Nearly two decades of low investments in India in FY 2019-2020

Nearly two decades of low investments in India in FY 2019-2020

Staff ReporterUpdated: Monday, March 30, 2020, 11:35 PM IST
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Mumbai: Over the past few quarters, India has seen a decline in investments. According to Care Ratings, the decline in investments is nearly two decades low. Such fall is expected to hit the growth story of the country which is already facing a slowdown.

The investment rate, measured as Gross Fixed Capital Formation (GFCF), as a percentage of GDP, fell to nearly two decades low, stated the report by the rating agency. It is estimated at 27.5 per cent of GDP as per the second advance estimate for FY20. “When compared with a year ago, the investment rate was 1.5 per cent lower than the 29 per cent of GDP in FY19. GFCF is estimated to contract by -0.6 per cent for the first time in the past 17 years. This number may be revised downwards as the year-end phenomenon of increasing investment in March will not materialise,” stated Care Ratings.

In the nine-month period of FY20, new investments in various projects fell by 10 per cent to Rs 9.1 lakh crore. “The decline has been led by a decrease in new projects in services and manufacturing sectors,” Care Ratings stated.

There was a drop in Capital goods growth as well. “ For the first time in the past five years, capital goods registered a contraction in the production of capital goods.” Capital goods index witnessed a de-growth by 11.6 per cent during FY2020 (April – January) as against the 5.7 per cent growth in the corresponding period last year. The decrease in capital goods was led by commercial vehicles and other ancillary activities. Other machinery and equipment related to power, defence sector, sugar, healthcare, construction, printing, transformers, fabricated metal products and electronic conductors among others, witnessed drop too. Compared to other sectors, the service sector witnessed the highest investments in FY 20.

Haryana was the biggest gainer with the highest share of investments, which is followed by Gujarat. While states like Maharashtra, Andhra Pradesh, Rajasthan, Tamil Nadu, Madhya Pradesh and others, were among the top ten states that attracted investments but compared to last year their share had drastically dropped.

The rating agency said that due to the Coronavirus outbreak, the recovery of investments in the short-term looks unlikely. “Domestic activities were already constrained on account of disruptions in the global supply chain and were further impacted post announcement of lockdown in the country. This could dampen the investment scenario in FY20,” the report concluded.

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