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MOSL: ECOSCOPE-The ‘Core’ of India’s Slowdown: Construction Investments

ECOSCOPE: The ‘Core’ of India’s Slowdown: Construction Investments; Painful correction or prolonged slowdown?

** Fixed investments in the construction sector (residential and non-residential) in India amounted to 15.3% of GDP in FY19, lower than the peak of 19.7% in FY12. Residential investments have fallen faster from ~13% of GDP in FY12 to 7.8% in FY19.

** During the past decade (2010s), the fall in India's construction investments was one of the worst among the world's major economies and, as such, is one of the reasons for the economic weakness in the country today. A comparison of India vis-à-vis the world's other major economies suggests that the former's dependence on construction investments is much higher. At over 15% of GDP, investments in the construction sector in India are more than double of that in the US and Thailand.

** Further, notwithstanding the sharp fall in India's residential investments in the past decade, the share of residential investments in India's GDP is still the highest compared to other major economies and almost four times the size in other emerging economies such as South Africa and Thailand.

** Details also confirm that, unlike in India, residential construction investments have grown faster than non-residential construction investments in most other major economies. In fact, India and Singapore are the only two nations in our sample of 17 countries (and Euro Area, EA) where residential investments have declined significantly over the past five years.