An industry-wise study of the National Accounts Statistics 2024 data revealed that the manufacturing, construction, and mining sectors’ gross capital formation (GCF), or investment, shrank in FY23. This decline was mostly caused by a decline in export demand and low levels of private spending during the year. The information was made public on Monday by the Ministry of Statistics and Programme Implementation (MoSPI).
The decline in GCF in the three sectors coincides with an overall 6.9% growth in GCF in the economy, reaching Rs 55.3 trillion at constant prices in the fiscal year that concluded on March 31, 2023 (FY23).
The gross domestic product (GCF) measures the whole value of tangible assets in an economy, including inventories, fixed assets, and valuables. Conversely, gross fixed capital formation (GFCF) is a limited indicator of economic investment that does not include inventory or the purchase of goods.
According to experts, the real manufacturing GDP, which shrank by 5.4% to Rs 9.4 trillion, was caused by “subdued manufacturing growth” in the year due to poor capacity utilisation and a lack of corporate incentive to expand.
Furthermore, capital creation in the construction industry, which has witnessed consistent government investment in recent years, decreased by 2.9% to Rs 4.02 trillion in FY23 from Rs 4.14 trillion in FY22, mostly as a result of the slowdown in the affordable housing market.
According to Paras Jasrai, senior economic analyst at India Ratings & Research, businesses in the manufacturing sector postponed their investment plans because of the depletion of the economy’s pent-up demand following the Covid pandemic and a decline in the demand for Indian goods exported during FY23.
However, there has been a downturn in the building industry, with the exception of the luxury home market, since purchasers are having difficulty finding affordable homes. The government has been the main driver of capital formation in the building industry, he continued.
Chief economist of Bank of Baroda Madan Sabnavis had a similar opinion when he stated: “Private consumption has remained low, so the consumer segment, including fast-moving consumer goods, was the worst hit.” While the year’s high borrowing rates kept middle-class and inexpensive houses in ruins in the building industry, with the exception of the luxury home market, he continued.
Investment in the mining industry also decreased slightly (-0.2%) throughout the course of the year, from Rs 75,087 crore in FY22 to Rs 74,910 crore in FY23.
The sectors with the largest increases in investment were commerce, repair, and hotels (19%), followed by the agriculture sector (17.7%), public administration and defence (13.7%), and transportation, storage, communication, and broadcasting-related services (11.8%).
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Construction, Infrastructure and Mining
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