Investment growth to witness a rise to 5.9% in the second half of FY18

Growth in investment is set to witness a rise to 5.9 per cent in the second half of FY18, compared to a 3.1 per cent growth in the first half, taking the annual investment growth to 4.5 per cent, according to the first Advance Estimate of national income for the financial year 2017-18.

The higher growth in the second half comes over a lower base; that of reduced investment in the two quarters immediately after demonetisation (Q3 and Q4FY17). 

Total investment in the country, represented by gross fixed capital formation (GFCF), is slated to be 29 per cent of gross domestic product (GDP) in 2017-18 (Rs 37,651 billion of Rs 1,3 trillion), lower than the 29.4 per cent in the first half (April-September).

This means the investment rate in the second half of the financial year (October 2017-March 2018) is expected to fall below 29 per cent, a slowing in the later part.

Investments in the second half thus, are not expected to match the revival in GDP growth in the last two quarters. 

The estimate of GFCF as a percentage of GDP is the lowest since 2004-05, when it was 28.7 per cent of the GDP (2004-05 series). The rate has come down from 31.3 per cent in the first year under the current government. 

“Investments are unlikely to see an improvement. Only a gradual pick-up is foreseen,” CARE Ratings said in its report on the Advance Estimate. 

The share of consumption in GDP has been fairly constant, with private consumption expenditure reducing marginally and government consumption increasing. Growth in consumption has, however, reduced and this has been pulling down overall GDP growth to 6.5 per cent. Private consumption is expected to grow 6.3 per cent in FY18, as against 8.7 per cent a year before, while the reduction in government consumption growth is sharp, from 20.5 per cent the previous financial year to 8.5 per cent in FY18. 

Discrepancies in the estimation of GDP have shot up again from Rs 839 billion in FY17 to Rs 2,004 billion in FY18. Discrepancies as a share of GDP rose to 1.5 per cent in FY18, surprisingly up from 0.7 per cent in FY17, the year demonetisation was implemented.  

Chief statistician T C A Anant had attributed the inevitability of discrepancies to delay in data reporting and availability, while talking about the national accounts of FY16. 

Returning to investment, data on which component of capital formation is expected to cause the lag is not clear. Data till 2015-16 show household investments falling over the years, affecting overall investment.