- The Indian economy is amongst the few in the region where investment rates are up.
- Post-pandemic, the private sector has led the pickup in capital formation, driven by households.
- We construct a multivariate regression model to gauge the drivers and outlook …
- ….of gross fixed investments.
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Summary
Outline
The Indian economy is amongst the few in the region where investment rates have risen between 2015 and 2023. As the chart highlights, gross capital formation rose last year, after an extended period of deleveraging amongst key economic actors since 2014. The broad narrative around the pick-up in the investment upcycle is that it is driven mostly by the public sector, led the central government. This is accompanied by a view that the private sector is yet to participate in the ongoing capex pick-up. A more nuanced view of the underlying data provides a different view, as we outline in the next section.
This note is divided into two parts – We assess the nature of the ongoing capex upcycle, in the first. In the second, we have developed a new framework to gauge the underlying drivers and direction of investment growth. The objective is to use good statistical proxies as independent variables in a multivariate regression model where real gross fixed capital formation is the dependent variable. Using this approach, we have estimated GFCF (real) on a quarterly basis.
Degrees of capex lift
We assess trends in the gross capital formation (GCF), as a sign of investment growth. As annual GCF data is only available till FY23, we aggregate gross additions to fixed assets (i.e., fixed capital formation), increase in stocks of inventories, hereinafter referred to as change in stocks during a period of account and net acquisition of valuables to arrive at the FY24 headline GCF trend. Four observations follow.
Introducing a new framework
We developed a new framework to gauge the underlying drivers and direction of investment growth. The objective is to use appropriate statistical proxies as independent variables in a multivariate regression model where real gross fixed capital formation is the dependent variable. Using this approach, we have estimated real gross fixed capital formation (GFCF) on a quarterly basis.
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