India Biannual Construction Market Report 3Q/4Q FY2025
Economic trends
GDP
India's economic landscape from April to September 2024 showed strong momentum, with a nominal GDP growth rate of 9.7% (8.5% previously) in the first quarter of FY2025. However, in real terms, growth during the same period was 6.7%, a decrease from 8.2% in the corresponding period last year. This decline can be attributed to the high base effect in FY2024, along with global supply chain disruptions.
The RBI has maintained the repo rate at 6.50%, balancing inflation control and growth support. Principle catalysts of this growth include a strong monsoon season, sustained momentum in manufacturing and services sector output, a revival in private consumption and investment activities after the election-linked hiatus.
The government’s effective CAPEX for FY2025 is estimated to be 3.4% of GDP, against the interim budget estimate of 4.5% towards physical infrastructure. In addition to this, ₹1 lakh crore outlay for the technology environment is also extended, which is aimed at spurring private sector-driven research and innovation.
These initiatives are expected to drive economic growth and maintain resilience in H2 FY2025 despite any surprise shocks from geopolitical tensions or rising commodity prices.
Source: Media reports
The RBI’s Survey of Professional Forecasters (SPF) is still optimistic about hitting India’s real GDP growth rate of 7.2% despite the slowdown from projections in 1Q FY2025. Other reporting organisations like the IMF and World Bank have increased their predictions from the April 2024 issue to 7.0%. Monetary bodies like the UBS Securities, Fitch Ratings, S&P Global and SBI have retained their previous forecasts.
Employment
Unemployment is a critical issue that continues to challenge India's economic landscape. According to the latest data from the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India stood at 9.2% in June 2024 — an eight-month high and up from 7.0% in May 2024. This spike can be seen in both urban and rural populations, albeit the latter being of greater extent.
The unemployment rate slightly receded as we entered 2Q FY2025, it is expected to hover around 7.5% due to the upcoming festival seasons and could further reduce to 6.9% when we begin 4Q FY2025.
The RBI surveys also paint a sobering picture of urban consumers’ perceptions of employment conditions and manufacturers’ hiring sentiments, both of which have dipped in recent rounds.
Whilst the labour participation rate (LPR) and worker population rate (WPR) have been increasing gradually on a year-on-year basis, favouring 6.1% growth in construction labour during FY2022–23, the labour quality growth rate plummeted to -0.7% from 0.6% in the same period indicating a stark presence of skill gap and resultant reduced labour productivity growth of 2.9% against 13.4% in FY 2021–22.
The government — as outlined in the union budget 2024 — and major construction firms are actively addressing these skill gaps by combining educational reforms, vocational training and industry partnerships.
Companies are showing increased interest in leveraging technology, especially in workflow automation processes, data capture and associated analytics, to cope with the shortages.
When asked about the organisation's effort in adoption, 43% of respondents replied that their organisations spend between 1–5% of their annual turnover on this cause, with 22% saying spend is between 6–12%. In comparison, 35% of the respondents are unaware of such efforts.
These numbers are promising, indicating a future where technology can help create a more skilled and efficient workforce and industry capable of meeting the growing demands and pipeline.
Global inflation
Source: Trading Economics
Inflation in emerging markets/developing economies is expected to remain elevated compared to advanced economies, although it is gradually decreasing, aided by falling energy prices.
In India, retail inflation dropped to 4.83% in April 2024, the lowest in 11 months, following a slight decline from 4.85% in March. This reduction was primarily driven by core inflation, which hit a 3.2% low, the lowest since January 2014.
By July 2024, retail inflation further decreased to 3.5%, mainly due to a moderation in food prices as the southwest monsoon progressed steadily. However, inflationary pressures remain, particularly in services, as noted in the RBI’s August MPC report.
Source: MOSPI
For FY2025, the RBI has adjusted its projections for consumer price index (CPI) inflation to 4.5%. Inflation is expected to rise in 3Q FY2025 as base effects wear off. Crude oil price volatility driven by geopolitical tensions, demand fluctuations and revisions in mobile tariff rates will likely push the core inflation higher. Additionally, manufacturing, services and infrastructure firms surveyed by the RBI also expect an uptick in selling prices in the second half of this year, with CPI forecasts for 3Q and 4Q at 4.7% and 4.3% respectively.
India’s wholesale prices increased by 1.31% year-on-year in August 2024, easing from a 2.04% gain in July, below forecasts of a 1.80% rise. It marked the tenth consecutive period of wholesale inflation but the softest pace since April, with manufacturing and food prices rising the least in three and ten months, respectively, while fuel prices fell for the first time in five months.
Client A – Gleeds provided cost management services for refurbishment and interior fit-out of offices spaces in Bangalore & Chennai
Construction inflation rate
During H1 FY2025, construction inflation in India exhibited a mixed trend, marked by a significant moderation compared to the previous year. The industry witnessed only single-digit growth in material costs, driven by better supply chain conditions and falling transportation costs. The reduction in global energy prices also supported the reduction.
While favourable base effects have aided the moderation of construction inflation thus far, they are expected to diminish in the upcoming quarters, leading to a slight uptick in inflation. Gleeds projects that 3Q will witness a construction inflation of about 2.5% to 3.5% (year-on-year). In comparison, 4Q will witness a yearly inflation of 4.0 to 4.5%, given growing demand and effective management of supply-side inflation.
When asked about their expectations of construction inflation forecast for a 100 CR project for FY2025, 41% of survey respondents resonated with the wider sentiment of the 3% to 5% bracket, while 30% feel that inflation may be as low as 2% to 3%.
Wholesale price index (WPI)
Source: Office of the Economic Advisor, MOSPI
The WPI measures prices at the production or manufacturing level, incorporating goods traded between businesses.
India's WPI returned to positive territory at the end of 2023, following a seven-month decline. The contraction began in April 2023 and reached a negative high in June of the same year. The reduction is due to a drop in global commodity prices, such as basic metals and chemical/chemical products, as well as the previous year's high base statistics during a significant part of 3Q FY2024.
Despite this transition, WPI inflation for the full fiscal year FY2024 remained low at -0.7%. While FY2025 opened with a positive figure, it was relatively higher, primarily driven by increased food items and fuel prices in April 2024. Whilst this inflation stabilised in the following months, the rates softened from the start of August 2024 (1.31%) and continued with a marginal decline in September 2024, reflecting easing prices in some key sectors.
This expansion is also visible in the pricing of manufactured goods (1.22%) with the fuel basket balancing the surge (-0.697%). With the fading of a supportive base, it is expected that WPI inflation will rise in the coming months. The recent volatility in global commodity prices, driven mainly by Brent crude and industrial metal prices, is anticipated to add to upward pressures. Still, the RBI is confident it will remain between 2.0 and 4.0% for the next fiscal year.
Exchange rates
Source: X-Rates
Despite global challenges, India’s foreign exchange reserves are comfortable and the Indian rupee (INR) has been buoyant against the US dollar in recent months, around INR 83.50/USD.
Several other currencies also showed varied performances. The Euro (EUR) experienced fluctuations, with the exchange rate ranging from a low of INR 89.46/EUR in April to a high of INR 93.08/EUR in September. Economic developments in the Eurozone, including inflation rates and monetary policy decisions by the European Central Bank, influenced this volatility.
The Japanese Yen (JPY) also saw significant movements against the INR. The exchange rate varied from INR 0.53/JPY in June to INR 0.59/JPY in September. The Yen’s performance was affected by Japan’s economic conditions, including changes in interest rates and economic growth forecasts.
Whilst these dynamics affected India’s foreign exchange reserves and export competitiveness, RBI’s interventions into the forex market and liquidity management helped stabilise the currency value.
While the risk of elevated global inflation, particularly in advanced economies, has raised the prospects of higher for even longer interest rates, the overall outlook for the INR for the rest of FY2025 suggests a period of cautious stability. However, there is a potential for moderate fluctuations, with USD/INR exchange rates expected to hover around the 84.00 mark.
Client B – Gleeds provided cost management services for new expansion of client owned facility.
Manufacturing purchasing managers’ index (PMI)
The manufacturing sector has demonstrated robust performance in the first four months of FY2025, as evidenced by the strong performance of various high-frequency indicators.
The PMI started at a high of 58.8 in April, marking the second-best improvement in operating conditions in three-and-a-half years. This momentum continued through the subsequent months, with the PMI consistently staying above the 50-mark, indicating overall expansion despite fluctuations in between. Buoyant demand conditions and a surge in production volumes drive these steady figures.
Industrial output expanded by 5.9% (year-on-year) in May 2024 and then fell to 4.8% in July 2024 as input cost inflation peaked, the highest in nearly two years, driven by a rise in coal, leather, packaging, paper, rubber and steel prices. An increase in demand conditions and a rise in input cost prices promoted manufacturers to raise output prices, which increased to an 11-year high in July 2024.
PMI services stood firm at 60.3 in July 2024 and recorded above 60 for seven consecutive months, indicating robust expansion. Other high-frequency indicators released during June–July 2024 indicate expansion of services sector activity, ongoing revival of private consumption and signs of an uptick in private investment activity. The sustained momentum in manufacturing and services suggests steady urban demand and a decreased gap between urban and rural demands.
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