Gross fixed capital formation share in GDP sees recovery at -7.3%
It is imperative for developing countries like India to invest heavily in fixed assets to increase aggregate demand.
November 27, 2020 / 05:57 PM IST
The pent-up demand and the festive season have been the major factors behind the slow revival of the economy with the government's renewed focus on ramping up infrastructure to counter the impact of the coronavirus pandemic set to provide further succour.
Gross fixed capital formation (GFCF), which means net investment, contracted by 47 percent in the first quarter and according to data released by the National Statistical Office on November 27, it shrank 7.3 percent in the September quarter.
For the economy to expand robustly, huge capital would be required. Apart from farm and labour reforms, hopes are riding on India’s ambitions to become a manufacturing hub. The scheme for industrial promotion could draw big money into a dozen odd selected sectors.
It is imperative for developing countries like India to invest heavily in fixed assets to increase aggregate demand. A downward trend in gross fixed capital formation means that companies have not been adding capacities for the last few years, leading to culling of existing workforce.
Even before the pandemic struck, the share of gross fixed capital formation in GDP collapsed to 29.8 percent in FY20 from 34.3 percent in FY12. In the June quarter, it shrank by a steep 47 percent.
With investment activity as well as project announcements adversely affected by the pandemic, in order to rev up the economy, this indicator of investment demand has to take an upward trajectory.