Construction Fatigue?

The common perception that India is rapidly developing with world-class infrastructure has taken a beating in the wake of the recent revelation that many of the marquee infrastructure projects in the country are hobbled by delays and massive cost overruns. Take, for example, the Delhi-Mumbai Expressway, which is expected to transform India’s infrastructure landscape. Originally slated for completion by January 2023, the project has seen its timeline pushed back a couple of times -- it is now expected to be fully operational by the second half of 2025, a full 30 months behind schedule. 

The ambitious Bharatmala project, often referred to as a "garland of national highways" is another initiative that has faced major setbacks. Designed to revolutionise the national highway network, the project has hit a roadblock due to cost overruns and financial constraints. The Ministry of Road Transport and Highways (MoRTH) exhausted the initial Rs 5.35 lakh crore approved for the scheme by June 2023 and approached the cabinet for an additional Rs 5.6 lakh crore to continue the project. However, this request was rejected twice – first in October 2023 and again in January 2024. 

The impact of these funding rejections has been profound. Bharatmala’s Phase-I, initially expected to be completed by 2022, saw its deadline extended to 2024 during the pandemic in 2020. However, the timeline has once again been pushed back, this time to 2027-28, marking a six-year delay from the original schedule. Such delays in large infrastructure projects point to systemic issues in planning and execution.

Slowdown Woes
Experts point to a range of factors contributing to the slowdown in infrastructure projects across the country. Key challenges include difficulties in land acquisition, delays in awarding projects, and delays in the actual start of construction. Another major obstacle has been the inadequate availability of funds, particularly for large-scale projects like Bharatmala. These issues have had a cascading effect on the completion timelines, with delays accumulating at various stages of the project lifecycle.
The malaise is not just restricted to the infrastructure projects. The construction equipment sector, which plays a critical role in the timely execution of infrastructure projects, has also been afflicted. The sale of material handling and processing equipment, such as forklifts, crushers, and concrete mixers, witnessed a decline in the first quarter of the current fiscal year. This dip in sales further mirrors the slowdown in construction activities across the country.

Poor Equipment Sales
The slowdown in infrastructure projects is further reflected in the performance of India's construction equipment (CE) industry. According to a report by the Indian Construction Equipment Manufacturers' Association (ICEMA), the industry recorded a modest 5 per cent increase in sales during the April-June quarter of 2024-25, with 28,902 units sold compared to the same period last year. However, on a quarter-on-quarter basis, total sales for the first quarter of FY25 were 29 per cent lower than the 40,965 units sold in the final quarter of FY24.

Of the 28,902 units sold in Q1 FY25, 26,020 units were sold in the domestic market, while 2,882 units were exported. Furthermore, sales in June 2024, at 9,363 units, registered a 2 per cent decline compared to May 2024. This has led to concerns within the industry, particularly as it reflects a slowdown in the demand for construction equipment.

Dimitrov Krishnan, Managing Director of Volvo Construction Equipment India (VCEI), acknowledges the slowdown. "We have been growing at par with the industry. FY24 is no exception to this trend, especially since it was an election year—a period when the construction equipment industry generally goes into a slowdown," he said. VCEI, which holds over 6.5 per cent market share in the CE industry, is one of over 50 original equipment manufacturers (OEMs) in the market. Despite these challenges, Krishnan remains optimistic about the future. "Looking at FY25, Volvo CE hopes for double-digit growth to the tune of 10-15 per cent in the Indian market, mainly on account of the implementation of ongoing infrastructure projects in roads and mining. We are confident due to favourable government policies and steady demand for construction equipment," he adds.

Cement and Steel Outlook
A key indicator of the health of the construction sector is the demand and pricing trends in raw materials, particularly cement and steel. These materials form the backbone of construction projects, and fluctuations in their prices and demand often signal broader industry trends.

Cement: According to a recent analysis by YES Securities, the all-India average trade price of cement rose by around Rs 4 per bag in September 2024. However, this modest increase did not hold, primarily due to regional and seasonal factors such as heavy rainfall, liquidity issues, and political uncertainties. In the second quarter of FY25, cement prices dropped by 4.6 per cent year-on-year and 2.5 per cent quarter-on-quarter. The eastern and central regions saw little change, while prices in the south, north, and west declined 2-3 per cent. Moreover, there was a significant month-on-month volume decline in cement demand, ranging from 18 per cent to 32 per cent across different regions in September.

A YES Securities analyst commented on the price trends: "The pricing pressure is likely to continue, and we don’t foresee any meaningful price hikes in the near term due to increasing competitive intensity from new capacity additions and consolidation among larger players. Additionally, with the pre-general election demand now behind us, we do not expect any high mid- or teen-digit volume growth for FY25E/FY26E."

Steel: The situation in the steel industry is also concerning, as prices have fallen sharply over the past three years. As of August 2024, cold rolled steel (CRT) prices stood at Rs 57,400 per tonne, down from Rs 71,000 in December 2021. Similarly, hot rolled coil (HRC) prices dropped 24 per cent, from Rs 66,000 to Rs 50,300 per tonne in the same period. Experts attribute this decline to weak domestic demand, increased imports, and falling raw material costs.

India has seen a surge in steel imports from countries like China, South Korea, Vietnam, and Japan, exacerbating the price drop. In response, the Indian government initiated an anti-dumping probe against Vietnam, although experts believe this measure will have a limited impact due to excess inventory and a supply-demand imbalance. Anti-dumping duties on Chinese steel have similarly failed to curb the influx of low-priced imports.

India’s infrastructure sector is facing significant headwinds, as reflected in delayed projects, sluggish construction equipment sales, and weak demand for critical raw materials like cement and steel. Despite these challenges, industry leaders remain cautiously optimistic, hoping for a rebound as government policies take effect and stalled projects gain momentum. 
 

Ashish Sinha

BW Reporters Ashish Sinha is an experienced business journalist who has covered FMCG, auto, infrastructure, tourism, telecom among several other beats. Ashish has keen interest in the regulatory scenario impacting different sectors. He writes on aviation, railways, post and telegraph, infrastructure, defence, media & entertainment, among a wide variety of other subjects.