Mystery in the GDP data! Why is fixed capital asset formation declining?


Gross domestic product (GDP) growth in the third quarter came as a surprise on the downside as it remained below expectations. Weighed down by construction and manufacturing, GDP in the October-December quarter at 5.4% was down sequentially from growth of 8.5% in the July-September quarter of the current fiscal year .

But beyond the lackluster overall figure, negative construction, stagnant manufacturing, lackluster agriculture and financial and real estate services in the third quarter of the current fiscal year, another The factor indicating the growing pain of the Indian economy relates to the sequential slippage in gross fixed capital formation (GFCF), which is basically a measure of the increase in fixed productive assets in the economy. A slowing trend in GFCF has broader ramifications for the future productivity of the economy.

According to FY22 third quarter GDP data released by the National Statistics Organization (NSO) on February 28, GFCF fell sequentially to ₹11,50,761 crore from ₹11,97,610 crore in the second quarter of the year. exercise in progress. It is slightly higher at ₹11,28,117 crore in the third quarter of FY21 and nearly flat from the third quarter of FY20 – the pre-pandemic period essentially at ₹11,35,023 crore.

So, is the economy losing investment, despite huge capital expenditure allocated budget after budget after budget to fuel much-needed growth? Experts say it may be necessary to look at the numbers even more carefully because investment in the economy is the sum of GFCF, change in inventories and valuables. Economist NR Bhanumurthy, Vice-Chancellor, Dr BR Ambedkar School of Economics, points out that on a macro scale, there has been a general decline in the global economy in recent years, naturally affecting fixed assets as well.

Regarding the decline in fixed capital formation, Bhanumurthy said, “GFCF is only part of investing. We have to see it in the context of the evolution of stocks and valuables,” Bhanumurthy said. Total investment as a sum of three in Q3 stands at ₹12,73,676 crore compared to ₹13,87,749 crore in Q2, which Bhanumurthy attributes to seasonality. The total investment in the third quarter is higher than the total investment figure in the first quarter of ₹11,30,897 crore.

In fact, in an interesting trend as the gross fixed capital formation in the economy remained nearly flat in the third quarter of the current financial year at ₹11,50,761 from ₹11,35,023 crore in the third quarter of the financial year 20, investment in valuables more than doubled from ₹37,119 crore to ₹78,149 crore. “It means investment is moving from the real sector to the financial sector,” Bhanumurthy said.


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