In order to meet the varied financial needs of the construction sector, an apex industrial body has called for setting up a specialised institution for taking up major construction works on international standards.
With the likely entry of financially and technologically-strong multinationals in India, there is a possibility that the domestic construction industry may become subservient as has happened in Pakistan.
Large corporate bodies with specialisation in architecture, design, general engineering, contracting should be financed by this institution for executing large construction works on international standards, said P R Swarup, director of Construction Industry Develop-ment Council (CIDC), here. Inadequate financing is one of the major impediments to improvement in quality, efficiency, economy and punctuality of construction work in India.
More From This Section
In the ultimate analysis, over 90 per cent of the work is executed by small financially weak contractors and, therefore, remain weak technologically and professionally.
Talking to UNI, Swarup said there is an urgency for establishing need-based system of financing construction. In fact, the working group on construction constituted by the planning commission in 1989-90 had recommended creation of a construction development bank to cater to the special requirements of the industry, he added.
Swarup was talking about the recommendations made by the CIDC committee on construction financing recently. The committee had representatives from finance ministry, RBI, IDBI, State Bank of India, Central Public Works Department, Housing Development Finance Corporation, Exim Bank, Hudco, Export Credit Guarantee Corporation, BAI and private companies.
CIDC is an autonomous body set up by Planning Commission in 1996 to bring together all organisations concerned with the construction industry government, private owners, designers and consultants, architects, contractors, manufacturers and distributors of construction materials and machineries.
Swarup said there is also a need to promote construction machinery manufacturing industry in India.
Cost of such machinery is currently high because of low production volumes. Bulk of the construction companies cannot access costly equipment unless there are definite regulatory provisions to spur volumes, he added.
As an incentive to both buyers and sellers of construction machinery manufacturing industry, Swarup suggested that there should be an accelerated rate of depreciation for tax purposes.
In view of urgent requirements of infrastructure, investments in plant and machinery by construction companies should attract investment allowance, Swarup said.
On reducing finance costs for the companies importing and leasing specialised construction machinery, he said both lease tax and stamp duty on contracts should be done away.
On the other hand, an appropriate instrument needs to be developed for leasing companies to take care of the specific demands of construction industry.
This would require that the period of lease be increased beyond five years with risks for leasing companies mitigated by tax and other incentives.
At present, leasing is done on a monthly or quarterly rental basis without taking into consideration the requirements of this industry where cash flows are uneven.
To promote Indian overseas construction, CIDC has called for removing discrimination in granting deduction under section 80HHB on profits from exports.
While manufacturing sector gets 100 per cent deduction from export business under section 80HHC, construction get 50 per cent.