Fall in rural wage, labour crunch in urban areas hit construction sector

Industry veterans feel a dip in rural wages, unemployment, unprecedented rains and labour shortage in urban areas are the key reasons for the contraction of 2.8 per cent in the construction sector during Q3. The construction sector’s figures were part of the GDP numbers released recently by the National Statistical Office (NSO). 

Corporate players are expecting construction activity to pick up during the current quarter. 

However, many of them say that sectors like cement are not seeing demand rise compared to a normal fourth quarter, while input costs are on the rise.  

“There was a dip in rural wages and a reduction of disposable money in the hands of people. Unemployment has also gone up and resulted in contraction and drop in rural demand. This was in addition to the Covid impact on the construction sector,” said Mahendra Singhi, managing director (MD) and chief executive officer (CEO) of Dalmia Cement (Bharat), which is among the top-five cement makers of India.

Based on government data, the average nominal agricultural wage growth during the April-November period had declined to 2.3 per cent this fiscal, compared to 6.6 per cent during the same period last year. A similar decline was seen in non-farm wages that fell to 1.8 per cent from 7.9 per cent during April-November 2020.

“We are seeing at least 20 per cent rise in cumulative demand in January and February compared to the entire third quarter. This shows that demand is already back. Third quarter show was mainly because of Covid third wave and rains,” said V R Sharma, managing director of Jindal Steel and Power (JSPL). 

Though there was an impact seen in the real estate segment, too, industry players highlighted the labour shortage issue during the quarter as one of the major reasons for this. 

“The observed contraction is large because construction activity during the festive quarter (October-December) slows down due to construction labourers returning to their hometowns to celebrate festivals,” said Anuj Puri, chairman of real estate services major Anarock Group.

According to media reports, during December 2021 itself, there was expected to be a 20-25 per cent manpower shortage in major sectors like construction, manufacturing, real estate and logistics, due to a potential fear of the third wave. 

“Since it is a labour-intensive sector, the biggest raw material for the construction sector is manpower. The working class in north India was scared to come back to work after Chath Puja. Hence, there was a serious impact on demand during the months of December and January. I would say rural consumption was sustainable for us, but the urban market was unpredictable,” said Prashant Bangur, joint MD of Shree Cement, adding that recovery is expected in Q4.

Some industry players also highlight the low-base effect waning as a reason for contraction. 

“As far as the construction sector’s contraction in Q3 is concerned, it does come as a surprise. But the low-base effect waning is also a reason for that. If we look at it sequentially, it continues to grow,” said Rajani Sinha, chief economist & national director — research, Knight Frank India. 

Sinha also expects the impact of Omicron and restrictions during Q4 as well. 

“Over a longer period of time, construction GDP is expected to pick up as mobility restrictions are eased and investment activity picks up,” she added.

There are companies that are seeing heavy rains also as a reason for this contraction. “It’s because of unseasonal and sporadic rain in November and December, due to which there was no activity for a few days. We expect things to pick up in this quarter,” said Vikas Aggarwal, head of acquisitions and strategy at Infra.Market, a business-to-business (B2B) platform for construction material. Infra.Market had raised $125 million from Tiger Global last year at a post-money valuation of $2.5 billion.