Gross Fixed Capital Formation increased y-o-y by 29.2% in June quarter

2 Sep 2022 , 07:54 AM

Despite the increase year over year in the first quarter of 2022—2023 (Q1FY23), investments as a proportion of GDP remain below the 30% threshold needed to set the economy on a path of continuous growth. In Q1 compared to Q1 of last year, gross fixed capital formation (GFCF) increased to 29.2%. However, it was lower than 31.7% in the first quarter of the 2019—20 pre—Covid era.

However, when we account for inflation, GFCF was 34.7% in Q1, which was greater than it was during the same time last year (32.8 %). Ajay Seth, secretary of the Department of Economic Affairs, said on Wednesday that it was also the most in Q1 in the previous ten years.

Since its sources of funding, including bank loans, external commercial borrowings, and stock markets, are not seen from a constant prices viewpoint, Bank of Baroda Chief Economist Madan Sabnavis stated it is preferable to look at GFCF as a proportion of GDP at the current prices.

From that standpoint, GFCF data revealed an improvement in investments in the nation in Q1 compared to the same time the prior year, perhaps boosted by government spending. It hasn’t yet fully recovered to pre-Covid levels, though.

Government capital expenditures increased by 57% to Rs 1.75 trillion in the first quarter of the current fiscal year. Sabnavis wasn’t quite certain, though, of private involvement in GFCF. He opposed comparing GFCF consecutively since fourth-quarter investments increased.

According to Sabnavis, GFCF is still less than 30% of GDP. According to the high growth phase from 2005—2006 to 2007—2008, GFCF must be over 30% in order to set the economy on a path of sustainable economic growth.

According to Sakshi Gupta, chief economist at HDFC Bank Treasury, GFCF at constant prices may be examined from a long-term perspective, however, the high figure of 34.7% is rather overstated given the low base. Government CAPEX figures demonstrate that investments have improved, but the rise is overblown, according to the expert.

Government capital expenditures would be delayed and resume in the second half of the current fiscal year, according to ICRA Chief Economist Aditi Nayar.

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