The government’s decision to allow industries to partially resume operations is a much appreciated move, especially for the construction and building material industry which employs nearly 50 million people and contributes to about 8% of the country’s GDP. In fact, the move has come at a right time as any further delay would have pushed the sector into a deep slump requiring few years to return to near normalcy.
Prior to the lockdown, the building materials industry was witnessing a steady growth. The sector was expected to register a 5% to 10% growth this fiscal. Initiatives like housing for all, setting up of dedicated freight corridors, metro rail projects; AMRUT, smart Cities and upgradation of roadways was fuelling this growth. Additionally the government’s thrust on improving the real estate sector by setting up a 25,000 crore alternative investment fund (AIF) and reducing the GST on under construction properties was also boosting the demand for building materials in India. Now with this unexpected turn of events due to Covid-19 spread, the growth trajectory has slowed down.
The government’s recent announcement has brought back the optimism to some extent. However, allowing partial functioning of industries alone will not be enough to revive the sector. The sector is currently grappling with a multitude of issues such as lack of seamless logistics network owing to which the transportation of raw and produced material has come to a halt. The other biggest concern is slow growth of demand. The building material industry is dependent on the construction and infrastructure development activities. The lack of clarity of business continuity across sectors and the resultant delay in construction activities have impacted the industry. Most of the manufacturing units are not fully automated and manual processes are dependent on human workforce, hence operating with 33% manpower is again an issue. A significant number of industries as well as customers operate with the help of migrant workforce, who either have returned to their hometown or are in the process of heading back to their native places. The lack of manpower is also slowing the sector’s recovery. Having said that, it does not mean the industry will not bounce back.
The industry can get its mojo back and bridge the gap that COVID19 lockdown has created with a comprehensive intervention. Firstly, the government should extend financial support by providing additional working capital to players in the sector for at least a year. As the demand will take another 3-4 months to return to normalcy, most of the companies would choose to operate at 40% to 50% capacity, however, the fixed cost burden may continue to prevail. Partaking or reimbursing a part of this fixed cost (Employee and worker salaries, Interest on loans etc.) will ease this burden significantly. Another fixed cost that the sector has to bear and which has a significant impact is GST. Reduction in GST rates will also bring positivity. Currently some of the items like Cement & Sanitary Ware are taxed at 28%. It will also be prudent to look at a temporary tax reduction for other items like Ready Mix Concrete, uPVC Doors and Windows, Tiles etc., from 18% to 12% or 5%. Another key initiative that can improve the working capital flow is to release the backlog industrial incentives immediately. With timely implementation of these initiatives the construction and building materials industry will be able to quickly address the gap and move towards a steady growth curve in the second half of the year.
At Aparna Enterprises, we have resumed our operations across our manufacturing units across Andhra Pradesh and Telangana by adhering to the safety protocols. We have taken all the necessary precaution to ensure the well-being of our employees. Employees have been mandated to exercise social distancing and maintain all required hygiene protocols.