Government Spending Cuts Affected Construction sector

Mumbai: The continuing economic recession appears to be attacking the construction sector. In the recent months, construction equipment manufacturers have reduced their production; the awarding of road contracts has also stopped as the government reduces capital expenditure to meet the Financial Year 19 deficit target.

The central government disbursed only Rs 2.73 lakh crore out of the estimated Rs 3.15 lakh crore capital expenditure earmarked for the year ending in March, data for the first 11 months reveals. According to the Controller General of Accounts (CGA), the capital expenditure of the government during the first 11 months of the previous fiscal plunged by 8%, affecting to some extent the potential order book and production of key companies across sectors.

One of the major sectors to witness the negative impact of the reduced capital expenditure by the government is road infrastructure. The project assigning activities of National Highways Authority of India (NHAI) has declined. Where the award target for FY19 is 7,500 km, the NHAI has awarded only 2,222 km as of now.

Dominating construction equipment companies, such as Tata Hitachi and JCB, which are mainly into the manufacturing of excavators, backhoe loaders, crane and forklifts, have reduced production by 15-60% for the coming months.

“In January-April, the market is already down by about 10%. The offtake is expected to remain weak in the coming few months before the new government takes charge. Traditionally, July and August are slower months due to monsoon. We expect the real offtake post September. It is not that the orders are not there, there is a lot of work, it is the availability of funds that is slowing down projects.,” said Sandeep Singh, MD at Tata Hitachi.