Thursday, June 07, 2012: 12:38:58 PM

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Real estate sector responsible for sluggish economy

The construction sector of India, which contributes hugely to the country’s GDP growth, showed slowdown during FY12

The sluggish economic growth witnessed by the country presently has hit the construction sector as well. According to the official figures released recently, the country’s economic growth stood at 6.5% in 2011-12, which is the slowest growth in 9 years.

 
Economists believe that the poor performance of the construction sector, along with various other industries have been largely responsible for this slowdown in growth. However, prior to blaming any particular industry, it is important to analyse the basic reasons behind the slowdown.
 
The real estate and construction sector of India, which contributes hugely to the country’s GDP growth, showed slowdown in growth by 4.8% after it rose to 6.6% during the third quarter of FY12. The figures for the first and second quarter last fiscal were 3.5% and 6.3%, respectively.
 
Problems like interest rate hike and land acquisition have created major roadblocks for the sector. The Reserve Bank of India has maintained a strong fiscal policy, not allowing any major rate cut over quite a significant period of time. Instead, it has gone on to hike the repo and reserve repo rates in order to curb the rising inflation. In the process, even though it has managed to gain control over the much discussed inflation to some extent, the rate hikes have forced a slowdown in industry growth.
 
According a recent study report by eminent real estate consulting firm Jones Lang LaSalle, “India’s economic growth is expected to ease to just below 7%, a result of weakening exports and investment spending, while the country’s lack of progress on structural reforms remains a persistent downside. Despite RBI initiating cuts in term rates to improve liquidity, the ongoing ‘policy paralysis’, if continued, will slow monetary easing, possibly stalling any recovery. High oil prices also remain a dampener for dynamic but oil-intense economies such as China and India most vulnerable. However, most emerging markets continue to perform above average, particularly those with strong domestic corporations (like China) and/or IT-BPO functions (such as India and the Philippines). Technology occupiers continue to expand in India, albeit at a slower pace. While large IT-ITES corporations are cautious in expanding their offshore centres in India, some traction has been seen from level II IT-ITeS firms.”
 
The positive side of things
 
The current scenario is however expected to improve soon. Real estate developers across the country feel that persistency will be the key to survival. Relations at any point of time, lull or high, are important to be maintained. According to Ankush Aggarwal, CEO of Ansa Interiors, a Delhi based interior design company, “Building a long-term and mutual understanding is important for both real estate developers and property dealers.”
 
 
Most real estate industry players are now adopting a wait-and-watch policy as they expect the government to initiate reform initiatives in order to revitalise growth. Finance minister Pranab Mukherjee has already assured that the government would be taking all necessary steps in order to address the imbalances in the fiscal front. It remains to be seen how quickly the real estate sector can overcome its present challenges.
 
Sambuddha Sengupta

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