GDP growth on track but worries remain
Economy grows 7.4% in second quarter, slowdown in construction and external factors could play spoilsport
India’s gross domestic product (GDP) growth has accelerated to 7.4% during the July-September period from 7% in the previous quarter, but muted construction activity can potentially come in the way of a sustained revival.
The construction sector grew by a modest 2.6% in the second quarter from 6.9% in the previous quarter and 8.7% in the year-ago period.
Mounting bad loans, which have topped `3 lakh crore, have made banks reluctant to lend to projects that are prone to delays. India would require about $1 trillion (`66 lakh crore) — half the value of the national GDP— over the next five years to overhaul its collapsing infrastructure.
As of January 1, more than four out of 10 central infrastructure projects worth more than `100 crore, were running behind schedule. As of January 1, of 738 such projects, as many as 315 were facing delays ranging from a few months to 21 years.
The current government aims to build 30 km of highways every day, thrice more than the previous UPA government’s target, which it had failed to achieve.
The road and other infrastructure projects can spur economic activity, boost construction and create jobs.
According to credit research firm Crisil, the construction sector is the most labour-dependent among all non-agricultural sectors, requiring more than 12 people to produce `10 lakh worth of real output.
Prime Minister Narendra Modi had recently reviewed the progress of India’s highway projects.
In 2015-16, till October 31, nearly 2,900 kms of new highways has been built, translating into a
construction speed of about 16 km a day. The government has set a target to build 6,300 kms of new highways in 2015-16, 45% higher than last year’s 4,340 kms and 50% more than 4,225 kms built by the UPA government in 2013-14.
A separate set of data also showed that the revival in India’s eight “core” infrastructure sectors were wobbly. These sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — grew to 3.2 % in October from 9% in the same month of the previous year. Together, these sectors account for nearly 38% of India’s total industrial output. The cumulative growth in April-October of 2015-16 also stood at 2.5%, much lower than 5.6% in the first seven months of the last fiscal. Data released by the commerce and industry ministry showed that crude oil, natural gas, refinery products and steel recorded negative growth in October.
“While the headline core sector growth was unchanged at 3.2%, upon disaggregation, the core industries displayed a mixed trend. Four of the eight industries recorded a disappointing contraction in October 2015,” said Aditi Nayar, senior economist at ICRA Ltd, a credit rating and research firm.
“We expect industrial growth to improve further as measures taken by the government to improve ease of doing business, attract foreign direct investment and reduce bureaucratic red tape all provide support to industrial activity,” Crisil said.