Construction sector grapples with slow project rollouts, tight liquidity amid strong demand

By A Representative

, one of the country’s largest employment generators and contributors to , is facing a period of short-term turbulence despite promising long-term fundamentals. According to of , the industry continues to anchor India’s economic growth, accounting for about 9% of total gross value added and employing over 74 million people.

Yet, beneath the surface of optimism, the sector is grappling with execution bottlenecks, , and slowing project rollout — challenges that are beginning to test its resilience, said the senior expert attached with Redseer, which claims to have built its reputation as the "most reliable, un-conventional, and entrepreneurial strategy advisor."

In a detailed analysis titled : Promising Long-Term Demand, but Short-Term Turbulence is Expected", Agarwal noted that while order books remain healthy and the long-term outlook is robust, several near-term headwinds are weighing on the industry’s performance. “, , and slower rollout of government projects are testing near-term resilience,” he said, emphasizing that these issues could undermine short-term growth even as the fundamentals remain strong.

Government infrastructure spending and private capital expenditure have together created what Agarwal describes as a “” — a structural driver of long-term growth. Yet, on-ground execution has not kept pace. In , road construction under the dropped by 37%, and only 13% of the target houses under the were completed. This slowdown, compounded by delays in vendor payments from state governments and , has tightened liquidity for contractors and .

The sector’s access to credit has also lagged behind other industries, even though inflation remains under control and lending conditions have improved. Infrastructure accounts for roughly 35% of industrial credit deployment, but rising have made lenders more cautious. This has left construction firms managing large projects with constrained cash flows, increasing their exposure to financing risk.

Real estate, another key pillar of the construction ecosystem, presents a mixed picture. Residential and commercial property sales have reached record highs, buoyed by government incentives and the revival of stalled projects. Yet developers continue to face delays due to regulatory approvals, legal disputes, and delayed policy clarifications. In major metros, new housing supply fell 10% year-on-year by mid-2024 as developers struggled to price new projects competitively amid rising input costs and uncertain demand for affordable housing.

The , closely tied to the sector’s health, has also seen a slowdown. grew just 4% in FY25 compared to 26% the previous year, with financing challenges and new emission norms (CEV Stage V) adding to the pressure. While the new norms are expected to increase acquisition costs, they could eventually lower operating costs through better fuel efficiency and higher resale value.

, a reliable barometer of construction activity, remains one of the few bright spots. With still far below the global average, long-term prospects for cement remain solid. Larger players are expanding capacity and consolidating market share, indicating confidence in sustained infrastructure and housing demand through the end of the decade.

Despite the immediate strain, Agarwal believes that the sector’s long-term story remains intact. “India’s construction ecosystem remains on a growth trajectory, though sentiment for FY26 has shifted from highly optimistic to cautiously optimistic,” he said. He added that companies must now focus on strengthening financial relationships, improving operational efficiency through digitalization, and diversifying revenue streams to weather short-term volatility.

Ultimately, the path ahead for India’s construction sector lies in its ability to balance ambition with agility. With government policy support, urbanization, and rising incomes driving demand, the fundamentals are strong. But as Agarwal cautioned, managing liquidity, streamlining execution, and ensuring credit access will determine whether the industry can convert its long-term potential into sustained growth.

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