Construction industry hits a wall

The extended lockdown to stem the Covid-19 pandemic has compounded India’s growth woes. Along with external risks such as weak global demand, supply disruptions, and global financial shocks, the economy now faces factory shutdowns, reduced discretionary spending, and delayed capex cycle.

The construction industry, which mirrors the economy, is expected to take a huge blow from all this. A CRISIL Research analysis indicates a 12-16% contraction in construction investments for the industry this fiscal to Rs 7.3 lakh crore from Rs. 8.6 lakh crore in fiscal 2020.

The estimate factors lower capex by central and state governments due to diversion of funds towards healthcare, public welfare and social obligations. This, at a time when their finances are already strained and gross budgetary support to infrastructure is expected to decline due to lower revenue receipts. Budgetary allocation to infrastructure by the central government for fiscal 2021, is lower compared with fiscal 2020.

It also factors the lockdown impacting construction activity and movement of labour in the first half of fiscal 2021.

With construction activities deferred, players in the construction sector are expected to log a 13-17% drop in revenue in fiscal 2021. What’s worse, earnings before interest, taxes, depreciation and amortisation (Ebitda) margins are estimated at 4-6% for the fiscal, down from 7-9% expected in the preceding one.