Although investment as a percentage of gross domestic product (GDP) increased year-on-year in the first quarter of 2022-23 (Q1FY23), it is still below the 30% mark that is needed to put the economy on sustained growth. path.
Gross fixed capital formation (GFCF) reached 29.2% in the first quarter, against 28.2% a year ago. However, it was down 30.5% in the previous fourth quarter of FY22.
But if we adjust it for inflation, GFCF was 34.7% in the first quarter, which was not only higher than the corresponding period of the previous year (32.8%), but also fourth quarter of FY22 (33.6%). It was also the highest in Q1 in 10 years, a point noted on Wednesday by Ajay Seth, secretary of the Economics Department.
Bank of Baroda Chief Economist Madan Sabnavis said it is best to view GFCF as a percentage of GDP at current prices because its sources of funding such as bank credits, external commercial borrowings and Stock markets are not examined from a constant price perspective.
From this point of view, the GFCF figures showed that there is an improvement in investments in the country in the first quarter compared to the corresponding period of the previous year, probably helped by government investment expenditure. .
Government capital expenditure increased by 57% to Rs 1.75 trillion in the first three months of the current financial year. However, Sabnavis was unsure about private participation in GFCF to any great extent. He is not in favor of a sequential comparison of GFCF since investments are jostled in the fourth quarter.
Sabnavis said GFCF is still below 30% of GDP, unlike the strong growth years of 2003-04 to 2007-08.
Sakshi Gupta, senior economist at HDFC Bank Treasury, said that for a long-term perspective, GFCF at constant prices can be looked at, but the high level of 34.7% is a bit overstated due to the weak basis. While there is certainly an improvement in investment, as government investment figures show, the growth is overstated, she said.
CIFAR Chief Economist Aditi Nayar said government investment spending would be curtailed and resume in the second half of the current fiscal year.