Govt infra spending to boost construction sector

22/01/2017

New Delhi: The order book of construction companies is expected to improve with the government awarding sizable infrastructure projects over the last two years and many in the pipeline, rating agency ICRA said.
"The Government of India's focus on infrastructure sector, particularly roads, railways, and urban infrastructure segments, is evident from the increased budgetary allocation to these sectors as well as the slew of measures taken to revive the sector," ICRA said in a statement.
Of all the infrastructure segments, the Railways have the highest planned capital outlay with Rs. 8.56 trillion over the five-year period of 2015-2019. To keep up with this plan, the annual capital outlays for FY2016 and FY2017 was increased significantly.
The two ongoing dedicated freight corridors (eastern and western) are worth over Rs. 0.81 trillion. The other major capex planned is towards station modernisation and redevelopment and the high speed rail corridor (HSR) or bullet train project. "These are likely to offer sizeable opportunities for the construction sector," the statement said. "The budgeted capital outlay for the Railways is expected to increase from Rs 1.2 trillion in FY2017 to Rs 1.4 trillion in FY2018. However, given the 5-year plan this still would require to be ramped-up significantly in the remaining years.
"The merger of the Railway budget with the central budget will provide an additional leeway for an increased outlay.
While a major part of the outlay is expected to be towards the ongoing projects, sizeable newer projects are also expected to be awarded, providing construction opportunities, particularly for large players," said K Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. The construction sector gross value added (GVA) grew at a slower rate of 2.5 per cent in H1 FY2017, compared to 3.9 per cent in FY2016 and 4.8 per cent growth in FY2015.
"This is likely to have been impacted further in the short term due to the lower pace of construction activities, post demonetisation," ICRA said.
However, implementation of the measures taken by the government like release of 75 per cent of arbitral award to construction companies will help improve prospects over the medium term. Some construction companies have already received this payment in their escrow accounts against bank guarantees.
Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA, said: "With sizeable infrastructure projects awarded over the last one to two years, particularly in the roads and railways sector, and a healthy pipeline of new projects, the order book for construction companies is expected to improve further.

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