Wider context

Amidst subdued global growth, India stands out with projections of an average annual growth rate of 8.3% from FY2022 to FY2024, driven by strong domestic demand and robust government reforms.

Recent reports from the World Economic Outlook forecasted India's growth as 7.0% for FY2025, buoyed by increased private consumption, particularly in rural areas. Deloitte echoes this optimism, projecting GDP growth between 7.0–7.2% for FY2025 and 6.7–7.3% for FY2026.

High-frequency indicators, such as stronger exports in services and high-value manufacturing, rising steel consumption and significant manufacturing growth, underscore a positive investment climate. Improving world trade prospects will support external demand, although challenges from geoeconomic fragmentation and commodity price volatility persist.

The newly elected government, now in its third consecutive term, has signalled a focus on policy continuity over introducing new objectives. In its first Union Budget following the elections, the government emphasised improving agriculture productivity and income, job creation, manufacturing enhancement and improved access to finance for micro, small, and medium enterprises (MSMEs).

These initiatives are aimed at stimulating consumer spending, especially in rural areas and among the middle class, facilitating a reduction in the urban-rural spending gap and resulting in an overall sustained growth in private consumption spending from a larger consumer base.

Notwithstanding sticky services prices, inflation is grudgingly receding across major economies, including India. The annual inflation rate in India increased to 3.65% in August 2024 from 3.6% in July, which was the lowest since August 2019. Despite this slight rise, it stays below the Reserve Bank of India’s (RBI) target of 4%. At 5.66%, the food basket contributed to the majority of the inflation rate, while fuel and light components didn’t fully negate its effect. Housing inflation loosely remained unchanged in the last two quarters.

Across the globe, there is diverging monetary policy. Several central banks are cautiously moving towards rate cuts; at the same time, there has been tightening by a few central banks. In its recent resolution, the Indian Monetary Policy Committee (MPC) has reiterated the need to continue with the disinflationary stance until a durable alignment of the headline CPI inflation with the target is achieved.

The construction gross value added (GVA) in India witnessed a year-on-year growth of 9.9% in FY2024. Although H1 showed muted activity due to elections and seasonal rains, a significant ramp-up in construction is anticipated in H2 FY2025. ICRA, in its August release, expects the construction GVA to grow by 7.0–-7.5% in FY2025, which, though lower than the previous year, is higher than the long-term compound annual growth rate (CAGR) of 6.0% witnessed during the last decade.

The construction industry continues to face challenges, with 82% of our survey respondents indicating issues with the shortage of skilled labour. Just over half (54%) said cost inflation poses problems as it affects project viability and delivery. Around a third of respondents reported challenges with the supply chain and regulatory processes.

Two-thirds of respondents said their organisation is investing in staff training and development and technology to overcome the issues, helping to improve productivity and make the best use of resources. Nearly half said they are strengthening supply chain relationships. The increased collaboration will help with innovation and improve project outcomes.

Expectations are that the labour market will remain tight; therefore, investing in technology and improving efficiency will help to deliver the strong pipeline of projects in India.