Investment falls as Indian economy slows
Investment growth slowed to about 1% as savings and capital formation fell together, dragging India’s GDP growth down with them.
In an economic sense, investment is the money spent on ‘assets’ used to create wealth in the future. The contribution of this component to the Nominal GDP is around 30%.
The growth figures for investment paint a bleak picture as it grinds to a crawling 1% over the same quarter of the previous fiscal year. India is witnessing a reverse situation since FY12. Both its savings and investment have gone down, dragging the GDP growth along.
The RBI data reveal that the Gross Domestic Savings and Gross Capital Formation (GCF) or Investment reached a new low of 30.3% and 29.1% of the GDP in FY17 – from a high of 34.6% and 36.7%, respectively, in FY12. Both marked a marginal improvement to 30.5% and 29.1% of the GDP, respectively, in FY18- the fiscal year for which comparable data is available.
Source: Business Today
In theory, investment and savings are directly linked in a way such that the negative change in savings should reflect as a positive change in investment. i.e; in a healthy economy, dissavings should ideally go towards investment. Here, however we see that a -4.1% change in savings is accompanied by an even larger -7.6% change in investment.
This points out that not only have the savings in the last 8 years not gone towards investment but rather, the size investment relative to the GDP has shrunk as well. In layman’s terms, the country’s wealth share has declined on both fronts over the last 8 years.
First published on thekakisto.wordpress.com. Figures are as cited at the time of publication; check the linked sources for later revisions.