How to survive recession in the construction industry in India

To survive a recession in the construction industry in India, companies mustfocus on financial discipline, diversify their services, strengthen relationships with clients and suppliers, and leverage technology for greater efficiency. The strategies for smaller firms may differ slightly from larger ones but centre on adaptability and resilience.

Strategic financial management

• Maintain strong cash flow: Focus intently on cash flow management, as a liquidity crunch is a common effect of a recession. Build cash reserves to cover operating costs for several months, and be proactive about collecting payments.

• Monitor and cut costs: Carefully review and reduce all unnecessary overhead and operational costs. Prioritize essential spending and seek to renegotiate contracts with suppliers and vendors for more favourable terms.

• Evaluate project viability: Conduct disciplined forecasting and cash flow analysis on all projects to determine their stability. Be prepared to halt or abandon projects that become financially unviable.

• Secure financing: Smaller firms should explore government assistance schemes like the Emergency Credit Line Guarantee Scheme (ECLGS) or other collateral-free loans to secure additional financing if needed.

Business and project diversification

• Focus on resilient sectors: Diversify your project portfolio by pursuing opportunities in recession-resilient sectors, such as public infrastructure projects (roads, bridges, dams), affordable housing, and essential services like healthcare and utilities.

• Expand service offerings: Adapt your business model by expanding beyond traditional construction. Offer maintenance, repair, and renovation services, which often have consistent demand during downturns.

• Explore new markets: Consider entering new geographic markets, including international ones, to reduce reliance on the struggling domestic market.

• Target ancillary projects: Proactively seek smaller, ancillary assignments with existing clients by identifying and presenting solutions to their issues.

Operational efficiency and innovation

• Implement lean construction practices: Adopt lean management techniques to reduce waste and optimize efficiency. Leverage digital tools and construction management software to automate processes, improve project tracking, and make data-driven decisions.

• Go digital: Automate manual tasks like accounting, estimation, and scheduling. Digital transformation not only improves efficiency but also provides better analytics to understand the impact of the recession on your business.

• Manage the supply chain: Diversify your suppliers to mitigate risks associated with disruptions. With the help of technology, implement just-in-time inventory to reduce holding costs and manage material expenses more effectively.

Building and leveraging relationships

• Prioritize existing clients: Retaining existing customers is far more cost-effective than acquiring new ones during a recession. Focus on providing exceptional service and value to foster loyalty. Stay in regular contact to address their concerns.

• Collaborate with partners: Strengthen relationships with key suppliers and other contractors. Negotiating flexible contract terms and payment schedules can stabilize operations for everyone involved.

• Retain key talent: Avoid large-scale layoffs if possible, as losing skilled labour can severely impact your ability to compete when the market recovers. Retain your best employees through competitive compensation or training, recognizing that rehiring and training new staff is more expensive.

Government support and market awareness

• Stay informed on government initiatives: Keep track of government policies and initiatives aimed at stimulating the economy, particularly those related to infrastructure spending and affordable housing. In the past, policy liberalization and tax incentives have helped revive the Indian construction sector during downturns.

• Assess market trends: Regularly conduct market research to identify emerging trends and shifts in demand. Adjust your offerings to align with new market needs, such as a greater interest in affordable housing or energy-efficient solutions.