How to ensure a stable H2 2020 for construction materials industry
The current situation worldwide has been the most unexpected and unprecedented one. How should stakeholders and policymakers plan H2 2020 so that it does not tread the path of H1 this year?
The COVID-19 pandemic and subsequent lockdown have brought many industries to a standstill, pushing for an immediate need for business leaders to inculcate superior strategy and planning for the remaining half of the year. Of the multiple sectors which faced the lockdown induced slowdown was the building materials manufacturing segment. While the projected growth of the industry was pegged at 10 percent during the start of the year, due to the locked the current projected growth rate has come to less than five percent. It is imperative to have joint efforts from all the stakeholders, including businesses, trade unions and policymakers so that the industry sustains itself and continues to have a positive trajectory for the rest of the year.
One of the key aspects that this industry rides on is the labour workforce. The lockdown and hence the lack of access to basic resources had compelled the migrant labour workforce to relocate to their native place. This was not much of an issue in the initial phase of the lockdown wherein companies were allowed to operate with only 33 percent of the workforce. Now with industries trying to return back to full operating capacity, the dearth of labourers is becoming a major bottleneck. Many companies are taking initiatives to enable the return of the migrant workforce. From providing travel tickets, increasing allowance, to creating a safe working environment; companies are going beyond the usual. Having adequate labour availability at the construction and manufacturing sites is very important as it will give the much-needed thrust to production capacity, which is required to boost the revival of the industry in H2 2020.
The Government has introduced many reforms on multiple fronts, especially the allotment of Rs 20 lakh crore for land, labour, liquidity, law and MSMEs. This will positively influence the revival of the sector. To infuse more liquidity in the industries, the Government announced Rs 45,000 crore through a Partial Credit Guarantee Scheme 2.0 for NBFCs. This will extend help to the industry to achieve the projected growth as MSMEs will financially stabilise and will be able to augment the supplies to the industry. Furthermore, the moratorium on term loans have also been extended by three months (till August) which is a boon for businesses which have been otherwise financially stressed due to the lockdown. Banks should also be able to support with growth capital as there would be an increase in liquidity from EMIs from the customers, be it deferred. Additionally, the repo rate was slashed by 40 basis points from 4.4 to 4 percent, and the reverse repo rate was reduced to 3.35 percent. Overall this is a positive move for the real estate and the building materials industry, but it will be important that these rate cuts are implemented immediately for maximum results.
In order to truly sustain a positive and forward momentum for the industry, a push on the infrastructural front will also be a key driver. According to recent announcements, a six-month ‘no-cost-extension’ has been granted to Government-affiliated contractors dealing with railways and roadways. To get a larger impact, this should also be extended to private players. What can also make the revival faster is the increased investments in infrastructural development. For example, six more airports were recently put up for auction under the PPP model, and more investments were announced for creating word-class facilities in twelve airports across the country. All of these will lead to more robust demand for building materials like ready-mix concrete, cement, tiles, uPVC, etc. thus paving the way for a stronger revival. However, investments should not just be restricted to this front. As an industry, all the stakeholders should also look at investing in the sector.
Overall the latter half of this financial year does not look as grim as some of us were anticipating during the early phase of the lockdown. Given the right push and required measures, the industry can look at a turnaround in the next six months.
This article is contributed by Ashwin Reddy,Managing Director, Aparna Enterprises Limited, for 99 acres.