“Unprecedented decline”: Indian construction “to shrink by 7.5% in 2020”

India’s construction industry is predicted to shrink by 7.5% in 2020 owing to a continuing sector decline and Covid-19 restrictions, according to economic analyst GlobalData.

Construction in the country had previously been weakening thanks to a slowing residential market linked to rising unemployment, a liquidity crunch in the non-bank financial sector, and a lack of new residential projects in major cities.

Now a push to boost the sector with a national infrastructure programme has been disrupted by the coronavirus pandemic.

The country’s financial, real estate and professional services markets have shrunk by 2.4% in the first quarter of 2020, the analyst said.

India’s economy is due to shrink by 3.2% in financial year (FY) 2021 according to the World Bank.

The country’s debt to GDP ratio will rise to 70% in FY 2020 to more than 80%, as per market consensus. GlobalData believes this will restrict the government’s ability to invest heavily in infrastructure.

Speaking for the company, Dhananjay Sharma said: "The industry is expected to show 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 20th April 2020.

"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."

Image: Construction in Goa, India (Ryhor Bruyeu/Dreamstime)

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