Gross fixed capital formation (GFCF) – an indicator of productive asset creation in the economy – has shown a significant uptick from a low of 30.7% of Gross Domestic Product (GDP) in FY15 to 35.3% of GDP in the second quarter (July – September) of the current financial year. This is the highest level of asset formation in the Indian economy since 2009. The uptick comes on the back of sustained high allocation towards capital expenditure by the central government in the last three financial years.
In the second quarter of the current financial year, GFCF at ₹14,71,938 is up 11.4% from ₹13,25,580 crore in Q2, FY23 and over 21% from ₹12,09,609 crore in the second quarter of 2021-22.
Importantly, the share of GFCF in the GDP is on the rise. In the July-September quarter of the current fiscal, the share of capital formation in the GDP has touched 35.3%. It may be noted that in FY23, the GFCF as a percentage of GDP stood at 33.9% and in FY21 it was 32.5%. The buoyancy in fixed productive assets is majorly on the back of the enhanced public capital expenditure by the government in the last few years. In a move aimed at generating economic growth amid the post pandemic economic gloom, the government started pumping allocations to infrastructure creation in the economy.
Since then, Centre has allocated funds to the tune of ₹17,16,117 crore. Out of the allocated amount, the ministries have overshot utilisation to ₹17,55,430 crore in the last three years.
Stressing that investment plays a pivotal role in driving the economy, care ratings said in a report on capital expenditure in October, "Overall Gross Fixed Capital Formation has risen to 34% of the GDP in FY23, levels last seen in 2013. Capital expenditure substantially augments the economy's productive capacity and exerts a more profound influence on long-term growth and productivity in contrast to revenue expenditure."