Construction is an important part of the industrial sector and one of the core sectors of India's economy. According to Global Insight, US$175 billion was spent on construction in India in 2007 after growing 156% since 20005. Out of US$175 billion, US$140 billion was spent on nonresidential, and the remaining US$35 billion was spent on residential construction. Construction spending is expected to increase to US$370 billion by the end of 2013, with residential totaling US$63 billion and nonresidential registering US$307 billion. This represents a compound annual growth rate (CAGR) of 13.3%.

The construction sector is also the second largest employer in the country following agriculture, employing 18 million people directly and 14 million indirectly. Exports constitute about 5% of the size of domestic market and include construction materials, services, and cheap labor. The country's main international trading partners in this sector are the Middle East, Africa, and Malaysia. Indian companies have very limited exposure to large markets such as the United States, Japan, and West Europe.

The construction sector has increased its share of India's total employment from 2.8% in 1983 to 5.4% in 2003-04. The sector accounts for about 38% of gross investment and about 45% of India's total infrastructure costs.

Construction investment accounts for around 52.4% of the Gross Fixed Capital Formation in India. Investments in Construction have a positive domino effect on supplier industries, thereby contributing immensely to economic development. The Construction sector has strong linkages with various industries such as cement, steel, chemicals, paints, tiles, fixtures and fittings. While in the short term it serves as a demand booster, in the long term it contributes towards boosting the infrastructure capacity

The Indian construction industry is highly fragmented. This is partially due to the fact that, for most projects, there are no long-term relationships between the contractors and clients. For example, government agencies such as the National Highway Authority of India (NHAI) do not provide any benefits to the long-term contractors that have worked with them in the past. Because the sector lacks economies of scale, smaller players may have better cost structures due to lower overhead costs. The industry can be broadly classified into two segments— organized and unorganized. The organized segment consists of firms and independent contractors who manage their business (design, financing, execution, etc.) on a professional basis. The organized segment operates on small, medium, and large scales. The unorganized segment primarily consists of standalone contractors that operate at a small scale. Construction activities of smaller firms in the organized segment and contractors in the unorganized segment are mainly focused on simple construction projects—building houses for individuals, repair, and maintenance for smaller buildings. Construction activities for larger firms involve complex logistics management of men, machinery, and materials


Construction sector can be broadly classified into 2 sub-segments:

1) Real estate (Residential, Commercial/Corporate, Industrial and Special Economic Zones (SEZs))

2) Infrastructure (Transportation, Urban development, Utilities)

The Real Estate segment contributes around 24% to the Construction GDP of India while Infrastructure segment contributes around 76%.


With the government's focus on infrastructure development along with the active participation of the private sector, this segment is growing rapidly. The Power, Irrigation, Transportation including Roadways, Railways, Airports and Ports, Urban Development and Communications sectors have witnessed investments of Rs. 6.9 trillion over the Tenth Five Year Plan (10th FYP) and will witness around Rs. 14.8 trillion in the Eleventh Five Year Plan (11th FYP).


India has a power generation capacity of 122 GW. The sector has been growing at a Compound Annual Growth Rate of 4.6% over the last four years. India has the fifth largest electricity generation capacity in the world. The Ministry of Power has formulated a blueprint to provide reliable, affordable and quality power to all users by 2012. This calls for an investment of Rs. 3.7 trillion in the next five years.

The gross electricity requirement by the end of the Eleventh Plan projected by the Planning Commission Working Group on Power is 1,038 Billion Unit (BU) and peak demand estimation is 1,51,000 MW. To fulfil the estimated electricity demand requirement, the Working Group recommended the capacity addition programme initially of 78,530 MW and updated at 78,577 MW during the Eleventh Plan.

The emphasis of the Central Government to improve irrigation facilities in the country through programmes such as Bharat Nirman, Accelerated Irrigation Benefit Programme (AIBP), and statelevel initiatives will be the main driver of investments in the irrigation sector. The plan outlay under the Tenth Plan for irrigation sector was Rs. 922 billion. There is a renewed emphasis on this front with states like Andhra Pradesh drawing ambitious plans. Increased focus on irrigation is evident from the fact that the Tenth Plan irrigation outlay was 50% more over the Ninth Plan. Investment in irrigation in the Eleventh Plan is projected to increase to Rs. 2,533 billion from Rs.1,115 billion spent in the Tenth Plan.

Apart from the above, Government spending on infrastructure activities for defence and other specialised construction would also be a demand driver for the sector.

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