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Gross capital formation (GCF) — or investment — in manufacturing, construction, and mining sectors contracted in FY23 primarily due to a fall in export demand and low private consumption during the year, an industrywise analysis of the National Accounts Statistics 2024 data showed. The Ministry of Statistics and Programme Implementation (MoSPI) had released the data on Monday.
The fall in GCF in the three sectors comes at a time when overall GCF in the economy grew by 6.9 per cent to Rs 55.3 trillion at constant prices in the financial year ended March 31, 2023 (FY23).
GCF is a broad measure of investment in an economy and represents total value of physical assets including fixed assets, inventories and valuables. On the other hand, gross fixed capital formation (GFCF) is a narrow measure of investment in the economy and excludes inventories, or acquisitions of valuables.
Real manufacturing GFC that contracted 5.4 per cent to Rs 9.4 trillion could be attributed to “subdued manufacturing growth” during the year as capacity utilisation was low and firms had less incentive to invest, said economists.
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Besides, the construction sector, which has seen sustained capex thrust by the government in recent years, saw capital formation decline by 2.9 per cent to Rs 4.02 trillion in FY23 from Rs 4.14 trillion in FY22, primarily due to the slowdown in the affordable housing sector.
Paras Jasrai, senior economic analyst, India Ratings & Research, said that the pent-up demand present in the economy after the Covid pandemic had exhausted and the export demand for Indian goods had also fallen during FY23, leading firms in the manufacturing sector to put their investment plans on hold.
“On the other hand, in the construction sector, barring the luxury housing segment, there has been a slowdown as the affordable housing segment is struggling to find buyers. Capital formation in the construction sector has largely been driven by the government,” he added.
Echoing a similar view, Madan Sabnavis, chief economist, Bank of Baroda, said: “Consumer segment including fast-moving consumer goods was the worst hit as private consumption has remained low. Whereas, barring the luxury housing segment, the high interest rates during the year kept affordable housing and the middle income housing segment in shambles in the construction sector,” he added.
The mining sector also saw a marginal dip (-0.2 per cent) in investment during the year to Rs 74,910 crore in FY23 from Rs 75,087 crore in FY22.
The trade, repair and hotels segment saw the highest increase (19 per cent) in investment, followed by agriculture sector (17.7 per cent), public administration and defence (13.7 per cent), and transport, storage, communication & services related to broadcasting (11.8 per cent).
