Covid-19 to hit investments in construction-related projects: KPMG
May 08, 2020
New Delhi [India], May 8 : The Covid-19 pandemic is likely to reduce investment in India's construction-related projects in the range of 13 to 30 per cent which will have a significant impact on gross value added (GVA), according to an analysis by KPMG in India.
Construction-related GVA and employment are expected to reduce between 15 to 34 per cent and 11 to 25 per cent respectively when compared to pre-crisis projections for FY21, it said on Friday.
"Since the construction sector is driven by infrastructure projects to a large extent, 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 Covid-19 management."
The KPMG paper titled 'Covid-19: Assessment of economic impact on construction sector in India' tries to quantify the impact of Covid-19 pandemic on the construction GVA and employment under different investment and economic scenarios.
Construction is a key enabler for other sectors and contributes to around 60 per cent of the total investments that take place in India. An investment of Rs 1 lakh in the sector contributes Rs 1.5 lakh for the GDP and generates 3.2 lakh as total revenues.
KPMG in India also conducted a survey to assess the cost impact of the ongoing Covid-19 pandemic on construction projects, considering essential aspects like manpower, plant and machinery, and material and their net impact on overall construction cost.
The survey conducted across more than 30 construction sector professionals that measured impact on different stages of the project highlighted that labour costs for skilled workers are expected to rise by 20 to 25 per cent while that for the semi-skilled and unskilled workers are expected to rise by 10 to 15 per cent.
The project implementation cost may not vary much for linear projects like irrigation canals, pipelines, transmission lines and roads but for the non-linear projects, the cost may rise by 2 to 5 per cent.
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 impact from the pandemic in and around the project site.
"Once the projects resume post lockdown, it is important not just to navigate the recovery phase well but also to ingrain resilience into all systems and processes to confront similar disruptions better in future," said Elias George, Partner and National Head for Infrastructure, Government and Healthcare at KPMG in India.
Covid-19 pandemic is a unique and one of a kind event that has impacted not just construction but halted all major businesses linked within the project value chain. Pivoting to the new normal and full recovery from this downfall is likely to be slow for construction sector, said the KPMG paper.
