as technical assistance to build the capacity of select state governments in implementing community-led behavioural change programmes targeting social norms to help ensure widespread usage of toilets by rural households.20

For more details, please refer to SBM (Urban)  and SMB (Gramin).

Heritage City Development and Augmentation Yojana (HRIDAY)

The National Heritage City Development and Augmentation Yojana (HRIDAY) has been launched to preserve and revitalise the soul of Indian heritage cities to reflect the city’s unique character by encouraging aesthetically appealing, accessible, informative and a secure environment.21

12 cities have been identified to implement the program – Amjer, Amaravati, Amritsar, Badami, Dwaraka, Gaya, Kancheepuram, Mathura, Puri, Varanasi, Velankanni and Warangal.22

As of December 2018, 20 projects amounting to US$ 20 mn have been completed in in Ajmer, Amaravati, Amritsar, Badami, Dwaraka, Puri and Varanasi.23  For more details, please refer to HRIDAY.

GST Regime Implications

  • Under the GST regime (revised), promoters are to pay 1% (without input tax credit) GST in case of affordable houses and 5% (without input tax credit) on construction of houses other than affordable houses.24 Commercial properties will continue at the same GST rate of 12% with input tax credit. 
  • GST is not applicable to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties.

Real Estate Regulation and Development Act 2016

The Real Estate Regulation and Development Act (RERA), 2016, set up in November 2016, aims to reform the real estate sector in India by encouraging greater transparency, citizen centricity, accountability and financial discipline.25

The act will also protect consumers by creating an online system for information sharing so that a mutual trust can develop between developers and buyers and to facilitate timely completion of projects.

Pradhan Mantri Awas Yojana (Urban – Housing for All

The Pradhan Mantra Awas Yojana (PMAY) aims to provide housing for all by 2022 and is being implemented from June 2015. PMAY provides central assistance to Urban Local Bodies (ULBs) and other implementing agencies through States/UTs for in-situ rehabilitation of existing slum dwellers using land as a resource with private participation; credit linked subsidy, affordable housing in partnership and subsidy for beneficiary-led individual house construction/enhancement.26

The total investment (as of December 2018) involved in the PMAY (Urban) is US$ 50 bn.27

Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

The purpose of the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) is to:

  1. Ensure that every household has access to a tap with assured supply of water and a sewerage connection
  2. Increase the amenity value of cities by developing greenery and well maintained open spaces (e.g. parks)
  3. Reduce pollution by switching to public transport or constructing facilities for non-motorized transport

US$ 858 mn was the budget allocation in the Union Budget 2018-19 for the AMRUT scheme.28

Many of the government schemes related to construction converge in their goals, although the path they choose may be different. There is a strong link between AMRUT and the Smart Cities mission – while AMRUT aims to achieve urban transformation using the project-based approach, the Smart Cities Mission follows an area-based strategy.29

For schemes in the construction industry to be effectively planned and implemented, cities must seek convergence between the State/Central Government Programs/Schemes and AMRUT, Swachh Bharat Mission, National Heritage City Development and Augmentation Yojana (HRIDAY), Digital India, Skill development, Housing for All, etc.

FINANCIAL SUPPORT

STATE INCENTIVES

Apart from the above, each state in India offers additional incentives for investments and special incentive packages for mega projects.

INCENTIVES FOR DEVELOPING SEZ/EMC'S/OTHER SECTORAL CLUSTERS

The major incentives and facilities available to Special Economic Zone (SEZ) developers include:

  • Exemption from customs/excise duties for development of SEZs for authorised operations approved by the Board of Approval.
  • Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years, in 15 years under Section 80-IAB of the Income Tax Act.
  • Exemption from Central Sales Tax (CST).
  • Exemption from Service Tax (Section 7, 26 and the Second Schedule of the SEZ Act).

INCENTIVES FOR DEVELOPING ELECTRONIC MANUFACTURING CLUSTERS

Brownfield Electronic Manufacturing Clusters (EMC): The assistance will be restricted to 75% of project costs, subject to the ceiling of US$ 7.15 mn. The remaining project cost will be financed by other stakeholders of the EMC with a minimum industry contribution of 15% of the project cost.

Greenfield EMC: The assistance will be restricted to 50% of the project cost subject to ceiling of US$ 7.15 mn for every 100 acres of land. The remaining project cost shall be financed by other stakeholders of EMC with a minimum industry contribution of 25% of the project cost.

The administrative expenses are to be restricted to 3% of the central assistance in the project. Expenses towards the preparation of a detailed project report will also be considered a part of project cost.

AREA BASED INCENTIVES

Incentives for units in SEZ/NIMZ as specified in respective acts or the setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.

Key Highlights from Union Budget 2019-20

  • Total allocation to the Ministry of Housing and Urban Development stands at US$ 6.8 bn.30
  • Total budget allocation for Pradhan Mantri Awas Yojana stands at US$ 980.3 mn.31
  • Allocation towards AMRUT stands at US$ 1 bn.32
  • Smart Cities Mission has been allocated US$ 944 mn.33
  • Swachh Bharat Mission (Urban) has been allocated US$ 393.4 mn.34
  • Total budget allocation towards Swachh Bharat Mission (Gramin)stands at US$ 1.43 bn.35
INVESTMENT OPPORTUNITIES
  • Construction development in residential, retail, commercial and hospitality sectors, development of townships
  • Construction of roads, bridges, hotels, resorts
  • Technologies and solutions for smart, sustainable and connected cities and integrated townships
  • Technologies for the promotion of low cost and affordable housing
  • Green building solutions
  • Sustainable and environmentally friendly building materials.
  • Training and skill development of construction sector workers
  • Urban water supply, urban sewerage and sewage treatment. 
FOREIGN INVESTORS
  • Hines (USA)
  • Veolia (France)
  • Ascendas (Singapore)
  • Aqualyng (Norway)
  • The Trump Organization (USA)
  • Alstom (France)
  • GIZ (Germany)
SOURCES
  1. “Ministry of Commerce and Industry”, Overview-Infrastructure and Construction Services, https://www.indiaservices.in/construction/, accessed on 13 May 2019
  2. "Department for Promotion of Industry and Internal Trade", Quarterly Fact Sheet, https://dipp.gov.in/sites/default/files/FDI_Factsheet_27May2019.pdf, accessed on 29 May 2019
  3. "Department for Promotion of Industry and Internal Trade", Quarterly Fact Sheet, https://dipp.gov.in/sites/default/files/FDI_Factsheet_27May2019.pdf, accessed on 29 May 2019
  4. “Ministry of Commerce and Industry”, Overview-Infrastructure and Construction Services, https://www.indiaservices.in/construction/, accessed on 13 May 2019
  5. India Infrastructure Report Q2 2019
  6. “Ministry of Housing and Urban Affairs”, Standard Operating Procedures for Cleaning Sewers and Septic Tanks, http://mohua.gov.in/upload/uploadfiles/files/AMRUT%20SOP%20Book%20Final.pdf, accessed on 13 May 2019
  7. India Infrastructure Sector 2018-22, EMIS
  8. India Infrastructure Sector 2018-22, EMIS
  9. “Department for Promotion of Industry and Internal Trade”, Consolidated FDI Policy, https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17_1.pdf, accessed on 13 May 2019
  10. “Department for Promotion of Industry and Internal Trade”, Consolidated FDI Policy, https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17_1.pdf, accessed on 13 May 2019
  11. “Smart Cities”, What is Smart City, http://smartcities.gov.in/upload/uploadfiles/files/What%20is%20Smart%20City.pdf, accessed on 15 May 2019
  12. “Smart Cities”, What is Smart City, http://smartcities.gov.in/upload/uploadfiles/files/What%20is%20Smart%20City.pdf, accessed on 15 May 2019
  13. ”Ministry of Housing and Urban Affairs”, Global Housing Technology Challenge India, https://ghtc-india.gov.in/, accessed on 17 May 2019
  14. ”Ministry of Housing and Urban Poverty Alleviation”, Rs 41,765 crores allocated for MOHUA for 2018-19 – An Increase of Nearly 3% over las5 year’s budget, http://pib.nic.in/newsite/PrintRelease.aspx?relid=176273, accessed on 28 May 2019
  15. “Prime Minister’s Office”, Major Initiatives, Swachh Bharat Abhiyan, https://www.pmindia.gov.in/en/major_initiatives/swachh-bharat-abhiyan/, accessed on 15 May 2019
  16. “Ministry of Housing and Urban Affairs”, Swachh Bharat Mission, http://mohua.gov.in/cms/swachh-bharat-mission.php, accessed on 15 May 2019
  17. “Ministry of Drinking Water and Sanitation”, Year End Review-2018: Ministry of Drinking Water and Sanitation Swachh Bharat Mission, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186600, accessed on 15 May 2019
  18. “Ministry of Drinking Water and Sanitation”, Year End Review-2018: Ministry of Drinking Water and Sanitation Swachh Bharat Mission, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186600, accessed on 15 May 2019
  19. “Ministry of Housing and Urban Affairs”, Smart Bharat Mission Urban, http://swachhbharaturban.gov.in/accessed on 15 May 2019
  20. “World Bank”, World Bank Approves US$1.5 Billion to Support India’s Universal Sanitation Initiatives, http://www.worldbank.org/en/news/press-release/2015/12/15/world-bank-approves-usd-1point5-billion-support-india-universal-sanitation-initiatives, accessed on 15 May 2019
  21. “Ministry of Housing and Urban Affairs”, HRIDAY, http://mohua.gov.in/cms/hariday.php, accessed on 16 May 2019
  22. “Ministry of Housing and Urban Affairs”, Heritage City Development and Augmentation Yojana, https://www.hridayindia.in/, accessed on 16 May 2019
  23. “Ministry of Housing and Urban Affairs”, HRIDAY, http://mohua.gov.in/cms/hariday.php, accessed on 16 May 2019
  24. “Ministry of Finance”, Decisions taken by the GST Council in the 34th meeting held on 19th March, 2019 regarding GST rate on real estate sector, http://pib.nic.in/newsite/PrintRelease.aspx?relid=189462, accessed on 17 May 2019
  25. “Ministry of Housing and Urban Development”, Real Estate Regulation and Development Act -2016, http://mohua.gov.in/cms/real-estate-regulation-and-development-act-2016.php, accessed on 17 May 2019
  26. “Ministry of Housing and Urban Poverty Alleviation”, Year Ender-6-PMAY-Ministry of Housing & Urban Affairs, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186831, accessed on 17 May 2019
  27. “Ministry of Housing and Urban Poverty Alleviation”, Year Ender-6-PMAY-Ministry of Housing & Urban Affairs, http://pib.nic.in/newsite/PrintRelease.aspx?relid=186831, accessed on 17 May 2019
  28. ”Ministry of Housing and Urban Poverty Alleviation”, Rs 41,765 crores allocated for MOHUA for 2018-19 – An Increase of Nearly 3% over las5 year’s budget, http://pib.nic.in/newsite/PrintRelease.aspx?relid=176273, accessed on 28 May 2019
  29. “Ministry of Housing and Urban Affairs” Convergence, http://smartcities.gov.in/content/innerpage/convergence-sp.php, accessed on 17 May 2019
  30. “India Budget”,Ministry of Housing and Urban Development, https://www.indiabudget.gov.in/ub2019-20/eb/sbe56.pdf, accessed on 13 May 2019
  31. “India Budget”,Ministry of Housing and Urban Development, https://www.indiabudget.gov.in/ub2019-20/eb/sbe56.pdf, accessed on 13 May 2019
  32. “India Budget”,Ministry of Housing and Urban Development, https://www.indiabudget.gov.in/ub2019-20/eb/sbe56.pdf, accessed on 13 May 2019
  33. “India Budget”,Ministry of Housing and Urban Development, https://www.indiabudget.gov.in/ub2019-20/eb/sbe56.pdf, accessed on 13 May 2019
  34. “India Budget”,Ministry of Housing and Urban Development, https://www.indiabudget.gov.in/ub2019-20/eb/sbe56.pdf, accessed on 13 May 2019
  35. “India Budget”, Ministry of Drinking Water and Sanitation, https://www.indiabudget.gov.in/ub2019-20/eb/sbe24.pdf, accessed on 13 May 2019

 

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