Private sector investment on revival path, say economists
, ET Bureau|
Mar 01, 2018, 11.30 PM IST
NEW DELHI: Double-digit growth in capital formation in the third quarter of this financial year, robust sales of commercial vehicles, a sharp uptick in the construction sector and cement production and higher capital goods output suggest investment activity may finally be reviving.
Gross fixed capital formation, a measure of investments, rose 12% in October-December, driving India’s economy to a better-than-expected 7.2% growth in the quarter, official data released on Wednesday showed.
The construction sector picked up pace at 6.8% in the quarter, while data released separately showed cement output rose 20.7% in January, the third successive month of double-digit growth.
While the numbers benefit from the low base of last year, when demonetisation had impaired activity, and government spending still makes up a big part of capital spending, experts see a glimmer of revival.
“Public investment alone can’t drive overall investments upwards. Anecdotal evidence suggests that private investment is reviving,” said an economist of a ratings company. This, the economist said, is because public investment and the general government constitute 20-22% of the entire investment while private corporate investment is 37% and households are 40%.
Although modest, there is some “noticeable durability in the revival of private investments as well,” said Tushar Arora, senior economist at HDFC Bank. Industrial production numbers last month showed a 16.4% growth in the output of capital goods in December.
Tata Motors reported a 36% rise in sales of commercial vehicles, usually the first indicator of a pick-up in investments.
The company attributed the sales growth to robust infrastructural developments, fresh tenders in car carriers, coal movement and the petroleum sector.
“The growth was also bolstered by increasing demand from construction, growing logistics, ecommerce and FMCG applications,” it said in a statement.
CARE Ratings said there has been an improvement in gross capital formation, “which is encouraging and can be seen as being indicative of a revival of investments, albeit a gradual one.”
Fixed capital formation, as a proportion of GDP, is estimated to inch up to 31.4% in 2017-18 from 30.3% in 2015-16 at constant prices, even though it is stuck at 28.5% at current prices.
There is a need to nurture “this budding investment revival with conducive policies,” said DK Pant, chief economist at India Ratings.
The government said the data heralded “an improvement in the investment climate.”
“The quarterly data shows high growth in GFCF, which is a proxy for private investment which could bridge the slack in the economy. It is an indicator of what lies ahead,” said Upasna Bhardwaj, an economist at Kotak Mahindra Bank.
Real gross fixed capital formation is estimated to grow at a robust 7.6% for 2017-18, accelerating from 6.9% in the second quarter to 12% in the third quarter.
Gross fixed capital formation, a measure of investments, rose 12% in October-December, driving India’s economy to a better-than-expected 7.2% growth in the quarter, official data released on Wednesday showed.
The construction sector picked up pace at 6.8% in the quarter, while data released separately showed cement output rose 20.7% in January, the third successive month of double-digit growth.
While the numbers benefit from the low base of last year, when demonetisation had impaired activity, and government spending still makes up a big part of capital spending, experts see a glimmer of revival.
“Public investment alone can’t drive overall investments upwards. Anecdotal evidence suggests that private investment is reviving,” said an economist of a ratings company. This, the economist said, is because public investment and the general government constitute 20-22% of the entire investment while private corporate investment is 37% and households are 40%.
Although modest, there is some “noticeable durability in the revival of private investments as well,” said Tushar Arora, senior economist at HDFC Bank. Industrial production numbers last month showed a 16.4% growth in the output of capital goods in December.
Tata Motors reported a 36% rise in sales of commercial vehicles, usually the first indicator of a pick-up in investments.
The company attributed the sales growth to robust infrastructural developments, fresh tenders in car carriers, coal movement and the petroleum sector.
“The growth was also bolstered by increasing demand from construction, growing logistics, ecommerce and FMCG applications,” it said in a statement.
CARE Ratings said there has been an improvement in gross capital formation, “which is encouraging and can be seen as being indicative of a revival of investments, albeit a gradual one.”
Fixed capital formation, as a proportion of GDP, is estimated to inch up to 31.4% in 2017-18 from 30.3% in 2015-16 at constant prices, even though it is stuck at 28.5% at current prices.
There is a need to nurture “this budding investment revival with conducive policies,” said DK Pant, chief economist at India Ratings.
The government said the data heralded “an improvement in the investment climate.”
“The quarterly data shows high growth in GFCF, which is a proxy for private investment which could bridge the slack in the economy. It is an indicator of what lies ahead,” said Upasna Bhardwaj, an economist at Kotak Mahindra Bank.
Real gross fixed capital formation is estimated to grow at a robust 7.6% for 2017-18, accelerating from 6.9% in the second quarter to 12% in the third quarter.
