Manufacturing share in capital formation down between FY19 and FY23

The report notes that the share of public administration and defence improved, attributable to increased government spending

The share of manufacturing in the gross capital formation (GCF) or investment has fallen between two quinquennia—from 17.5 per cent between FY14-FY18 to 16.9 per cent between FY19-FY23, shows a latest report released by the Bank of Baroda on Tuesday.

“Between two quinquennia, the share of manufacturing in capital formation has fallen. The major jolt was faced during the pandemic (2019-20) when the share of manufacturing in GCF fell to its lowest of 16 per cent. Post which, it recovered to 18.3 per cent in 2021-22, but again witnessed deceleration in 2022-23. Despite this, the current share has surpassed its pre-pandemic level, which hints at some recovery of the sector at a crawling pace,” the report notes.

 

The report analysed the National Accounts Statistics 2024 data released earlier this month.

However, the productivity of capital as measured by the ratio of the output produced per unit of capital remained almost flat for the manufacturing sector as the ratio marginally increased to 2.81 between FY19-FY23 from 2.80 between FY14-FY18.

“For manufacturing, productivity flattened. This explains that firms are gradually utilising their existing capacity. However, one interesting shift that has been noticed is that the ratio for the manufacturing sector has fallen since 2018-19 (pre-Covid). This shows that albeit some improvement in productivity, there is further scope for improvement in existing capacity. As per RBI data, the capacity utilisation rate of 76.3 observed in 2022-23 is still lower than the highs of 83.2 observed in 2011,” the report notes.

Besides, the report notes that real estate and other services, manufacturing, transport, storage, communication and services related to broadcasting, trade, repair, hotels and restaurants, and public administration and defence are the top sectors having the maximum share (68.3 per cent) in overall capital formation.

While the share of mining and quarrying also witnessed some moderation on account of slowing export growth, forward linkage from real estate was visible in the construction sector, whose share increased between the two quinquennia.

The report also notes that the share of public administration and defence improved, attributable to increased government spending.