Labour costs for skilled workers may rise by 20-25 percent while projects under development may be delayed by two to three months, a KPMG analysis reveals
The overall impact of the novel coronavirus, or COVID-19, on the construction sector in India has been estimated at Rs 30,000 crore per day, an analysis by KPMG revealed. The pandemic is also likely to reduce investment in construction-related projects by 13 to 30 percent, which is likely to impact the Gross Value Added and employment.
The document, titled 'COVID-19: Assessment of economic impact on construction sector in India', has tried to quantify the impact of the coronavirus pandemic on the construction GVA and employment under different investment and economic scenarios.
The construction sector is driven by infrastructure projects to a large extent and it is expected to be hit severely by the current levels of uncertainty, dismal business, consumer sentiments, loss of income as well as the diversion of government funds towards management of the pandemic, it said.
Construction-related GVA and employment are expected to reduce between 15 to 34 percent and 11 to 25 percent, respectively, when compared to pre-crisis projections for FY21.
In the construction industry alone, migrant workers comprise a large part of the workforce and typically stay in labour colonies at construction sites. As per CREDAI, prior to the lockdown, there were around 20,000 ongoing projects across the country.
The work was being undertaken in as many as 18,000 sites and more than 30 percent of workers were staying away from sites due to the fear of coronavirus infection. Together these projects involve a workforce of 8.5 million.
The 40-day lockdown in effect since March 25, which was further extended up to May 3 and subsequently to May 17, led to a reverse migration with workers leaving cities to return back to their villages. It is estimated that around 6 lakh workers walked to their villages, and around 10 lakh workers are stuck in relief camps. The latter are employed across multiple sectors as per the Centre’s submission to petitions in the Supreme Court.
KPMG in India also conducted a survey to assess the cost impact of the ongoing COVID-19 pandemic on construction projects, considering essential aspects, such as manpower, plant and machinery, and material and their net impact on overall construction cost. More than 30 construction sector professionals took part in the survey that measured impact on different stages of the project.
It noted that labour costs for skilled workers are expected to rise by 20-25 percent while that for semi-skilled and unskilled workers is pegged to increase by 10-15 percent.
Projects that are under development are likely to take a severe hit with a minimum delay of two to three months, depending on their geography and spread of coronavirus in and around the project site, it said.
Due to a delay in the construction period from the lockdown, there would be an additional interest cost on the working capital loans taken, which will be borne by the developers or contractors depending upon the risk sharing mechanism, it said.
Revised standard operating procedures duly incorporating social distancing, personal protective equipment and hygiene would drive up project cost in the short term, it noted.
The projects dependent on specialised equipment, electronics and specialised materials are more likely to be hit by disruptions to the supply chain largely due to the force majeure clauses.
The paper also offers short, medium and long-term recommendations. These measures underline the need for the construction ecosystem to come together and respond to the changing environment, continuing the momentum gained from the pre-COVID era.
Some of the recommendations include: 1) The Reserve Bank should undertake aggressive rate cuts and prioritise clearance of the pending projects (under implementation stage); and 2) Create a one-time fund to expedite the completion of projects nearing completion (under development stage), which could act as quick win for reviving the economy
Due to the lockdown, there has been considerable reverse migration to rural areas while many are also stuck in relief camps and labour colonies in the cities. Contractors or developers would have to create an incentive for labour now in the villages (in line with notifications by the government) to move beyond their comfort zones and return to work at project locations, the paper said.While the skilled people like carpenters, welders, fitters, plumbers, electricians and riggers may demand higher wages to the tune of 20-25 percent, general unskilled and semi-skilled labour could demand a 10-15 percent increase, it added.