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Q1 GDP: India’s Gross Fixed Capital Formation rate rises in April-June backed by govt’s push on capex

India's GFCF, the second-largest component of gross domestic product (GDP) made up xx percent of India's GDP in the April-June quarter of 2021-22, compared to 24.4 percent in the previous year and 34.6 percent in the first quarter of 2019-20.

August 31, 2021 / 07:14 PM IST

India’s Gross Fixed Capital Formation (GFCF) expanded 55.3 percent on year to Rs 10,223.35 billion in April-June FY22 year, according to the National Statistical Office’s estimates. However, when compared to the corresponding quarter in FY20, GFCF was still lower by 17.1 percent.

India's GFCF, the second-largest component of gross domestic product (GDP) made up 31.6 percent of India's GDP in the April-June quarter of 2021-22, compared to 24.4 percent in the previous year and 34.6 percent in the first quarter of 2019-20, as per the data released by the National Statistical Office on August 31.

The country's GDP rose by 20.1 percent in the first quarter of 2021-22, largely because of the low base from the same quarter last year, when a nationwide lockdown was imposed due to the COVID-19 pandemic.

India's GDP had contracted 24.4 percent during the same period last year. This means that in absolute terms, the economic recovery has still not reached pre-pandemic levels.

Also Read: Private consumption rises sharply but still below pre-Covid levels, government spending down

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Similarly, the country's GFCF, which denotes investments, in absolute terms in April-June came in at Rs 10,22,335 crore as compared to Rs 6,58,465 crore in the same period in 2020-21 and Rs 12,33,178 crore in the first quarter of 2019-20.

GFCF is an indicator for gauging the fixed capital formation. A downward trajectory in gross fixed capital formation would indicate that the fixed capacities are not being ramped up.

The rise in India's GFCF was mainly due to the government following a capex-driven strategy to boost economic activity in the country.

"The government’s capital expenditure has grown by 19.4% during the April-July period of current fiscal against the corresponding period during FY20," Care Ratings said in its report following the GDP estimates.

The government's capital expenditure reached Rs 1,28,428 in Apr-Jun FY22 when compared to Rs 1,07,605 crores in the corresponding quarter of FY20, the rating agency said.

Care Rating in its report added that the growth in capex can be ascribed to a notable increase in expenditure towards food and public distribution, road transport & highways and railways. Capital spending has been lower towards defence by 24.6 percent, the rating agency said.

The central government has prioritised capital expenditure to boost economic recovery in India following the outbreak of the pandemic, as can be seen from its 34.5 percent increase in its planned capital expenditure for 2021-22 and the recently announced Rs 100 lakh crore Gati Shakti scheme.

The Finance minister Nirmala Sitharaman on August 16 further emphasised that the government won’t trim capital expenditure from the budgeted level, as it banks on spending having high multiplier effect to reverse a COVID-induced slump in growth.

The government in the past three quarters has increased spending on productive assets such as roads, ports, and factories to support economic recovery at a time when the capital expenditure of India's private sector has been quite slow.

An analysis of the capex pipeline since the start of COVID-19 and in the previous two years by Nirmal Bang showed that private sector capex declined from Rs 12.2 lakh crore in 2018-19 to Rs 8.4 lakh crore in 2019-20 and further to Rs 6.6 lakh crore post-pandemic in the April 2020-July 2021 period.

The rise in India’s GFCF seen in April-June can be seen as a confidence booster for the country’s private sector to follow the footsteps of the government and increase capex going forward.
Yaruqhullah Khan
first published: Aug 31, 2021 06:15 pm
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