The Hindu Business Line : India Inc invests the most in 2007-08

The latest data of Central Statistical Organisation (CSO) on gross fixed capital formation show that the organised private sector accounted for nearly Rs 4 out of every Rs 10 invested in plant and machinery or construction activity during 2006-07 and 2007-08.

In these two years, private corporates invested more than their public sector counterparts and the household sector that includes SMEs and firms not incorporated under the Companies Act. This was not the case until as recently as 2003-04, when private companies had a meagre 25 per cent share in gross fixed capital formation – below that of the public sector and households.

But in 2004-05, private corporates invested more than public sector and departmental undertakings, and in the next couple of years, went on to displace households and unincorporated enterprises.

The last and only other time when the private sector had such an overwhelming dominance in investment was from 1995-96 to 1997-98. That binge was rudely interrupted and followed by an almost five-year investment famine – private corporate gross capital formation in 2001-02 was lower than that of 1995-95 even in absolute (current prices) terms.

Whether the same story would repeat itself, particularly in the post-meltdown period, remains to be seen.

The Chief Statistician of India, Dr Pronab Sen, said any likely investment slowdown will not get reflected in the CSO data for the current fiscal.

Gross fixed capital formation during 2007-08 touched an unprecedented 33.99 per cent of GDP – meaning more than a third of income generated in the country last fiscal was ploughed back into future income-earning physical assets. And 39.5 per cent of this fixed investment came from private corporates, with households and the public sector making up the balance 36 per cent and 24.5 per cent, respectively.

Of the gross Rs 633,328 crore invested by the organised private sector, three-fourths (Rs 474,147 crore) was in machinery and equipment. In households, Rs 429,260 crore of Rs 578,775 crore went towards construction. In public sector, Rs 269,394 crore out of Rs 393,336 crore (68.5 per cent) was directed to construction – roads, railways, irrigation and various other infrastructure projects.

The CSO’s historical data show investment by private corporates, more so in machinery and equipment, to exhibit wide volatility. Public sector and household investment have, on the other hand, tended to be more steady. Gross fixed capital formation in the public sector went up in absolute terms even in the recessionary phase of the late nineties.

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