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GlobalData: India’s construction industry to contract by 7.5% in 2020

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World Cement,

The outlook for India’s construction industry has worsened, with the industry now expected to contract by 7.5% in 2020, as the weakness carried over from 2019 has been compounded by the long COVID-19 lockdown, says GlobalData, a leading data and analytics company.

Prior to the COVID-19 outbreak, the Indian construction industry had been showing signs of weakness, with the residential market struggling due to rising unemployment, liquidity crunch in the non-bank financial sector and a decline in new residential projects launched across major cities.

The situation was expected to improve in 2020 due to government initiatives such as improving liquidity position and expanded infrastructure investments under the ‘National Infrastructure Programme’, but the COVID-19 outbreak and the resultant disruption in the economy has exacerbated the situation with the unemployment situation deteriorating due to the lockdown in the country. The quarterly value add data shows growth in the ‘financial, real estate & professional services’ decelerating to 2.4% in Q1 2020 – the lowest growth rate in the last decade while the construction industry value-add at 2010 constant prices declined by 2.2% in Q1 2020.

Dhananjay Sharma, Construction Analyst at GlobalData, comments: “The industry is expected to show an unprecedented decline in the second quarter as the strict lockdown to prevent the virus outbreak has largely brought construction to a halt, although construction work on some infrastructure projects was allowed from 20 April 2020.”

According to the World Bank, the Indian economy is expected to contract by 3.2% in financial year (FY) 2021. Due to the lower revenue generation and higher expenditure, the debt to GDP ratio is expected to rise from 70% in FY 2020 to more than 80% as per market consensus. This would limit the government’s ability to invest heavily in the infrastructure segment including the National Infrastructure Pipeline.

Sharma concludes: “The state governments’ revenues have been hit harder than the central government’s due to the lockdown. As such, the state governments, which account for about half of the public sector infrastructure investments, are likely to reduce budgetary allocations on new projects. The Maharashtra government has announced that it would only release 33% of the budgetary allocation on capital expenditure in FY2021. Other states are likely to follow suit, thereby affecting growth of the infrastructure segment such as roads, metro rail projects, irrigation projects and water and sewerage projects.”

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