Inflation has reached the root, the cost of the project may increase

A sharp rise in steel and cement prices, along with rising wages, will likely increase the cost of key government-funded infrastructure projects in the highways, railways and low-cost housing sectors.

Officials from the Ministry of Housing and Urban Affairs and the Ministry of Road Transport and Highways said the contractors had approached the concerned ministry to reconsider the cost, citing the price hike.

Experts say the cost of the new deal could rise by about 15-20%

“Inflation has a big impact on government infrastructure projects. I see input costs rising by 15-20%. For fixed price contracts, contractors are paying out of their own pockets,” said Binayak Chatterjee, chairman, National Infrastructure Committee, CII.

Inflation has reached the root, the cost of the project may increase

Although there is a built-in mechanism in government contracts to correct costs up to 10%, experts say that working under normal circumstances is less likely to help at the present time. Retail inflation peaked at an eight-year high of 7.79% in April, with the Reserve Bank raising its growth rate by an astounding 4.40% to 40 bps in early May.

The Ukraine-Russia dispute has increased input costs by 25-30% on their profit margins.

An official quoted above admitted that the contractors had requested a cost correction, but there was still nothing on the card.

A senior official of the National Highway Authority of India (NHAI) said, “No post agreement has been negotiated. The concessions are being requested for this. It is not possible unless the government comes up with a policy for this.”

Similar concerns were raised by realty developers working on housing project contracts under the PMAY scheme. While they are struggling to keep up with the price, if the center does not consider increasing the input cost, it could affect the quality of construction.

“Realtors are reluctant to take a deal. Low-cost housing projects have very thin margins that are now under intense pressure. In addition to cement and steel, rising labor costs are hitting really hard. Somewhere we must cut corners. The ministry has flagged our concerns,” multiple PMAY Says a realtor working on the project.

The rise in prices has also affected the railways. According to an order from the Railway Board, the listed price of a steel channel (200×75 mm) ex-plant increased from ₹ 53,000 per metric ton (MT) in September 2021 to ₹ 69,000 per MT in April 2022. A wide range of cost-gauge coaching excel that is made

Its Durgapur Steel Plant (DSP) has been revised from ₹ 62,887 for FY 2021-22 to ₹ 72,338 per piece in 2022-23.

Pain points

“There is no other way but to cite higher costs considering the increase in input costs for new projects,” Chatterjee added.

A senior Housing Ministry official added that while there is no cost correction in the cards for existing projects, they expect future contracts to be costly.

According to the Confederation of Real Estate Developers Association of India (CREDAI), a top body of private real estate developers in India, the price of cement was ₹ 325 per bag at the end of December, which has gone up to ₹ 400 since then and is expected due to high coal prices. Increased further. Steel and cement account for approximately 30% of production costs in real-estate projects.

Cost from Thermo Mechanical Treatment (TMT) bar

Ltd. (SAIL) was sold at 0 2,091 per piece in May 2021 and rose to ₹ 2,821 in April and settled at ₹ 2,692 per piece in May. It is primarily used by the realty sector.

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