RBI to launch housing start-up index as construction indicator

The Reserve Bank of India (RBI) will soon launch a 'housing start-up index', which will help gauge activity in the construction sector, employing a large proportion of the country's labour force, RBI governor Subir Gokarn said in Mumbai on Tuesday.

The index is expected to give an indication of the level of activity in the construction sector, which in turn will help the central bank gauge the state of the real estate sector.

In his address at RBI's department of statistics and information management, Gokarn said, ''The core of any business cycle theory is what happens to the construction sector. The recent crisis (in the US sub-prime market) is rooted in the construction sector ... we still do not have adequate information.'' He indicated that such an index will be a valuable input in monetary policy formulation as asset price inflation assumes significance in the economy.

Housing activity is considered as amongst the important lead indicators of economic activity, given its strong and substantial forward and backward linkages with other sectors of the economy.

In particular, information on trends in the number of new houses being started can provide useful information on the likely pace of economic activity over a horizon that is of interest to the central bank. An increase in the number of houses getting started (which will be measured through the housing start-up index) would be indicative of an increase in investment, business and consumer optimism and vice-versa.

Unlike in many other countries, information on various indicators of housing activity is quite meagre. Information on residential and commercial property prices is also of recent origin in India and is available for only select cities and for short periods.