Home >Market >Mark-to-market >The implications of the slowdown in construction

Fitch Ratings has downgraded the outlook for the construction sector to negative for 2013 because of a host of reasons: stretched working capital cycles, difficulties in tying up equity for projects, delays in obtaining environment and other clearances and problems plaguing land acquisition. The upshot has been deterioration in balance sheets and in interest cover ratios.

These factors are well-known and have been highlighted by analysts for quite some time. What’s interesting is that the Reserve Bank of India data on sectoral deployment of credit show lending to the construction sector has contracted during the current fiscal year.

The numbers are available till the end of November. On 30th of that month, bank credit outstanding to the construction sector was 56,100 crore, lower than the outstanding of 56,700 crore as on 23 March. Compared with a year ago, growth in bank credit to construction is 7%, far below the growth of 20.5% in November 2011.

The slowdown in growth in the construction sector will have serious implications for employment. It’s well-known that, with no jobs in manufacturing, most of the growth in employment between 2004-05 and 2009-10 happened in the construction sector. With growth in construction at a standstill, as seen from the bank credit numbers, finding jobs for the masses is likely to become even more difficult.

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