Construction and Manufacturing could be our Growth Propellants

Livemint     19th October 2020     Save    
QEP Pocket Notes

Context: A high economic growth over the next decade would need the traditional sectors of construction and manufacturing to play a leading role. 

Potential of Construction and Manufacturing 

  • As an employment generator:  
    • Construction can generate 24 million non-farm jobs by 2030, (16 million from real estate and 8 million from infrastructure).
    • Manufacturing could generate 11 million new non-farm jobs by 2030.
  • Growth in Gross Domestic Product (GDP): Manufacturing could generate one-fifth of the incremental annual GDP (about $750 billion).

Steps to trigger growth in Construction and Manufacturing

  • Infrastructure Spending: of about 8% of GDP for the next 10 years; government share at 6% of the GDP.
  • Affordable Housing: Building 25 million affordable homes over a decade.
  • Reforms in real estate sector: by increasing incentives for home ownership and creating rental stock. 
    • At Central Level: Substantially raising tax deductions limits on mortgages and rental incomes and introducing tax incentives for investments in rental housing stock.
    • At State Level: measures include 
      • Rationalizing stamp duties and registration fees (like Maharashtra has done) and introducing regulatory amendments in rent-control policies, 
      • Launching digitally-enabled, single-window clearances to reduce time delays in affordable housing construction,
      • Bringing the goods and services tax on modern construction methods (like pre-fabrication) in line with in-situ buildings. 
  • Reducing the land price to average income ratio: which is high in cities like Mumbai (6.0), Bengaluru(3.8) as compared to Bangkok (0.5) and Beijing (0.2). 
    • Release underused but buildable public-sector land. (About 400,000 hectares of land-holding is with defence, railways and port trusts alone.)
    • Reform zoning regulations: to increase the low floor space index accompanied with infrastructure planning.
  • Capitalize on the shifting global supply chains and the increasing use of digital and automation:
    • Introduce targeted, time-bound and conditional incentives : like the production-linked incentives for domestic handset manufacturing—to reduce the cost disadvantage.
    • Establishing port proximate manufacturing clusters: by the coastal states by provisioning of land at lower cost, plug and play infrastructure and common utilities.
    • Reducing factor costs of power(subsidies) and logistics(high cost of 13-14% of GDP): by
      • Enabling franchised and privatized distribution company (or “DISCOM”) models, 
      • Reducing cross-subsidy surcharges,
      • Establishing multi-modal freight ecosystems. 

Conclusion: Manufacturing and construction could be pivotal in driving India’s growth over the next decade.

QEP Pocket Notes