Gross Capital Formation (GCF) declined sharply 8.7% in FY12 after growing by 23.2% in FY11 and 38.3% in FY10
Uncertain global and domestic environment dragged investment down by 8.7% in FY12. Tight monetary policy resulted in escalating lending rates discouraging industrial activity. Interest paid by companies increased 37.1% in FY12, significantly higher than 20.1% rise in interest payment in FY11 and a mere 6.8% rise in FY10. Net Value Added of the manufacturing sector has increased by 18.7% in FY12 from 19% in FY11. Based on the ASI numbers, we believe that manufacturing sector growth for FY12 is likely to be revised downwards and other things remaining unchanged may drag overall GDP to 6.0% from the earlier revised number of 6.2%. These are the observations made in a research note on GDP growth by SBI Research.
According to SBI Research, Gross Capital Formation (GCF) declined sharply 8.7% in FY12 after growing by 23.2% in FY11 and 38.3% in FY10. It may be noted that most of such decline in investment in FY12 was attributed to a decline in working capital investment as net fixed capital formation rebounded, growing 24.7% from a 0.1% decline in FY11. The chart below shows the pattern in GCF since 2006-07:
Total persons engaged in different industries were 1.34 crore in FY12 as compared to 1.27 crore in previous year. The number of jobs in different industries increased by 5.8%, while wages rose by 16.6%, reports the SBI research note.
According to SBI Research, in an economic downturn, unregistered manufacturing units suffers the most due to weak demand accompanied with difficulty in having access to financial capital. Given this observation, we expect overall industrial sector growth may have logged in a lower growth rate in the final analysis. This may finally drag the overall GDP growth to 6.0% (sub 6% may not be ruled out) from the earlier provisional growth of 6.2%. The chart below shows the revision in GDP growth numbers:
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