COVID-19 lockdown hits infrastructure, construction sectors

It is being believed that coronavirus outbreak’s impact on the infrastructure and construction segment is expected to be worse than that of the 2008 financial crisis-led economic slowdown. Reports say that the imposition of Section 144 by state governments and suspension of public transport till March 31 has already impacted manpower mobility. Strict checks on the same have led to many corporates scaling down their operations. 

Larger goodwill measures regarding the health and safety of employees and labourers have also resulted in slowing down of execution by the corporates. In addition to these, the suspension of long distance trains, domestic flights and bus services has made the labourers immobile across the country. Also due to the Holi festival holidays the labour force had reduced by almost 60-65 per cent across the country. Since then, the labourers have extended their holidays, resulting in halting of infrastructure and construction work completely. 

A research report by Emkay Global Financial Services observed that the fiscal situation in the construction sector for both the Centre and states is already worsening and continued funding of infrastructure capital expenditure (Capex) will be a challenge in the near future. The report pointed out that additionally all these problems will be further aggravated by the relief packages that are being rolled out by many states to support the loss of income caused by the lockdowns. This may further stress the government’s ability to spend on the infrastructure over the next one or two years, further dampening the construction and the infrastructure segment. 

Another report on the infrastructure segment brought out by HDFC Securities pointed out that the lockdown has resulted in various infrastructure project sites staring at closure. The reports stated that it is mainly due to an effect on the labour movement due to the lockdown and also due to supply chain disruptions that may contract further over the next three or four days as more states enforce COVID-19 lockdown. The report observed that the state borders are also getting sealed to restrict movement and only essentials items are allowed to pass. 

Even companies providing bitumen, steel and cement may look at a wait and watch approach as liquidity tightens. The HDFC Securities report further observed that the elongation of working capital will also impact payment to suppliers. Besides this the banks are also expected to slow down disbursals due to scarcity of manpower at their head offices and overall reduction in execution at site. 

The HDFC Securities report also interestingly pointed out that the owing to strict NPA recognition norms the banks cannot do much to alleviate the COVID-19 stress build up on the infrastructure sector. The report suggested that the government need not provide any investment in companies but the situation can be managed by slight relaxation of NPA recognition norms, moratorium period on repayments and rate cut. 

At the same time the work on different constructions sites of many housing and residential projects has also halted due to the lockdown. It is being estimated that this can result in delayed residential and housing projects. As per Anarock Property Consultants more than 15.62 lakh units (launched between 2013 till 2019) are under construction in the top seven cities of the country.

“A lot is currently at stake for Indian residential real estate as cities go into complete lockdown mode to battle the spread of COVID-19. Developers tend to schedule project launches during the auspicious festivals of Gudi Padwa, Akshaya Tritiya, Navratri and Ugadi. The strict advisories for complete lockdown across cities will impact housing sales during the upcoming festivals, usually considered auspicious by several home buyers to buy homes. With construction activity almost coming to a standstill, homebuyers will have to brace themselves for another wave of delayed project deliveries,” said Prashant Thakur, Director and Head – Research, ANAROCK Property Consultants. 

He further believes that once the crisis is under control, the government will have to dole out various economic measures to bail out severely hit sectors, reconsider its fiscal deficit targets and start spending. “Since this is a crisis with pan India ramifications, all impacted projects will have to be excused from construction delay penalties under the respective state RERA,” remarked Thakur.