According to KPMG’s Global Construction Survey 2023 India Edition, the Indian construction market exhibits a positive outlook, with 84 per cent of respondents feeling either very or somewhat optimistic, compared to 66 per cent for the global market. CW presents the gist of the survey and analyses key trends. The Indian construction industry is at a major inflection with large demand-side forces created through multiple government incentives for new infrastructure creation, manufacturing capacity addition and ambitious private-sector growth plans involving fresh capital expenditure programmes and projects. Against this backdrop, the KPMG Global Construction Survey 2023 - India Edition was launched recently. Built on the back of the KPMG Global Construction Survey 2023 spanning 267 construction industry leaders, the India Edition extracts the views and insights of 119 India-based primary survey respondents fulfilling leadership roles in project owner firms and engineering and construction (E&C) firms, from both the public and private sectors. The survey covers important topics relating to industry growth opportunities and sentiment, performance and resilience, risk management, ESG (environmental, social and corporate governance), workforce safety, wellbeing and motivation, digital technologies and innovations, including modular and offsite construction methods. The infusion of an enhanced ESG-aware agenda, digital and technological innovations and a renewed desire to complete projects on time and at cost despite perennial project performance challenges, driven by the significant optimism demonstrated by the survey respondents, are cumulatively scripting a new construction landscape for India. The survey had three broad themes: Creating profitable growth Rising influence of ESG Accelerating digital and technological innovations Survey at a glance (insights from India respondents) Creating profitable growth 84% of respondents are optimistic about the direction of the construction market 80% feel infrastructure stimuli will have a significant to moderate positive impact on the industry 35% feel planned revenue growth/capital expenditure will exceed 20% over the next 12 months 39% have confirmed at least 20 per cent time/cost overruns on their projects 72% confirmed the most important response to current challenges is enhancing the rigour of planning activities to increase confidence around project scope, schedule, quantities 52% feel clearly defined and standardised project risk management processes and controls are important. Rising influence of ESG60% of respondents envision the benefits of ESG and are aggressively pursuing its maturity and improvement 41% identify embedded ESG principles with reputational improvements 90% favour decarbonisation practices such as energy-efficiency, construction waste reduction, more efficient use of sustainable and local materials and use of renewable energy 86% consider development of improved and innovative training programmes as important to attract next-generation workforce 62% feel change in behaviour, leadership and culture will drive improved safety over the next five years Accelerating digital and technological innovations88% of respondents rate integrated project management information systems (PMIS), prefabricated technologies and data analytics as highly important 84% rate building information modelling (BIM) as an important differentiating technology 50% saw at least 10 per cent reduced time/cost or avoided overruns by adopting BIM and modular/offsite manufacturing 44% have adopted integrated PMIS and basic data analytics on all their projects 27% have adopted BIM on all their projects 37% use modular and offsite manufacturing on at least 20% of their projects Creating profitable growth India’s construction market has witnessed a significant surge fuelled by the post-pandemic recovery and extensive infrastructure development initiatives undertaken by the Government. The National Infrastructure Pipeline (NIP), with a projected infrastructure investment of $ 1.4 trillion covering approximately 9,000 infrastructure projects, and the National Monetisation Pipeline (NMP), with a potential of $ 70 billion of asset creation through monetisation during FY20-25, have provided the much-needed impetus for stepping up infrastructure investment. The Make in India and Atmanirbhar Bharat programmes and the Production-Linked Incentive (PLI) scheme aim to invigorate new capital investments in industrial and manufacturing sectors in the country. More recently, a $ 2.5 billion National Bank of Financing Infrastructure and Development (NaBFID) has been created by the Government of India to fund infrastructure projects. The construction sector already contributes a significant 8 per cent to the nation’s GDP. The size of this construction market is expected to grow rapidly given this demand at a compounded annual growth rate (CAGR) of 17.26 per cent during the 2022-27 forecast period. KPMG’s Global Construction Survey 2023 India Edition finds this sentiment quantified with a significant proportion of the respondents optimistic about the direction of the construction market. Overall, the Indian construction market exhibits a positive outlook, with 84 per cent of respondents feeling either very optimistic or somewhat optimistic, compared to 66 per cent for the global market response. Approximately 92 per cent of Indian project owner organisations express very optimistic or somewhat optimistic views, compared to 76 per cent of their global peers. On the other hand, about two-third of E&C firms in India are optimistic about the direction of the future Indian construction market, compared to half in the global scenario. E&C firms while benefiting from the market stimulus are more cautious when compared to their owner counterparts. Despite being one of the fastest-growing sectors that contributes significantly (the second largest economic activity after agriculture) to the country's economic growth, the Indian construction sector continues to face a number of challenges, namely supply chain disruptions, escalating energy costs, materials and labour costs, and shortage of skilled workers. However, there is also a sense of anticipation and enthusiasm regarding potential government funding, investments, and incentives for significant infrastructure projects that is reflected by the response where more than 41 per cent of the survey participants feel this funding will have a significant impact and a further 39 per cent expect a moderate impact. The optimistic and buoyant mood further reflects on the planned revenue growth wherein almost seven of 10 respondents (both project owner and E&C firms) expect revenue growth to be at least greater than 10 per cent, with just 5 per cent of E&C firms and 6 per cent of project owner firms predicting zero or negative growth. As expected, E&C firms remain more cautious than project owners, given attendant project execution challenges and with limited visibility into owners’ robust capital plans and expenditure outlays. To be effective, availability of real-time project data is important, the interpretation of which can be the key difference between success and failure. This makes adoption of technology a highly responded attribute to explore new and innovative approaches as the organisation's preferred response/action (more than 80 per cent) towards such disruptive events. ESG becomes a real agenda Looking back to the KPMG Global Construction Survey from 15 years ago, the top drivers for sustainability were to seek a position as innovative or environmentally aware cited by 56 per cent of respondents and to increase business opportunities and competitiveness (29 per cent). Compared to this, in the 2023 survey, there is a clear uptick in maturity and strong commitment from the respondents. Nearly 54 per cent of collective global and Indian respondents fully envision the benefits of ESG and are aggressively pursuing maturity and improvement. Indian respondents rated this option slightly higher at 60 per cent, with owner firms leading at 64 per cent and E&C firms trailing at 45 per cent. ESG has now become an accepted part of leaders’ thinking and boardroom conversations and has entered capital project implementation plans. By analysing the feedback provided by industry leaders in India, it is evident that a majority are actively seeking ways to embrace and harness the value of ESG in their operations. Many respondents believe that focusing on ESG will not only improve their access to capital for funding projects but help establish the significance of possessing robust sustainability credentials to meet investor expectations. Fascinatingly, project owner firms and E&C firms differ in their views over the most crucial ESG trends. About 47 per cent of the former feel that development of renewable energy facilities is most important, while 45 per cent of E&C firms are more concerned with social considerations, such as use of sustainable construction codes and specifications. This discrepancy is understandable as owners are currently being measured by Scope 1 and Scope 2 emissions of their facilities, whereas service providers gain market advantage by adhering to requirements and standards. As increasing Scope 3 regulations come into effect globally, owners are likely to ask their contractors to disclose embodied as well as operational carbon, which in turn will direct the industry’s focus to total lifetime GHG emissions. Therefore, by integrating ESG into their business strategies and investments, engineering and construction firms and project owners can aim to drive value and ensure long-term business resilience. This approach brings various benefits, improving operational efficiencies, increasing return on investment, building stronger trust with stakeholders, and even attracting discerning top talent.Figure 1: Which of the following ESG trends are the most important for the success of your organisation? Decarbonisation is becoming a central part of construction projects. According to the 2023 survey findings for India, more than 90 per cent of respondents are in favour of implementing practices such as ensuring energy-efficiency, efficient use of sustainable and local materials, use of renewable energy and reduction of construction waste. Eight of every 10 respondents believe in construction production processes, lifecycle assessments, embodied carbon reduction, and use of low-emission construction machinery as important decarbonisation practices. The construction sector has made impressive advances in worker safety in the past decades and the responses to the KPMG global survey suggest that companies continue to prioritise this vital area. For both project owner and E&C firms, the single most crucial factor is the tried-and-trusted behavioural, leadership and cultural change, to create a climate with zero-tolerance towards accidents. Respondents – especially owners – are keen to increase safety monitoring and onsite health and wellness testing of workers to reduce the risk of incidents. The 2023 survey sees a strong commitment from respondents towards new technology and methods to improve worker safety, with 64 per cent wanting to focus on increase in safety monitoring and onsite wellness of workmen and nearly 63 per cent of project owners feeling change in behaviour, leadership and culture as the top advancements. Nearly 55 per cent of E&C firms view implementing modular and offsite fabrication as an advantage, for driving safety.Figure 2: What are the top advancements that will positively impact worker safety on your projects over the next 5 years? As one would expect, safety is a crucial pillar of ESG-led performance and continues to be part of all ESG rating assessments. Accelerating digital and technological innovations Digital and technological innovations are crucial transformational participants in the new construction landscape. The KPMG 2017 Global Construction Survey took a deep dive into technology and found an industry embracing building information modelling (BIM), analytics and project management information systems (PMIS), drones, smart sensors, and a few bold innovators exploring 3D printing, machine learning (ML), virtual reality (VR) and robotic process automation (RPA). Fast forward to this year's survey, over 70 per cent of Indian respondents rated integrated PMIS, data analytics, BIM, equipment tracking and fleet management, prefabrication solutions and modular builders as more important. Of this, respondents from E&C firms assigned relatively higher importance to technology solutions such as data analytics, mobile platforms, BIM, drones, modular builders and smart sensors. Figure 3: Please rate the importance of each of the following technology solutions in capital projects E&C firms have significantly higher adoption of technologies such as mobile platforms and BIM compared to owner firms. Conversely, owner firms have significantly higher adoption of visualisation technologies such as virtual and augmented reality (VR and AR) and digital twins. The utilisation of artificial intelligence (AI), encompassing digital twins, intelligent construction equipment, data and document management, and improved safety and communication, has experienced substantial growth globally. The adoption rate has risen to 40 per cent in 2023, a notable increase from 29 per cent in 2021. A similar trend can be observed in the Indian market, with 37 per cent of respondents indicating that they are either currently adopting or have recently started to adopt AI. The industry’s mixed record of going over budget and over schedule is something everyone involved in construction has been striving to overcome for decades. So, it is noteworthy to hear how the various new technologies are contributing to cost and schedule performance improvement or avoiding overruns. Approximately half of our respondents adopting BIM, modular/offsite manufacturing and digital twins saw a significant performance improvement of 10 per cent or more through reduced timelines, costs and overruns. Additionally, the responses demonstrate a positive industry attitude to adopting AI, integrated PMIS, advanced data analytics, and drones. Modular construction’s moment has arrived Modular and offsite manufacturing offers multiple benefits by shifting construction processes from the site to the factory floor or even a factory-like environment, positively impacting safety, supply chain and labour management, delivery timelines, costs and risk management, as well as better control of the carbon footprint. The sentiment towards modular offsite manufacturing is tremendously positive, with 96 per cent of respondents expressing a strong desire to leverage its benefits in their projects. Approximately one-third of both owner firms and E&C firms intend to leverage modular and offsite manufacturing in over 50 per cent of their projects in the next five years. Additionally, with more firms adopting digital technologies, the wider ecosystem and industry will gain collectively. Accelerated adoption will result in the industry transforming itself from being project-based and fragmented to becoming more consolidated, integrated, predictable and standardised. Article courtesy KPMG Assurance and Consulting Services LLP (Note: This article is based on the presentation of Suneel Vor, Partner, Business Consulting and Transformation - Major Projects Advisory and Industry 4.0, KPMG in India, at the Construction Technology Summit 2023 in New Delhi)