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Why Modi govt is betting on the construction sector to rebuild economy & create jobs

The big capex push will not only create productive assets, but also more jobs. This, in turn, will create sustainable demand as well as crowd in private investment and push growth.

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Public expenditure on construction can provide a large impetus to jobs as construction is one of India’s most labour intensive sectors. Through a sharp increase of 35.4 per cent in capital expenditure to finance various infrastructure projects, the key focus in Finance Minister Nirmala Sitharaman’s Union Budget 2022-23 is on employment generation.

The big capex push will not only create productive assets, but equally importantly, it will also generate more jobs in the construction sector. This, in turn, will create sustainable demand as well as crowd in private investment and push growth.

One of the most important challenges facing the post-pandemic Indian economy is job losses due to Covid-19. On the one hand, the MSME sector that employs a large number of people is being given a helping hand through credit guarantees. On the other hand, job creation has been addressed through a massive focus on construction activity.


Also read: FM Sitharaman has made a prudent choice in pushing capex instead of demand stimulus


Employment in construction

According to the estimates by the Periodic Labour Force Survey, the construction sector is the second largest employer after agriculture in rural areas. By broad industry division, 12 per cent of workers are employed in construction.

Construction is also a prominent seasonal employer. When the agricultural sowing season ends, the construction sector becomes the largest absorber of additional labour. 

It is also one of the key sectors in which India’s migrant workforce finds employment. The Quarterly Employment Survey shows that while regular employees are relatively low in the construction sector, contractual and casual employees have a significant presence in the sector. Any policy push to this sector is bound to benefit India’s large informal workforce.

Budget’s impetus to roads and highways construction

One of the key announcements in the Union Budget was to increase national highways in the country by 25,000 km in 2022-23. This will provide impetus to employment.

The Ministry of Road Transport and Highways has been allocated Rs 1.99 lakh crore as compared to Rs 1.18 lakh crore in the previous fiscal’s budget. A large chunk of the additional Rs 81,000 crore has been allocated for investment in the National Highway Authority of India (NHAI). 

The allocation to NHAI has seen a 133 per cent rise in 2022-23 as compared to the budget estimates of 2021-22. Accelerated spending on highway building will create additional demand for labour.

The budget also proposed a national ropeways development programme, ‘Parvatmala’, with an aim to promote connectivity and promotion of pollution-free transport in hilly areas. This will generate employment and will also have spillover impact in the form of promotion of tourism.


Also read: Govt short of money, economy short of momentum, but Budget 2022-23 a promising policy statement


Boost to housing

The significant push to affordable housing would further provide an impetus to employment opportunities in the real estate and construction sector. 

FM Sitharaman announced an allocation of Rs 48,000 crore for the affordable housing scheme — the Pradhan Mantri Awas Yojana (PMAY) — for completion of 80 lakh houses in urban and rural areas.

Construction activities, especially housing, are expected to have strong forward and backward linkages with other sectors in the economy. For instance, as cement and steel are key inputs in construction, the massive push to roads and houses will also give a boost to these sectors and propel employment generation.

A study by the National Institute of Public Finance and Policy (NIPFP) to assess the employment generation for PMAY for urban areas found that the programme had made a significant impact. Between June 2015 and January 2019, it generated 18.92 lakh direct jobs and 42.57 lakh jobs indirectly in related sectors, the study estimated.

Boost to rural roads construction

The budget has enhanced allocation for road construction in rural areas. Fund allocation under the Pradhan Mantri Gram Sadak Yojana, the rural roads construction scheme has been enhanced from Rs 14,000 crore in 2021-22 (revised estimates) to Rs 19,000 crore in 2022-23. The enhanced allocation will foster greater job creation in the rural areas.

There are concerns that the budget has allocated only Rs 73,000 crore for the rural jobs guarantee programme, NREGA, for the next year. This is 25 per cent less than the revised estimates for the current fiscal. But comparing the allocation with pandemic year may not be appropriate. The government has the option to revise the allocation if there is a higher demand for work.

FM Sitharaman has also incentivised states to step up their capital spending. The Budget has proposed an additional Rs 1 lakh crore interest-free loans to states for implementation of Gati Shakti and rural roads construction. This will provide a push to states’ capex and lead to acceleration of jobs in states.

Ila Patnaik is an economist and a professor at National Institute of Public Finance and Policy.

Radhika Pandey is a consultant at NIPFP.

Views are personal.


Also read: The importance of being Nirmala Sitharaman — only BJP minister facing media line of fire


 

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