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CHAPTER - VII

SUMMARY AND FINDINGS

Ever since the dawn of civilization, man has indulged in some form

of construction activity. Modern construction areas include high- rise

buildings, dams and irrigation networks, energy conversion and

industrial plants, environmental protection works, infrastructural

facilities like roads, bridges, railways, airports and sea ports, satellite

launching stations, onshore and offshore oil terminals etc.

Construction activity contributes to the economic development of a

country. The GDP per capita and the investment in the construction per

capita generally follow a straight line relationship, that is, construction

activity increases with the increase in per capita income. In some of the

developing countries, the growth rate of construction activity outstrips

that of population and of GDP.

The construction industry is the second largest economic activity in

India. During the last ten years the total capital formation by

construction was about 44 per cent of the total investment and the

contribution of construction to GDP was 5 per cent.

Construction accelerates the economic growth of a nation . In

India, for example, during the plan period 1980-85, for every rupee of

investment, construction added 78 paise to the GDP as compared with 20

paise per rupee of investment in agriculture.

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Construction is an employment spinner. 16 percent of the nation’s

working population depends on construction for their livelihood. In

India, during the eighties, the overall annual employment increased by 2

per cent, whereas increase of employment in the construction sector

during the same period recorded an annual growth rate of about 7 per

cent.

Construction industry plays a dominant role in providing socio-

economic stability to the nation’s economy. A change in the level of

construction industry output not only affects GDP and manufacturing but

also the general employment levels and incomes of people. It is proved

that construction and housing sectors provide the backward and forward

linkage advantages, rarely seen in any other segment of industry.

Fluctuations in construction demand affect the economy in many ways:

they affect the demand for labour and materials as well as the lag in time

taken to supply the industry’s output. Backward linkages, in particular,

can have widespread impact because much of the raw, semi-processed,

and processed materials are provided by relatively unsophisticated

labour-intensive domestic sources and by basic industries such as cement

and steel manufacturing. Forward linkages affect practically all other

sectors of the economy. In fact, construction has been ranked among the

top four out of the twenty economic sectors in terms of inter-sectoral

linkages.

The importance of construction industry as an agent of

development is enhanced by its ability to provide gainful employment

for a large number of workers. Much of the demand for labour is often

met by taking unskilled workers from rural areas, who can subsequently

be trained for more demanding jobs. Construction is often the only

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alternative for farm labour, particularly as it can adjust to the labour

needs of harvesting seasons to a larger degree than manufacturing.

There is hardly any sector which does not have a construction

component. It varies from 10-20 percent in scientific research and

education, to 40 percent in transport and communication, 75 percent in

power, 80 percent in irrigation and flood control to 100 percent in

housing.

The economic role of the construction industry is two fold- it helps

to promote or provide new capacity needed to satisfy additional demand

and maintains or improves existing capacity needed to satisfy continuing

demand. In the process construction activity also adds to the total

demand for labour and other productive resources.

The construction industry has a special place in the process of

development and has played an important part in shaping society’s

physical environment. Construction products are dams, bridges, tunnels,

highways, ports, buildings etc. The customer, in most cases, is the

community. These products are used to make living better for the people.

Therefore, safety, quality, cost, productivity and finishes during

construction and thereafter are very important. Construction is a one time

activity. It must be performed correctly the first time. There is less scope

for correcting the defects after the construction is over. Therefore,

quality consciousness, skill and workmanship of workers are critical to

achieving quality.

Generally, the value of construction products is high in relation to

the income of the purchaser. For example, the purchase of a house will

usually entail the expenditure of several times the annual income of the

buyer. Consequently, the products of the construction industry are

purchased by the client from his/her savings. Thus, construction industry

226

thrives on the savings and investment of the economy and has linkages

with the rest of the economy in terms of generation of output and

employment.

Traditionally, the construction sector in India has been dominated

by small and medium enterprises (SMEs). Nearly 96 percent of

construction enterprises fall under the SME category.

Various central, state and municipal/ local laws are applicable to

the construction industry. The laws relating to different aspects of the

sector fall under different categories. The various industry components

are regulated by different Ministries, government departments and

organizations like the Ministry of Environment and Forests, the Labour

Department, Pollution Control Board etc.

Many issues affect the smooth functioning of the sector. These

include contracting issues, financing issues, quality and technical issues

and manpower issues.

The sector has started inducting the latest developments in

Information Technology. Project design, development, implementation

and monitoring have been computerized.

India’s project exports have shown a steady trend. These exports

are spread across three broad categories namely civil construction works,

turnkey projects and consulting services.

The biggest policy initiatives over the past two years has been the

cabinet approval for 100 percent Foreign Direct Investment (FDI) in the

construction development sector through the automatic route. This is

likely to ensure rapid improvement in infrastructure , benefit

manufacturing and generate fresh employment. However, the results of

the policy will become apparent only over three to five years.

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Ranked 12th in the world, the Indian construction industry accounts

for 5 per cent of GDP, and is the second highest employer after

agriculture. Moreover, about 169 industries are directly or indirectly

dependent on this sector. The housing sector which is one of the fastest

growing sectors of the economy registers an annual growth rate of 25 to

30 per cent.In spite of this, the housing loan penetration is very low in

India. The mortgage to GDP ratio is only 6 per cent in India where as it

is 56 per cent in the U.S, 51 per cent in the U.K and 12 percent in other

Asian countries. The potential in the home loan market is immense if

India touches the Asian average of 12 per cent.

Since the past few years, the construction sector in Kerala has been

witnessing amazing growth. The residential construction sector has been

very active in the state since 1980’s . One of the major contributing

factors for the increasing demand is that the mid-segment of the

population is moving into apartments in a big way. Increase in the

number of IT professionals and a general enhancement in the earning

potential among the salaried class have been behind the construction

boom.

Now Kerala has transformed into become as one of the most

sought after destinations in the country for real estate developers.

Resultantly, almost all large firms in the country have started full-

fledged operations in the state.

The study is taken up with the following objectives.

1. To assess the changing structure of construction industry with

special reference to Kerala.

2. To evaluate the economic and financial performance of

construction sector in Kerala.

3. To assess the linkages in the construction industry.

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4. To identify the managerial and operational problems relating to the

construction sector.

5. To suggest strategies to tackle the identified problems and to equip

the units to compete in the liberalized regime.

Hypotheses

1. Increase in demand for residential and commercial buildings with

modern amenities cause large construction firms to proliferate in

urban areas.

2. Need-based construction activities cause local builders and small

contracting firms to operate in rural areas.

3. There is negative linkage with the primary sector, weak linkage

with the secondary sector and positive linkage with the service

sector.

The study is based both on primary and secondary data. As there are no

barriers either to the entry or exit of the firms in the construction industry,

no authentic data is available about their existence. There are large and

established players with long years of experience in urban areas. On the

other hand, a large number of small firms operate in the rural construction

market.

For selecting samples, the database maintained by the Kerala

Builders Forum (KBF), Kerala Builders Association (KBA) and the

Builders Association of India (BAI) has been extensively relied upon.

Since construction industry is widespread in its reach, data has

been collected from each of the main categories of participants, namely,

builders, contractors, input suppliers and workers.

On the basis of location, the construction industry in Kerala is

classified mainly into urban and rural areas. The areas are again

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classified into three, namely, Northern, Central and Southern regions.

The Northern region comprises Kozhikkode and its suburbs. The Central

Region consists of Kochi, Thrissur and adjoining areas. The Southern

region constitutes Thiruvananthapuram, Neyyattinkara, Attingal and

suburbs.

Regarding the size of the units, no rigorous classification has been

made officially. Here, an attempt is made to classify units as follows:

1. Category A :- Units having an average annual turnover of less than

Rs. 1 crore.

2. Category B :- Units having an average annual turnover between Rs.

1 crore and Rs. 10 crore.

3. Category C :- Units having an average annual turnover of more

than Rs. 10 crores.

Data is available from 12 major builders in the state out of a total of 33,

from 9 major contracting firms out of a total of 52, from local builders

and contracting firms numbering 40 each from a total of 2,813. Data is

also available from input suppliers numbering 15 of which 9 firms have

outlets in all the three regions.

Data pertaining to construction workers numbering 200 is

available. Of these, administrative staff consisted of 30, engineers 20,

architects 8 and construction labourers 142. All these are taken from the

central region.

Samples were selected for each type using random sampling.

Construction, being one of the core activities undertaken in an economy,

requires urgent attention by planners, policy makers and those who run

and manage such units. The financial strength of the industry can have a

positive impact on the economy as a whole.

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Construction is one of the least researched industries in the

country. It is also an industry that reports the minimal data about its

internal working. There are research works at the national level mostly

undertaken by specialized institutions and Government aided agencies.

State specific researches exploring the linkages of the industry in the

local economy are lacking.

In order to examine the working of the industry, details on capital

structure, inputs, output, workers’ emoluments etc. were required. All

these concepts are developed for large manufacturing concerns and varies

even from industry to industry. Considering the peculiar nature of the

construction industry, some of these concepts have been modified

wherever necessary and collected data were analyzed with the help of

percentages and structural ratios.

Sectoral linkages of the construction industry are examined with

other sectors ( namely, primary, secondary and tertiary)

Problems are identified from discussions with owners, managers,

engineers and other technical staff, workers and customers.

The prospects of the industry are related to the likely increase in demand

for construction products. The likely increase in the demand for housing,

apartments and commercial spaces is estimated until 2025.

Over the past two decades, the construction sector in Kerala has

been witnessing an amazing growth. The number of construction

participants has increased enormously. Over the past 10 years, the

number of major builders in the state has increased by 65 percent, of

medium and small builders, by 52.5 per cent each. During the same

period the number of major contracting firms registered an increase of

52.9 per cent, Medium (51.4 per cent) and small firms (126 per cent)

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(See tables 4.13 and 4.14). A number of construction consultancy

organizations, equipment manufacturing and leasing companies and

construction labour recruitment agencies have sprung up in the state.

Along with this, many financial institutions that are catering exclusively

to construction financial requirements have also come up.

The thriving real estate sector has promoted numerous other allied

segments. Bathroom accessories, tiles both interior and exterior, steel,

wood , cement, furniture, paints and electrical gadgets are having high

demand in the state.

Real estate transactions in Kerala have registerd an annual increase

of 25 to 35 percent over the past five years and the prices across sectors

and cities have undergone an appreciation of 150 to 200 percent.

Construction industry in the state comprises very large number of

small firms. The number of small firms is, in fact, so large that the

construction is called a non-formal sector of the economy. In

construction, there are no licensing conditions or other regulations as they

exist in the manufacturing sector.

Besides being a regular purveyor of direct and indirect employment

to about 20 per cent of the state’s workforce, construction sector in

Kerala is also attracting skilled, semi skilled and even unskilled workers

from states like Bihar, Orissa , West Bengal, Maharashtra and UP. There

are migrant labour settlements in almost all districts of the state and most

of them are employed mainly in the construction sector.

The sky rocketing prices of land, cement and steel are causing

concerns. The high tax rates are yet another factor that has put the sector

in a disadvantageous position.

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Generally, the cost of house construction is higher in Kerala when

compared to other states. This is due to the fact that all construction

materials are brought here from other parts of the country.

Economic development depends on investment. Investment policy

may have a sectoral bias in view of the priority of the economy or

generating maximum linkage effect in the system.

The linkage literature in economics talks about the positive

correlation between investment in one sector with investments in large

number of allied sectors. The construction activity is one of the sectors

that has the largest number of linkages.

There is direct mention about the backward, forward and

consumption linkages. Yet another classification can be made on the

basis of permanent and temporary linkages. Permanent linkages lead to

sustainable investment in allied sectors for a long period of time. On the

other hand, temporary linkages persuades investment in allied sectors for

short periods.

The construction sector in the state has a negative linkage with the

primary sector with more paddy fields being converted into spaces for

construction coupled with labour shortage in this sector making it less

cost effective.

Generally, construction has a strong positive linkage with the

secondary sector. The construction sector consumes the products of as

much as 169 industries. Here, in our state, the linkages with the

secondary sector is positive but weak as the state continues to be

industrially backward.

Construction is a hybrid of manufacturing and service. In service

wise linkages, both forward and backward linkages are visible.

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While explaining linkages, one more classification seems relevant

and they are centripetal and centrifugal linkages. If investment in one

sector leads to additional investments in the various sectors of the local

economy we call it centripetal linkages. On the other hand linkages that

are not likely to have a positive impact on other sectors of the local

economy are called centrifugal linkages.

A hypothetical example has been worked out in respect of

construction projects each for rural and urban areas under two

assumptions, namely, (1) when centripetal linkages are strong, and (2)

when centrifugal linkages are strong. The additional investment in

respect of a rural project under the second assumption is only 31.82 per

cent of the total additional investment under the first assumption.

Similarly, additional investment in respect of an urban project under the

second assumption is only 44.49 per cent of the additional investment

under the first assumption.

Table 7.1

Weighted contribution of sectors to GSDP growth

(1994-95 to 2001-02)

Sector Kerala All India

Primary -4.77 13.34

Secondary 21.32 25.82

Territory 83.45 60.84

Source: Calculation based on data from CSO, National accounts (2002)

Going by the available trends, the centripetal linkages of the

construction industry in the state are not profound enough to maintain

the high growth trajectory.

The weighted contribution of various sectors to the Kerala’s GSDP

growth during the post reform period is primary sector (-4.77 per cent),

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secondary sector (21.32 per cent), and tertiary sector (83.45 per cent)

which clearly demonstrates the acceleration in the growth of service

sector ahead of industry and agriculture.

The sustainability of the growth momentum depends upon whether

the rapidly growing service sector will be able to contribute to an

enhanced output and productivity in the industrial and other sectors.

So far the developments have not been satisfactory. There is

limited inter linkages between services and commodity producing sector

in Kerala (Subrahmanian, 2006)1.

The linear growth process experienced by the U.S in 50’s and the

U.K in 60’s leading to the emergence of post industrial societies (Bell,

1976)2 there did not happen here. But the economy and social structure of

post-industrial societies are very much manifest in the state of Kerala. It

points to a transition from pre-industrial society to post-industrial society

bypassing industrialization. The reason why backward linkages of the

construction industry in the state are thinner and forward linkages are

stronger can be attributed to the non linear growth process experienced by

the state.

History seems to underline the importance of state action in

engineering and assisting the process of take-off in developing

economies. (Bhagavathi 1987)3.

The need of the hour is to strengthen the centripetal linkages of the

construction sector as much as possible for maintaining and speeding up

the growth momentum of the state economy.

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Economic and Financial Performance of Construction Industrial

Units

1. 6 per cent of the sample units (builders and contractors taken

together) had an average annual turnover of less than Rs. 1 million

while 20 per cent had an average annual turnover of more than Rs.

60 million.

2. Typical value of the projects tendered for is less than Rs. 5 lakh in

the case of 8 per cent of the firms while it is more than Rs. 35 lakhs

for 18 per cent of the firms.

3. Tender success rate is 6-10 per cent for 43 per cent of the sample

units while it is above 30 per cent for 14 per cent of the sample

units.

4. 98 per cent of the sample units give top priority to profit earnings

per share followed by customer satisfaction and return on

investment. Technology leadership has registered the lowest rank

among 90 per cent of the firms.

5. There is inter firm inconsistency in the financial management

practices reported to by builders and contractors. Viewed from the

technical angle, there is marked difference in their composition of

fixed and working capital. Exclusive builders generally have less

investment in plant and machinery while exclusive contractors

have a very high investment. For exclusive builders, investment in

plant and machinery was negligible in the year 2008-09 whereas in

the case of exclusive contractors, 81.12 per cent of the total fixed

capital is represented by plant and machinery during the same year.

There is also difference in the composition of physical working

capital between exclusive builders and exclusive contractors. The

capital base is poor even in the case of large firms while small

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firms manage with very small amount of capital. This raises the

question of sustainability of construction activities undertaken by

these firms.

6. 80 per cent of the construction work in rural areas in undertaken by

small firms while 90 per cent of the work in urban areas are

undertaken by large firms. 70 – 80 per cent of the residential

construction work takes place in urban and semi-urban areas.

7. There is considerable difference in the return on networth enjoyed

with builders having a range of 5-40 per cent while contracting

firms have a range of 8-18 per cent for the period 2004-2009. The

average return on networth enjoyed by the builders for the above

period comes to 22.44 per cent while that of the contractors, it

comes to 13.47 per cent. The global economic meltdown has

affected the builders and contractors of the state with decline in

return on investment in the year 2008-09. For builders the decline

from 2007-08 was 18.1 per cent and for contractors it was 21.74

per cent.

8. The construction organizations (builders and contractors taken

together) in urban and semi-urban areas have been experiencing a

high rate of business growth measured in terms of increase in fixed

assets and annual turnover. Large players have registered average

annual growth rate of 20-40 per cent over the period 2004-09. 8

per cent of the rural and 3 per cent of the urban firms experienced

negative growth rates while 10 per cent of the rural and 40 per cent

of the urban establishments showed growth rates above 20 per cent

on an average for the period 2004-09.

9. 90 per cent of the administrative and 80 per cent of the technical

(engineering) work is given to employees recruited locally. On the

other hand, 20-60 per cent of the manual work especially low end

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jobs are entrusted to the migrant labour force. Labour management

in the construction industry is far from satisfactory.

10. 28.5 per cent of large firms have introduced new construction

technology while only 10 per cent of the medium and small units

are ready to introduce technology upgradation.

11. Going by the sample, 90 per cent of the sample units (builders and

contractors) are not in the habit of conducting regular internal nd

external appraisals. Modern methods of strategic planning have

not found favour with a majority of the construction organizations

in the state.

12. Majority (90 per cent) of the builders and contractors follow a

“herd mentality” in their investment decisions. Construction

organizations in the state are not yet ready to experiment with

innovative product mix incorporating low cost housing, affordable

housing etc. They are yet to realize the importance of designing

multiple investment opportunities.

13. 80.9 per cent of the large construction firms have already secured

ISO 9000 certification while 60 per cent of the small and medium

firms are not even aware of it.

14. Only 9 per cent of the large firms have secured ISO 14000

certification while 92.5 per cent of the small and medium firms are

not aware of it.

Operational Efficiency of Construction Industrial Units

15. Item rate contract is found to be the most prevalent contractual

mechanism in the construction sector in Kerala. Under this

method, the owner through an appointed consultancy organization

does the engineering. Bill of quantities is furnished and the

tenderer is required to quote the price item-wise. The contractor

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need not have large financial capacity in this case. It is practised in

subcontract packages. Due to time and cost overruns, possibilities

for disputes are more.

16. A large project will usually have a prime contractor who will

appoint sub-contractors for different work packages. A sub-

contractor, in turn, may have his own contractors for various jobs

i.e.; brick layers, concreters, painters, tile layers, electricians,

carpenters etc. The prime contractor does the co-ordination work.

Short-term employment, job tenure lasting for the project duration

only and piece rate system of payment are the major features of

contracting. 90 percent of builders in the sample followed the

above practice.

17. Analysis of the cost components of a typical building construction

project reveals that building materials constitute bulk of the

construction cost (43 per cent) followed by personnel (22.75 per

cent).

18. Structural aspects of cost components reveal that columns, beams,

walling and roofing to be the largest item of cost (31 percent)

followed by doors, windows and timber items (17 per cent) and

foundations upto plinth (14 per cent).

19. Depending upon the type of a housing project, building materials

account for 40-60 per cent of the total project construction cost.

20. Cost of cement comes to 25 per cent of the total material cost

followed by bricks / blocks (19.4 per cent) and timber cost (14.92

per cent) in the case of a representative single story house.

21. River sand which constitutes 11.94 per cent of the material cost has

become a very costly item now a days because of the restrictions

imposed by the authorities on river sand mining.

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22. Manufactured sand or M. Sand is found to be the most suitable one

to replace river sand. However, manufacturing M. sand requires

skilled workers. Environmentalists are of the opinion that there

should be enough precautions to prevent any further pollution from

the extensive use of M-sand.

23. A movement for the use of mud in building construction is gaining

ground in Kerala. The use of mud implies the application of

traditional technology which is sure to strengthen the centripetal

linkages of the industry in the state. So far, the role of mud in

major construction projects has not been significant.

24. The use of ready mix concrete (RMC) is slowly gaining ground in

Kerala. At present, there is only 2 per cent penetration and that too

takes place mainly in urban areas.

25. It has been estimated by construction experts at the National

Institute of Construction Management and Research (2003), that

the overall potential for cost reduction of a representative housing

unit ranges from 21.5 to 37.5 per cent.

26. Productivity in construction is a very important issue. The general

method of measuring productivity i.e., )Quality(Input

)Quality(Ooutput (within a

time period, quality considered) applies to construction industry as

well. 80 per cent of large firms undertake periodic measurement of

productivity. Only 30-40 percent of small firms undertake

productivity measurements.

27. It has been observed that the highest site productivity i.e.,

producing the required quantity of construction within the

budgeted time and by the best and the cheapest method, is seldom

achieved due to technical, managerial and financial reasons.

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28. In practice, the extent and quantity of wastages are not always

exactly measurable. However, a NICMAR study group headed by

Dr. K. N. Vaid observes that cement, steel and sand wastages

account for 86 percent of the total cost of wastage in construction

industry.

29. Very little efforts are made by residential construction units in

Kerala in applying scientific methods of Material Requirement

Planning (MRP), working out Economic Order Quantity (EOQ),

determination of lot size etc. in majority of the projects undertaken

by them.

30. Authoritative serial data on the size of the construction workforce

and its distribution by skill are not available except in the case of

projects executed by big contractors of repute.

31. Generally, in construction industry, labour is categorised into

skilled, semi-skilled and unskilled. Skilled workers like mason,

carpenters etc. have the responsibility of reporting to engineers and

senior level technical personnel. Semi-skilled workers have to

report to first class skilled workers (supervisors) and unskilled

workers have to report to the immediate boss under whom they are

working.

32. According to a study undertaken by NICMAR study group,

unskilled workers constitute 54.43 percent of the total labour

employed followed by masons (30.42 per cent) and carpenters

(7.94).

33. The survey results also conform to the observations of NICMAR

study group with masons topping the list of skilled workers in the

sample with 17.82 percent followed by carpenters (10.54 per cent),

painters and brick workers (7.02 per cent each).

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34. Majority of the construction workers are males. However, with the

concept of family employment gaining ground, the number of

women workers has started rising in construction sites. 61.97

percent of the workers in the sample are males.

35. Majority of the workers in the sample are in the age group of 35-45

(40.14 per cent) followed by 45-55 (33.8 per cent)

36. Among the sample workers, 82 per cent have experience of more

than 10 years, and 5 per cent, of more than 40 years experience in

the construction sector. The number of workers in the 0-5 years

experience category is only 5.65 percent. This finding implies that

there is reluctance on the part of the new generation to enter the

field.

37. Among the 142 sample workers, 86 per cent are married, 6 per cent

unmarried, 5 per cent are widowed and 3 per cent are divorced and

separated.

38. Majority of the construction workers in the sample belonged to the

Other Backward Community (54.92 per cent) followed by

scheduled castes (25.32 per cent) and forward community (19.73

per cent).

39. In the sample selected, 10 per cent are illiterates. Majority of the

construction workers in the sample have got upper primary

education (28.87 per cent), graduates numbering 5 (3.52 per cent)

and one post graduate (0.73 per cent) are found in the study. Those

who got professional education were absent in the sample selected.

40. Among the sample workers only 38 workers (26.76 per cent) have

active membership in the political parties, 68 workers (47.88 per

cent) have passive membership while 36 workers (25.36 per cent)

have no membership in any political parties. Only 18 workers

(12.67 per cent) have active trade union activities, 112 workers

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(78.87 per cent) have passive trade union activities and 12 workers

(8.46 per cent) have no participation in trade union activities.

Perhaps the reason for this is that construction belongs to the

unorganized sector of the economy.

41. Majority of the workers in the sample got an average of 10 to 15

days work per month. 30 per cent of the workers in the sample got

15 to 20 days of work and 21.13 per cent of the workers got 20 to

25 days of work on an average in a month.

42. In Kerala, construction workers get high wage rates. There is

difference in the wage rates between rural and urban workers. First

class carpenter tops the list with Rs. 375 per day followed by first

class brick worker (Rs. 370) and first class mason (Rs. 360) in

urban areas. The respective figures for rural areas come to Rs. 350,

Rs. 350 and Rs. 325.

43. A high wage rate compared to the rates in other states attracts

labour form other states. Migrant workers are employed in tile and

brick manufacturing units in several parts of Kerala. These

workers are brought by labour contractors. Taking the number of

migrant workers and their emoluments is a difficult task as most of

them are seasonal workers who generally return home soon after

their work. Very few stay back here. The situation in the migrant

labour colonies is far from satisfactory. Lack of basic facilities like

drinking water, washing and toilet facilities make their exclusive

settlements away from the mainstream. In Kerala also regular

deductions from the daily wages paid to the construction workers

are not uncommon. But the situation of the local workers engaged

here is far better than their counterparts in other states.

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Problems in the Construction Sector

1. Construction sector in the state is fragmented. There is a large

number of small firms.

2. The industry follows non-uniform and outdated technical and

managerial practices.

3. There is lack of financial assistance for introducing technological

changes and modernization.

4. Knowledge management systems of the various construction

industrial units are poor. Information and retrieval system on

construction are weak.

5. There is continuance of age-old methods and traditional techniques

in the construction sector making it less competitive in the

domestic and international markets.

6. The technology and management practices of the construction

sector in Kerala are far behind the levels existing in other recently

developed countries.

7. Construction costs are higher in Kerala because most of the

construction materials are brought here from other parts of the

country. There is limited inter linkages between services and

commodity producing sectors in Kerala.

8. Standardization and quality control in construction are weak.

9. Designs are old and projects consume extra large quantities of

materials. Time and cost overturns are much frequent in the sector.

10. Scarcity of skilled labour force is another constraint experienced by

the sector. Along with this attempts to impart training among

workers have not found favour with the construction industrial

units.

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11. Lack of a corporate approach in meeting the ever growing demands

of the customers. Efforts of the Kerala Builders Forum (KBF),

Kerala builders Association (KBA) and the Builders Association of

India (BAI) have not yielded the desired results.

12. Inordinate delay in getting building permits and sanctions from the

local bodies

13. Inability to take quick decisions in a terrain unfamiliar to the units.

14. Lack of serious articulation and implementation of sustainable

construction practices.

15. Housing loan penetration continues to be low.

16. Lack of adherence to safety norms.

17. Lack of a comprehensive quality management system(QMS)

18. Inability to adapt to technological changes.

19. Delay and lack of efforts in developing new building materials.

20. Lackadaisical attitude towards cost-effective and environment

friendly construction.

21. Lack of construction industry specific insurance products.

22. Less regard for the issue of housing for the economically weaker

sections and low income groups.

23. Use of harmful or potentially harmful building materials.

24. Absence of efforts to popularize environment friendly and energy

efficient management practices for the building sector.

25. Scarcity of building materials especially sand.

26. Lack of enabling tax regime.

27. Contracting issues. Cost escalations are usual in the sector. But

revision of rates not always possible.

28. Rampant reclamation of the paddy fields and wet lands leading to

ecological problems.

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29. Inefficiency in providing basic facilities like power, drinking water

and drainage to apartment dwellers, especially, in urban areas.

30. Lack of scientific space management and infrastructure

development in cities.

31. Unauthorized constructions are on the rise. There is proliferation of

fake or special orders and the builder –politician –bureaucrat nexus

provides the culprits with safe way out.

32. At times, a total ban on land filling poses problems for genuine

construction work.

33. Lowering of Floor Area Ratio (FAR) from 4 to 1.5 inhibits vertical

growth in cities.

34. Lack of awareness and willingness on the part of the local

construction units to conform to National Building Code.

35. Very high construction costs create a situation that for many people

housing is manifestly not affordable.

36. Flow of fake currency into the real estate sector.

37. The increase in the number of migrant workers in the construction

sector and their settlement pose a problem for the authorities. At

times, it also leads to fast deteriorating quality of work.

38. Environmental Management system (EMS) is yet to acquire

popularity among the construction industrial units in Kerala.

39. No strong Research and Development base in construction

industry. Besides the linkages between R &D organization, if any,

and the industry are weak.

40. Lack of proper lending norms to construction projects.

41. Lenders are unwilling to lend to construction projects as there are

no appropriate risk assessment mechanisms.

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42. There is acute shortage of working capital being experienced by

construction firms, especially the small ones. Moreover, the

working capital management is far from efficient.

43. Lack of an efficient Health, Safety and Environment information

system related to the construction sector.

44. Limited inter linkages between the construction sector and the

commodity producing sectors in Kerala.

45. Inability to find a viable alternative to river sand. The Mining and

Geology Department of the state is yet to develop a viable

alternative.

46. Inability on the part of units to access reasonably priced credit for

construction enterprises.

47. Infrastructure deficit, both in rural and urban areas, is posing

difficulties.

48. Inadequate investments in the construction sector. Weak

governance and out of date procedures process and processes,

vitiate the investment climate.

49. The high incidence of indirect taxation is discouraging especially

the small units from undertaking new projects.

50. Lack of professional training institutes to impart training to

construction workers.

51. Lack of provision of adequate social security and welfare to

construction workers. Only sixty percent of the construction

workers have been enrolled by the Kerala Building and Other

Construction Workers Welfare Scheme which was introduced in

1989 (John, 2004)4.

52. Many local contractors have only oral agreements with the

sub-contractors. There is widespread violation of such contracts

leading to disputes.

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53. Employee performance appraisals, customer surveys and skills

analysis are not systematically undertaken by the construction

industrial units.

54. Lack of expertise in undertaking economic, technological, political

and social appraisals.

55. The units require more professionalism for undertaking strategic

planning practices.

56. The construction sector is yet to fully recover from the global

economic meltdown as a result of the sub prime lending muddle in

the US.

Hypotheses

1. Increase in demand for residential and commercial buildings with

modern amenities cause large construction firms to proliferate in

urban areas.

2. Need-based construction activities cause local builders and small

contracting firms to operate in rural areas.

3. There is negative linkage with the primary sector, weak linkage

with the secondary sector and positive linkage with the service

sector.

Regarding the first hypothesis the study accepts the same. There is

proliferation of large sophisticated construction units in the urban areas.

Only large firms with modern technology can satisfy the demands of

urban construction market.

The study validates the second hypothesis that in rural areas, small

and medium players dominate. The reason is that need based construction

activities constitute a major part in spite of investment based construction

in rural areas.

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The study accepts the third hypothesis that the construction sector

has a negative linkage with the primary secotr. Expansion of construction

leads to a shrinkage in the cultivable land. It also leads to reducing the

labour availability for agricultural activities besides causing a hike in

agricultural labour rates.

Generally, construction has a strong positive linkage with the

secondary sector. The construction sector consumes the products of as

much as 169 industries. Here, in our state, the linkages with the

secondary sector is positive but weak as the state continues to be

industrially backward.

Construction is a hybrid of manufacturing and service. In service

wise linkages, both forward and backward linkages are visible.

While explaining linkages, one more classification seems relevant

and they are centripetal and centrifugal linkages. If investment in one

sector leads to additional investments in the various sectors of the local

economy we call it centripetal linkages. On the other hand linkages that

are not likely to have a positive impact on other sectors of the local

economy are called centrifugal linkages.

A hypothetical example has been worked out in respect of

construction projects each for rural and urban areas under two

assumptions, namely, (1) when centripetal linkages are strong, and (2)

when centrifugal linkages are strong. The additional investment in

respect of a rural project under the second assumption is only 31.82 per

cent of the total additional investment under the first assumption.

Similarly, additional investment in respect of an urban project under the

second assumption is only 44.49 per cent of the additional investment

under the first assumption.

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Going by the available trends, the centripetal linkages of the

construction industry in the state are not profound enough to maintain

the high growth trajectory.

The sustainability of the growth momentum depends upon whether

the rapidly growing service sector will be able to contribute to an

enhanced output and productivity in the industrial and other sectors.

Forward Linkages

Based on the hypothetical example, the following forward linkages

have been traced.

1) Demand for furniture, 2) consumer durable, 3) desk top computers 4)

security, 5) laundry 6) gardening 7) cost of maintenance 8) cost of

decoration of the units 9) insuring the residential units and 10) marketing

the existing units for the purpose of sale.

Closely related to the forward linkages is the consumption linkage

through increased demand for goods and services especially, Fast Moving

Consumer Goods (FMCG). However, it is very difficult to trace each and

every item that becomes part of the forward linkage.

Backward Linkages

Based on the hypothetical example, the following backward

linkages are traced. They include mainly the inputs, that is, material and

non material. The main items are listed below.

1) Land, 2) sand, 3) cement, 4) steel, 5) brick 6) insulation, 7) wood, 8)

tiles 9) paint, 10) sanitary ware 11) electrical lighting and 12) fittings.

Besides the above, a number of professional services are needed

from the outset of a project till its completion. All types of labour namely,

skilled, semi skilled and unskilled are required to undertake the project. It

is estimated that a large number of manufacturing industries are

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dependent on the construction industry for their survival, growth and

expansion. The impact of the construction industry on the commodity

market, the labour market and the financial market is phenomenal. While

assessing the linkages of the construction sector, it is found that,

backward linkages are more exactly measurable than forward linkages.

Suggestions

1. Efforts to formalize business entities in the construction sector

should be given top priority. It will make the industry more

organized. It will also help in corporatizing the entities which, in

turn, will attract venture capital in addition to professionals and the

best talent.

2. Setting up a state level agenda for construction will be a major step

in framing an integrated policy for the development of socially

responsible real estate practices.

3. Proper materials management practices are to be introduced and

efforts to reduce wastages must be implemented.

4. A construction equipment bank at the state level and the

development of equipment pool at the district level are essential for

enabling contractors and construction companies to adopt better

technology and practices. Along with this tariff burdens on

equipments should be removed for infrastructure projects to

facilitate increased use of technology in projects, boosting

contractor capacities.

5. Since the industry is labour intensive, district level knowledge

cenres should be set up to provide proper information regarding the

availability of workers of different trades in the industry. Efforts

should be made towards creating a regulatory framework for

construction labour. The industry and the government should take

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steps for training, testing and certification of construction workers.

Institutional framework to impart training to workers must be

enhanced. Specialised courses like construction management must

be included in the curriculum so as to meet quality manpower at

the managerial level.

6. Equitable contract conditions instead of a one-size-fits-all are

required in the development perspective in order to ensure financial

stability and profitability of various projects. With this end in

view, periodic review of the prevailing contract clauses should be

made for framing standard contract clauses to minimize time and

cost over-runs on any project. The area of operation of the

Construction Industry Arbitration Association (CIAA), the benefits

of which are available now only in selected areas, should be

extended to all areas for expediting litigational matters in the

industry.

7. The stakeholders in the construction industry need to be evaluated

from time to time to enhance efficiency in this sector and for

facilitating increased credit flow into the sector. A system for

grading all entities in construction project : the contractor, the

consultant, the project owner and the project itself is to be

introduced. The aim should be to develop an objective system of

grading the agencies. An effective system to grade even small

construction companies must be developed.

8. A National Construction Productivity Centre should be set up.

Along with this, the existing national productivity organizations

should be encouraged to take more interest in construction

productivity.

9. The quality assurance system developed by Construction Industry

Development Council (CIDC) for large firms must be made

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available to small firms by making modifications, wherever

necessary.

10. The state Government must encourage construction firms to use

local resources and local manpower wherever possible. This will

strengthen the centripetal linkages of the industry.

11. Construction firms must install knowledge management system in

their organizations to measure organization’s intellectual capital on

the one hand and to combine global view point and knowledge of

international standards in construction with specialist local

knowledge.

12. There is need to design construction specific insurance products.

The various policies should be ideally structured to cover the

technical complexities of construction projects.

13. An effective and comprehensive system of taxation exclusively for

construction sector must be instituted to encourage undertaking

new projects and for discouraging corrupt practices.

14. Construction firms have to take a proactive approach in

maintaining and improving the health of the cities. City

management should be jointly undertaken by well trained

administrators, professionals, elected representatives and people

themselves.

15. Construction participants, mainly, builders and contractors must be

encouraged to implement Environmental Management System

(EMS) as a part of the firm’s overall management system, for

developing the organisation’s environmental policy and for

ensuring compliance by the organization with the stated policy.

16. Periodic review of the various policies, practices and programmes

affecting the industry should be undertaken to create greater

awareness among the stakeholders about the opportunities and

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threats before the industry. Firms should undertake strategic

planning practices to give insight into its working so as to redesign

them to cope with the changing environment.

17. Professional ethics and business ethics in the industry must

simultaneously be observed for accomplishing organizational

goals.

18. Strict compliance with the provisions of the National Building

Code should be ensured for maintaining structural, health, fire and

public safety.

19. The Government of India, the construction industry and the various

associations/organsiations in the sector need to take immediate

steps to make the industry competitive at home and abroad to face

the challenges and opportunities arising from trade liberalization

under the General Agreement on Trade in Services (GATS).

Practical measures need to be implemented to augment capacities

in the construction sector for sustaining the country’s comparative

and competitive advantages to survive and expand in the global

arena.

20. Construction workers form part of the workers in the unorganized

sector. Majority of these workers are illiterate migrants vulnerable

to exploitation. In order to provide better living conditions to these

workers, the Government should speed up the implementation of

the Building and Other Construction Workers (Regulations of

Employment and Conditions of Service) Act, Building and Other

Construction Workers Welfare Cess Act and the Inter-State

Migrant Act.

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Policy Implications

1. The Government should insist on certification of construction

entities. Conditions for entry into and exit from the industry are to

be stipulated.

2. The Government should draft a state level agenda for construction.

3. Tariff burdens on equipments should be removed.

4. The Government should enhance the resources for the Industrial

Training Institutes to impart training to construction workers.

5. The Government should draft standard contract clauses and the

functions of the Construction Industry Arbitration Association

(CIAA) should be extended to more areas.

6. Objective grading system for the various stakeholders of the

construction industry should be introduced. Financial institutions

should be asked to adopt common lending norms.

7. National Construction Productivity Council should be set up.

8. The State Government should encourage use of local resources and

local manpower wherever possible. Tax incentives for firms

conforming to the above arrangements should be introduced.

9. An effective and comprehensive system of taxation exclusively for

the construction sector should be introduced.

10. Construction specific insurance products should be designed after

consultations with the Actuarial Society of India.

11. City management should be given top priority.

12. Government should insist on adoption of Environmental

Management System, especially, by large firms.

13. Strict adherence to the National Building Code must be ensured.

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14. Periodic review of various provisions of GATS should be made

and the same should be communicated to stakeholders of the

construction industry.

15. The Government must strictly implement the Inter-State Migrant

Act. It must also implement the Building and Other Construction

Workers (Regulation of Employment and Conditions of Service)

Act and Building and Other Construction Workers Welfare Cess

Act, both of 1996. Providing workers basic amenities and other

necessities should be included as a condition in the contracts

awarded for construction projects.

Contribution

Construction is one of the least researched industries in the country. It is

also an industry that reports the minimal data about its internal working. There

are research works at the national level mostly undertaken by specialized

institutions and Government aided agencies. State specific researches exploring

the linkages of the industry in the local economy are lacking. This work is a

humble attempt to bridge this gap.

Areas for Future Research

1. There is scope for further research on the sectoral linkages of the

construction industry in the state of Kerala.

2. The linkages with the primary sector needs exhaustive study.

3. Environmental impact of the construction industry and possibility

of introducing EMS by the construction firms of Kerala is yet

another area which needs a thorough exploration.

4. Technology upgradation in the construction industry is another

area of research.

5. Various legislations and its implementations in the construction

industry can be an important research topic.

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6. City management and role of construction participants

in maintaining and improving the health of cities can be

undertaken in respect of each of the cities of Kerala namely,

Thiruvananthapuram, Kochi and Kozhikode.

7. Tax regimes applicable to construction sector and the scope for its

modification is another area of research.

8. Migrant labour settlements in Kerala and the condition prevailing

in their colonies require an exhaustive study.

9. Labour relations in Kerala construction industry and workers

participation in welfare schemes can be another area of research

that could be undertaken.

Conclusion

“Construction Industry – Explorations into Forward and Backward

Linkages” is a humble attempt to account the events pertaining to the

industry in space and time which take place within the spatial boundary

of an economic system. As the title implies, the type of research is

exploratory. Hence, it forms part of a preliminary stage of research on

this economic phenomenon. Hope that this will help formulate more

concrete theories about this phenomenon in future. With this end in view,

certain basic economic hypotheses are formulated as distributional

assumptions, which often are not themselves subject to statistical testing

from the collected data. Of course, the validity of information so obtained

is logically conditional on the validity of the statistically unverifiable

aspects of these basic hypotheses. The study is undertaken on the

assumption that, in areas where the relevant theory is far from obvious,

this type of exploratory research will help in evolving such theories in

future.

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In construction industry, what we effectively have is a unique

blend of possibly the largest concentration of the most diverse

professional disciplines within an environment that is largely dictated by

extreme market demands and commercially driven business objectives. In

this sense, the industry offers a challenge for dealing with issues having

several dimensions, and this should allow very worthwhile scenarios for

study that could almost certainly lead research in these areas.

References

1. Op. cit.

2. Bell, D. (1976) : “The Coming of Post Industrial Society”

Heinemann, London.

3. Op. cit.

4. John C. P. (2004) “Social Security and Labour Welfare with special

reference to construction workers in Kerala” Editorial Board

Neelakantan S., Gopinathan Nair and Shaji. H. Discussion Paper No.

65 Centre for Development Studies, Thiruvananthapuram