Moderation in GDP growth traced to softening of growth in gross fixed capital formation, says Eco Survey 2025

The Economic Survey 2025 report added, "Green shoots in capital formation are visible."

Moderation in real gross domestic product (GDP) growth can be traced to a softening of growth in Gross Fixed Capital Formation (GFCF), from 10.1 per cent in H1 FY24 to 6.4 per cent in H1 FY25, said the Economic Survey report.

The report released on January 31 said, "Q1 FY25 witnessed a slowdown in capital expenditure across different levels of government on account of the conduct of the general elections. Private sector investment growth may have remained subdued thus far in FY25 on account of the domestic political timetable, global uncertainties and overcapacities".

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The report also said that another reason for slowdown in capital-formation growth in Q2FY25 could have come from the housing segment. It said that this slowdown "may have emanated from the moderation in residential investment by households in this quarter, which is on the back of a sharp uptick over the last few quarters."

It added that, however, industry reports, however, point out that the correction in demand-supply metrics in this sector is indicative of market normalisation after a period of robust performance. It said, "An inventory overhang of 23 months signals healthy demand momentum in the segment."

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The report said that the slowdown in investment activity is likely temporary.

The report noted, "Green shoots in capital formation are visible. Union government capex is up 8.2 per cent in July – November 2024 and is expected to pick up further pace".

According to the report, early results of the RBI’s Order Books, Inventory, and Capacity Utilisation Survey (OBICUS) show that the seasonally adjusted capacity utilisation (CU) in manufacturing firms was 74.7 per cent in Q2 FY25, above the long-term average of 73.8 per cent. A private sector report’s22 analysis of a sample of capital goods companies indicates that the order books of these companies have registered a sharp increase of 23.6 per cent in FY24 as against a compound annual growth rate (CAGR) of 4.5 per cent in the preceding four years.