Page 13 - newsletter 14 aug

Internationalization will become less viable as
Impact of COVID-19 on
companies reconsider the regions in which they
Construction & Building want to operate and countries put more restrictions
on foreign companies. When the skilled people like
Sector
carpenters, welders, plumbers, electricians etc.
Dhvani Harjai, XII C
demand higher wages to the tune of 20-25 per
The overall impact of coronavirus or COVID-19 on cent, general unskilled and semi-skilled labour
the construction sector of India has been estimated could demand a 10-15 per cent increase.
at Rs 30,000 crore per day, an analysis by KPMG Finally, many governments are offering aid to
revealed. The pandemic is also likely to reduce persons and businesses negatively affected by the
investment in construction revealed prospects COVID-19 pandemic. So even if a contractor may
by 13 to 30% which is likely to impact the gross have no contractual or legal entitlement to
value added and employment. Construction sector compensate for prolongation costs due to work
being significantly delayed or impaired, state aid
which was already reeling with multiple challenges may be available to defray some of the ongoing
from lack of capital and credit avenues to costs incurred, or otherwise provide a financial
insolvencies, multiple frauds and regulatory burden help. Employers may also be entitled to the benefit
is now marred by COVID-19 pandemic, with no likely of these state aid measures.
relief in sight.
Although the activities are started on a slow pace

after lockdown but the work is expected to halt soon
given various factors including supply chains
disruption, shortage of sub-contractors and
materials and the termination of contracts to
control expenses. Entities in subsectors like
individuals, retail companies and small businesses,
are facing significant short term stress and with little
choice but to conserve cash, many of these have
already stopped projects. There is a potential long
term impact also. Longer term construction
companies across the board will have to contend
with decreased demand as governments face rising
deficits and residential and commercial projects are

dampened by unemployment and low GDP growth.
More than 30% construction workers are staying
away from work sites due to fear over corona virus
infection and many of them may have returned to
their villages or are planning to do so. Contractors
are also not keen on pushing them either. Although
some companies may be able to execute on the
backlog of projects, the pipeline is expected to be
weak for foreseeable future. Construction companies
with high level of debts and low cash reserves may
face a liquidity crisis. As smaller businesses, sub
contractors may fail rapidly. Contract management
will come into sharp focus, as customers seek to
terminate or renegotiate contracts. There would be
an additional interest cost on the working capital
loans taken, which will be borne by the contractors
depending upon the risk sharing mechanism.