India-Construction
Photo: Illustration only/Wikimedia Commons

Corporate business dominates plant investment

Even as there are no major differences at macro level in the New Series of National Accounts with the base year 2011-12, from the earlier series with 2004-05 as the base year at current prices, the New Series has gone broader and deeper into data mining and in presentation of requisite data. This enables a more detailed analysis of underlying trends, which should help bring out policy implications clearer and sharper.

Thus, the New 2011-12 series estimates gross fixed capital formation for 2012-13 at Rs.31.4 trillion, whereas the earlier 2004-05 series had placed it at Rs.30.4 trillion, which translates into an upward estimation by 2.1 per cent.

The 2011-12 series presents data also for investment in intellectual property rights, or products in the asset-based classification. IPP consists of research and development, mineral exploration, databases and software, other IPPs, etc. IPPs are recognised in the business accounts as “Intellectual Capital.” Likewise, data presentation in the new series by institution is also more focused and detailed.

Using the new series data-sets, the following are major observations in structure of capital investment taking place at macro level in the country.

Classification by Asset
Construction, comprising residential buildings, commercial buildings, other structures etc. is the dominant form of capital investment (GFCF) in the country, accounting for nearly three-fifth of project investment. Investment in plant and equipment forms 36 per cent, IPP about 5 per cent, and cultivated biological resources (CBR) 0.2 per cent. CBR includes timber resources, crop and plant resources, aquatic resources and other animal resources, which are under control or management of some institutional sector.

Classification by Institution
Private corporates account for 38 per cent of project investment in the country, which is interestingly matched by a slightly lower share by household sector that includes non-corporate small and medium business entities. Public sector autonomous and departmental enterprises account for 12 per cent, and general government comprising largely construction segment capex accounts for a larger share of 14 per cent. This underlines the importance of the budget data of the central and state governments and local bodies in culling out project investment-related information. Household sector is also a major financial saving generator; but its investment in physical assets (or GFCF) is one-and-a-half times its financial saving (adjusted for financial liabilities). Broadly, we may say that roughly three-fifth of gross capital formation is made possible by household sector directly or indirectly by providing financial support to other ownership categories.

The share of private corporate sector in GFCF is found to have gone up from 33 per cent to 38 per cent between 2011-12 and 2013-14, whereas that of household sector has gone down from 45 per cent to 36 per cent. Past reduced share went to general government whose share in GFCF went up from 11 per cent to 14 per cent over this period.

Classification by Asset-cum-Institution
A half of the construction activity is at the behest of the household sector. However, surprisingly, the share of household in construction has fallen sharply from 63 per cent in 2011-12; the falling share could pertain to non-corporate business sector which might have suffered from strained finances. Housing loans by banks, apart from Residex of National Housing Bank which is limited to some major cities, could be an important proxy indicator on the trend in construction of residential buildings. General government accounts for 18 per cent; the share has risen sharply from 13 per cent in 2011-12; the increase could be a steadier investment in socioeconomic infrastructure in the country. The private corporate sector accounts for 21 per cent, the share having increased sharply from 15 per cent during 2011-12. Rapidly rising share could indicate lower pull of manufacturing and industry in enticing corporates investment and increasing foray of private corporate business into infrastructure, SEZ, industrial parks etc. Public sector enterprises including departmental enterprises account for around 9 per cent of construction form of project investment.

Investment in plant and equipment has remained broadly unchanged between 2011-12 and 2013-14, which would point to its decline in real terms. The share of private corporate sector works out to 59 per cent; the share has broadly remained same over the three-year period. The share of public enterprises was 16.7 per cent, households a higher 17.6 per cent, and the general government 6.6 per cent. Interestingly, the shares of all these major institutional subsectors have remained unchanged. This would imply the apathy to invest in industry was across all subsectors.

Private corporate sector accounts for 66 per cent of investment in IPP, public sector enterprises 26 per cent and general government 8 per cent. Private financial corporates, part of private corporate sector accounts for around 3 per cent in IPP. .

Households account for 67 per cent of investment in CBR, private corporate sector 19 per cent, and other institutional sectors together 4 per cent.

Capex in private non-financial corporate sector comprises 58 per cent plant and equipment, 33 per cent construction, and around 9 per cent IPP.

Capex in non-financial public sector enterprises includes 46 per cent in plant and equipment, 42 per cent in construction, and 12 per cent in IPP.

Capex in financial private corporates comprises 46 per cent construction, 34 per cent in plant & equipment and 20 per cent in IPP.

Capex in financial public sector enterprises comprises 71 per cent plant and equipment, 26 per cent construction, and 2 per cent IPP. High shares of plant and equipment in public and private financial companies is a little surprising as these segments are generally perceived to be pro-construction.

Construction accounts for 78 per cent of capex in general government, plant and equipment 19 per cent, and IPP 3 per cent.

Household sector invests 84 per cent in construction, 15 per cent in plant and equipment, and the balance in IPP and cultivated biological resources.

High shares of construction in general government and households are interesting, which together account for 70 per cent of investment in construction segment of projects investment.

GROSS FIXED ASSETS FORMATION IN THE COUNTRY (AT CURRENT PRICES)
2011-12
2012-13
2013-14
2011-12
2012-13
2013-14
Rs billion
% to Total
GFCF
29,712
31,364
33,679
100
100
100
By Type of Asset
Dwellings, Other
Buildings & Structures
17,623
18,259
19,731
59.3
58.2
58.6
Machinery & Equipment
10,583
11,495
11,999
35.6
36.7
35.6
Cultivated Biological
Resources
72
65
73
0.2
0.2
0.2
Intellectual Property
Products
1,435
1,544
1,875
4.8
4.9
5.6
By Institution
Private Corporate
9,862
11,744
12,883
33.2
37.4
38.3
PSUs including
Department Enterprises
3,407
3,562
4,153
11.5
11.4
12.3
General Government
3,161
3,424
4,655
10.6
10.9
13.8
Household Sector
13,283
12,633
11,988
44.7
40.3
35.6

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