Construction activity still a concern amid strong Q2 GDP growth

The GDP growth data released on Monday reveals that in the quarter ended September 2015, the growth in construction sector slowed to 2.6 per cent, down from 8.7 per cent in Q2 FY15.

By: ENS Economic Bureau | New Delhi | Published: December 2, 2015 1:31 am

While the economy grew at 7.4 per cent in the second quarter ended September 2015 on the back of strong growth in the manufacturing sector, the construction sector has not shown any indication of a take-off.

The GDP growth data released on Monday reveals that in the quarter ended September 2015, the growth in construction sector slowed to 2.6 per cent, down from 8.7 per cent in Q2 FY15. In the six-month period between April and September 2015, the growth in the sector slowed to 4.7 per cent, down from 7.6 per cent in the corresponding year-ago period.

“Key indicators of the construction sector, namely, production of cement and consumption of finished steel registered growth rates of 1.6 per cent and 1.2 per cent, respectively during Q2 of 2015-16,” said the statement issued by the government.

This is a clear indication of a slowdown in infrastructure activity across the country. While there has been a pick-up in activity in the road sector and the railways, it is not being reflected on the ground at present.

A report released by Standard Chartered Bank says: “This suggests that while public investment has probably led to increased investment activity, slower real-estate construction activity has kept the overall pace of construction on a weak footing.” The report, however, points to the fact that continued government investment in H2FY16 may support overall industrial activity.

While real estate sector accounts for a large part of the construction activity, even the festive season failed to cheer the sector and it continues to suffer from weak demand and high unsold inventory. Industrial construction too has not picked up and construction majors like Larsen & Toubro and BHEL have not witnessed growth in their order books.

For the quarter ended September 2015, L&T announced a 28 per cent drop in its year-on-year growth in order inflows and it stood at Rs 28,620 crore. The company also reduced its FY16 order inflow growth forecast from 15 per cent to 5-7 per cent. Infrastructure sector accounts for almost 60 per cent of the order flows for the company and a drop in order flows for the construction major is reflective of a slowdown in infrastructure activity.

The mining and quarrying sector, however, witnessed some revival in activity during the quarter. The data released by the Central Statistics Office shows that the mining and quarrying sector grew by 3.2 per cent as compared with a growth of 1.4 per cent in Q2FY15. But the growth of the sector continues to remain low.

While construction and mining and quarrying had a 10.5 per cent share in the GDP in the first half of FY16, a pick up in the infrastructure and construction activity will only take the GDP growth higher.

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