The construction sector is a key pillar of the Indian economy with linkages to over 250 sub-sectors. As the second largest economic activity in India (after agriculture), it contributes around 9.1 per cent to the overall GDP. The sector has now entered a phase of structural growth. Specifically, the government has identified infrastructure development as a priority sector to accelerate GDP growth. Consequently, the output value of the construction sector grew at a compound annual growth rate (CAGR) of 7 per cent between 2018 and 2023, as per the National Account Statistics 2024. In line with this expansion, the sector has become the seventh largest recipient of foreign direct investment (FDI). Meanwhile, logistics costs currently stand between 7.8 per cent and 8.9 per cent of GDP, remarkably close to levels seen in developed economies. On the policy side, the government is actively streamlining regulations and processes to make it easier for companies to invest in construction projects.
This momentum reflects more than an uptick, it signals sustained government capex, a revival in private sector investment and the emergence of modern construction technologies that are reshaping the sector. As India advances toward its Viksit Bharat 2047 vision, construction remains central to its growth story, creating jobs, driving industrial output, and catalysing allied sectors such as steel, cement and transportation. A recent report on the Indian construction industry published by Dun & Bradstreet highlights the sector’s current progress, evolving construction techniques, key government initiatives and the future ahead. Key highlights…
Sector overview
Even amidst geopolitical uncertainties, particularly those affecting global energy and commodity markets, India remains one of the fastest growing economies in the world. The country’s economy has exceeded expectations, registering an 8.2 per cent growth in 2023-24. High-frequency indicators such as automobile sales, e-way bills, cargo traffic and exports signal sustained growth momentum in the second quarter of 2024-25. However, the rural demand outlook is tied to monsoon, with inconsistent rainfall likely to impact the agriculture sector and inflation. The government is actively expanding grain storage capacity to mitigate these risks.
On the credit front, the Reserve Bank of India (RBI) has kept the policy rate unchanged. Despite stable policy rates, lending rates may rise due to the incomplete transmission of earlier hikes, while strong credit growth in the private sector suggests potential capacity expansion. Supply-side challenges persist, particularly in food storage infrastructure. The recent long-term agreement for operating Iran’s Chabahar Port is also set to enhance trade and supply chain resilience. Further, India’s recent agreements, particularly with the European Free Trade Association and Oman, are opening up new markets and opportunities for exports.
On the lending front, the financial health of major banks has witnessed an improvement, strengthening the overall credit supply. With capacity utilisation on the, the corporate sector is expected to seek additional credit to fund the next phase of expansion. The banking industry is well positioned to meet this demand. Underlining the improving credit scenario is the credit growth in the micro, small, and medium enterprise (MSME) segment as the credit outstanding to MSMEs by scheduled commercial banks increased by 14 per cent to Rs 10.31 trillion in 2023-24.
Focus on the infrastructure sector
The construction sector’s contribution to the national economy has increased steadily over the years. This growth in construction output has been driven primarily by increased government spending on infrastructure and a series of reforms aimed at attracting investment in infrastructure. Since liberalisation in 1991, private participation has been encouraged, with up to 100 per cent FDI permitted under the automatic route in most sectors. Over the past decade, India has emerged as an attractive investment destination.
In the past nine years, the country has witnessed a significant expansion in transport infrastructure. The national highway network has grown significantly, Indian Railways has expanded its capacity with new trains such as Vande Bharat, air travel has surged and the government is working towards operationalising 23 waterways by 2030 and developing 35 multi-modal logistics parks.
Key growth drivers
Increasing investments: Significant investments from both domestic and international sources are pivotal to infrastructure growth. For instance, Saudi Arabia’s plans to invest up to $100 billion in various sectors within India – including energy, petrochemicals and infr astructure – demonstrates the global interest in India’s infrastructure potential. Such investments are essential for the development of transportation networks, utilities and urban infrastructure.
Focus on allied sectors: The infrastructure sector acts as a catalyst for allied segments such as housing, construction and urban development. Improved infrastructure enhances connectivity and facilitates the efficient movement of goods, thereby driving demand for more construction projects.
Public-private partnerships (PPPs): The government’s emphasis on PPPs in infrastructure projects has opened avenues for investment and expertise from the private sector. This collaborative approach enables the efficient execution of large-scale projects, ensuring timely delivery and better quality, which together accelerate infrastructure development.
Sustainability and environmental considerations: With evolving environmental standards and rising awareness on sustainability, there is growing demand for infrastructure that aligns with green building practices and promotes renewable energy solutions. This shift toward sustainable infrastructure is essential for long-term economic growth and resilience against climate change.
Comprehensive development: The government’s focus is expanding beyond traditional sectors such as transportation and utilities to include housing, water, sanitation and digital infrastructure. This holistic approach ensures that all aspects of infrastructure development are addressed, thereby driving balanced economic growth and improving the overall quality of life.
Continuous government support: The “Make in India” initiative aims to transform India into a global manufacturing hub by promoting domestic production across 25 key sectors, including textiles, chemicals, and electronics. By providing incentives such as tax breaks and streamlined regulatory processes, the program has attracted significant investment and increased manufacturing output. Similarly, the Production Linked Incentive (PLI) Scheme represents a strategic commitment by the Indian government. This financial support incentivises companies to increase production levels, particularly in sectors like electronics, pharmaceuticals, and automobiles. By attracting global players and stimulating domestic production, the PLI scheme significantly drives the demand for industrial construction and infrastructure development. More importantly, initiatives like “Skill India” and “Make in India Skill Development Centers” have been crucial for addressing skill gaps in the workforce. These programs aim to train millions of individuals in various technical skills necessary for modern manufacturing processes.
Looking ahead
India’s optimistic economic outlook is underpinned by its demographic dividend, which provides a large workforce that enhances labour participation and productivity. The expanding middle class and rapid urbanisation are driving domestic consumption, supported by rising incomes and purchasing power.
The real GDP growth is expected to average 6.5-6.8 per cent annually through 2029, the highest among major emerging markets. Consequently, India’s construction market is expected to become the second largest globally by 2030, with the sector’s GVA expected to rise to Rs 21.8 trillion, at 7.2 per cent CAGR by 2030. Furthermore, the government plans to build smart cities with improved infrastructure, sustainable living spaces and efficient waste management systems.
Going forward, the construction sector is set to witness robust growth, driven by higher budgetary allocations for infrastructure and flagship infrastructure projects and programmes such as the National Infrastructure Pipeline, PM Gati Shakti, Smart Cities Mission, Swachh Bharat Mission and metro rail expansions. Additionally, the Pradhan Mantri Awas Yojana continues to promote affordable housing for low-income families, creating new demand and fostering inclusive growth. The government’s efforts to position India as a global manufacturing hub through Make in India and Production Linked Incentive schemes are also expected to increase industrial output, exports and domestic production capacities.