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ir­ror­ing the nadir reached in project in­vest­ment, do­mes­tic fixed cap­i­tal for­ma­tion de­clined dur­ing 2013-14 at con­stant prices. This was the first de­cline over the past decade and only the 13th y-o-y drop since 1950-51, with most of them hap­pen­ing in pre-re­forms pe­riod be­fore 1991. The rot fol­lowed the ero­sion in the growth rate from 12 per cent in 2011-12 to 0.8 per cent in 2012-13. Be­fore this, the growth rate had picked up from 3.5 per cent in 2008-09, when the econ­omy was mauled by global melt­down, to 7.6 per cent in 2009-10 and 10.4 per cent the fol­low­ing year.

The rapid de­cay in project in­vest­ment in just two years, com­pounded with sub-5 per cent sub­op­ti­mal eco­nomic growth putting ques­tion marks on the va­lid­ity of “In­dia on the Rise” the­ory, was largely due to do­mes­tic prob­lems in­clud­ing deep­en­ing pol­icy ap­a­thy and gov­er­nance deficit of the UPA II govern­ment at the Cen­tre.

Project mor­tal­ity spiked–over ` 17 tril­lion capex has got stuck in stalled projects. Ac­cord­ing to Projects To­day com­pi­la­tion, project start-ups dropped and project ex­e­cu­tion pe­riod in­or­di­nately length­ened. The in­vest­ment sce­nario has turned out to be very un­friendly due to pol­icy con­fu­sion and hur­dles in for­est, land and en­vi­ron­ment is­sues. This has vi­ti­ated the eco­nomic and fi­nan­cial vi­a­bil­ity of projects, damp­ened enthusiasm of project pro­mot­ers to go ahead with projects, and led fund­strapped In­dia Inc. to cut down on new capex plans.

There was com­pre­hen­sive paral­y­sis in re­forms and clear­ances, gov­er­nance fell to new lows and pol­icy ac­tions were fewer, halt­ing and con­fus­ing in last two-three years. De­terred by pos­si­ble ac­tion from cor­rup­tion al­le­ga­tions, bu­reau­crats also pre­ferred to stay away from tak­ing de­ci­sions. Pri­vate sec­tor was con­fused on long-term per­spec­tive as there was lack of pol­icy guid­ance, made worse by sev­eral flip-flops in ex­ist­ing poli­cies, which to­gether with fall­ing prof­itabil­ity made In­dia Inc. wary of com­mit­ting huge capex in long ges­ta­tion projects.

In­dica­tive of the mag­ni­tude of lack­ing in­vest­ment, the ra­tio of gross fixed cap­i­tal in­vest­ment to GDP at mar­ket prices, broadly the in­vest­ment in­ten­sity of the econ­omy, fell to 32.3 per cent in 2013-14, from 33.2 per cent in the pre­ced­ing year and 35.3 per cent two years back. At cur­rent prices, the ra­tio of GFCF to GDPmp worked out even lower to 28.3 per cent in 2013-14.

GFCF by type of as­set

Ac­cord­ing to de­tailed data, con­struc­tion part of fixed cap­i­tal in­vest­ment in­creased 1.7 per cent dur­ing fis­cal 2013, against a de­cline in in­vest­ment in ma­chin­ery, the first de­cline over past sev­eral years; yield­ing an over­all fixed cap­i­tal for­ma­tion rate of 0.8 per cent for the year. While these de­tails are not avail­able for fis­cal 2014, which shows over­all ero­sion in GFCF, it would ap­pear that con­struc­tion part of in­vest­ment ei­ther stag­nated or de­clined and the de­cline in ma­chin­ery deep­ened dur­ing the year. In this con­text, it may be noted that con­struc­tion in­come was up 1.6 per cent and IIP of cap­i­tal goods pro­duc­tion showed 4 per cent drop dur­ing fis­cal 2014.

Tak­ing a longer pe­riod, con­struc­tion rose faster than ma­chin­ery in­vest­ment in the sec­ond half of the 1990s with its share in fixed cap­i­tal in­vest­ment cross­ing 50 per cent on the turn of the century. The share rose more rapidly there­after to scale to a peak of 55+ per cent dur­ing fis­cal 2005 and 2006. How­ever, the share has tended to fall sub­se­quently; it fell to around 52 per cent in sub­se­quent two years, 51 per cent in 2008-09 and 2009-10, 50 per cent in fis­cal 2011, and 49 per cent aver­age in 2011-12 and 2012-13 in terms of macro data from CSO.

The cor­po­rate sec­tor plays a ma­jor role in plant and ma­chin­ery in­vest­ment, but not in con­struc­tion where house­holds (in­clud­ing non-cor­po­rate pri­vate busi­ness units) fol­lowed by pub­lic sec­tor are ma­jor play­ers. In­ter­est­ingly, house­holds that in­clude non-cor­po­rate busi­ness units are out­pac­ing pri­vate cor­po­rates in ma­chin­ery in­vest­ment in re­cent years. Their share in ma­chin­ery in­vest­ment in­creased from 28 per cent in 2004-05 to 34 per cent in 201314; whereas the share of pri­vate cor­po­rate sec­tor in this eroded from 53 per cent to 47 per cent dur­ing this pe­riod. The pub­lic sec­tor, largely PSUs, ac­counted for 19 per cent of to­tal ma­chin­ery in­vest­ment dur­ing 2013-14.

GFCF by own­er­ship

One of the ma­jor planks of the re­forms is the trun­cated role of pub­lic sec­tor in eco­nomic ac­tiv­i­ties. Re­flect­ing a rel­a­tive suc­cess in this area, the share of pub­lic sec­tor in project in­vest­ment eroded steadily from 40 per cent in 1994-95 to 24-25 per cent dur­ing 2004-05 to 2007-08. The share of pub­lic sec­tor in­creased to 26 per cent in fis­cal 2009 and 2010 (due more to slack in in­vest­ment by pri­vate cor­po­rate fol­low­ing global melt­down ef­fects), but re­sumed down­trend in sub­se­quent years to reach 24 per cent in fis­cal 2013 (bar­ring a dip of 21 per cent in 2011-12).

Pri­vate cor­po­rate in­vest­ment en­joyed good shares dur­ing 1996-97 and 1997-98, fol­lowed by a pro­longed slack in earn­ings and the re­sul­tant con­strained project in­vest­ment till 2002-03, and a re­bound in earn­ings and capex dur­ing the sub­se­quent five-year pe­riod that ended 2007-08. Thus, the share of pri­vate cor­po­rates in project in­vest­ment in­creased from 27 per cent in 1993-94 to 38 per cent in 1996-97, then eroded grad­u­ally to 23 per cent in 2002-03 and sprang back to a peak of 42 per cent by 2007-08. But the fol­low­ing year, 2008-09, saw capex plans of pri­vate cor­po­rates get­ting badly hit due to dwin­dling prof­its, with their share in the pie drop­ping to 34 per cent.

Gross cap­i­tal in­vest­ment

In­ter­est­ingly, the drop in the share of pri­vate cor­po­rate sec­tor dur­ing the year in GFCF was off­set mainly by house­holds sec­tor whose share in GFCF shot up from 33 per cent in 2007-08 to 40 per cent aver­age dur­ing 2008-09 and 2009-10, with the next year, 2010-11, wit­ness­ing a de­cline in the share to a lit­tle be­low 40 per cent due to a re­bound in over­all GFCF. How­ever, the sub­se­quent two years, 2011-12 and 2012-13, saw the share of GFCF un­der house­holds rise to a new high of 45 per cent aver­age (due to sub­dued projects in­vest­ment in the or­gan­ised sec­tor com­pris­ing pri­vate cor­po­rates and pub­lic sec­tor). By the way, house­holds are a resid­ual seg­ment in macro num­bers com­pi­la­tion.

Go­ing by in­di­ca­tions, the pri­vate cor­po­rate’s share in GFCF should have fur­ther de­clined dur­ing 2013-14.

Gross fixed cap­i­tal in­vest­ment (GFCF) plus in­ven­tory change and ad­di­tion to valu­ables (which is not clas­si­fied by own­er­ship or in­dus­try) equals gross cap­i­tal in­vest­ment (GCF). In ad­di­tion, at ag­gre­gate level, con­cep­tu­ally there is an­other mea­sure of gross cap­i­tal for­ma­tion which re­flects the dif­fer­ence be­tween in­come and con­sump­tion ex­pen­di­ture at macro level. A part of this ag­gre­gate that can­not be clas­si­fied into as­sets or own­er­ship is de­fined as er­rors & omis­sions (E&O). In fis­cal 2013, at 2004-05 prices, GFCF was ` 20,020 bil­lion, in­ven­tory change ` 1,066 bil­lion, valu­ables ` 1,812 bil­lion and E&O ` 80 bil­lion, giv­ing an un­ad­justed to­tal GCF of ` 22,978 bil­lion. By the way, valu­ables like gold, di­a­mond, sil­ver or­na­ments etc have in­creased three fold be­tween fis­cal 2005 and 2013, thrice the pace in GFCF.

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