Doubt on capex trend after latest data

Last Updated: Mon, Dec 10, 2012 03:57 hrs

pThere is still no agreement on whether fixed capital formation is on an uptrend or not yetppThe dismal second quarter GDP numbers had a silver lining in fixed investment growth Capital goods production in the Index of Industrial Production IIP saw contraction however in the second quarter as well At the outset the numbers seemed to contradict but officials claim a deeper analysis points to convergenceppGross fixed capital formation GFCF grew 406 per cent in the second quarter of this financial year against 066 per cent in the first quarter However capital goods continued to see a fall In the second quarter it fell seven per cent Another issue is whether the GFCF change represented a real uptick in the investment rate or was just a base effect since it slowed to 55 per cent in the second quarter of 2011-12 from 1466 per cent in the previous oneppIndias GDP grew just 53 per cent in the second quarter lower than the 55 per cent in the first and equal to that in the last quarter of 2011-12 a three-year low GFCF in the GDP data is derived from these data sets -- movement in the IIP on capital goods import data on capital goods and data on steel and cement said Pronab Sen principal advisor Planning Commissiona target_blank hrefhttpwwwbusiness-standardcomcontentgeneral_pdf121012_01pdfASSET BUILDINGappIt is a majority of the IIP data that is used to derive GFCF He added there was generally a bit of a lag between investment and capital goods production Capital goods output is captured first and the investment gets recorded in the books only after the production takes place he explainedppThen why does capital goods production in the IIP not reflect a recovery as was shown in the fixed investment rate An official with the ministry of statistics and programme implementation MoSPI told Business Standard the GFCF and capital goods data seemed much in sync considering the contraction in capital goods slowed to seven per cent in the second quarter against 20 per cent in the first oneppIn fact on a quarter-on-quarter basis capital goods output expanded 1066 per cent in the IIP data GFCF saw an expansion of 126 per cent on a quarter-on-quarter basis while it had contracted two per cent in the same period last yearpp&ldquoThe growth in investment came mainly from the construction sector be it steel or cement&rdquo said Madan Sabnavis chief economist CARE RatingsppCement production grew 138 per cent in September However it had shown a dismal growth of 32 per cent and 04 per cent in July and August Steel output however did not grow exponentially It grew two per cent in September 18 per cent in August and 08 per cent in JulyppConstruction activity grew by 67 per cent in the second quarter against 63 in the corresponding period last year However it was lower than the 109 per cent in the first quarter though this came largely from the low base of 35 per cent in the year-ago periodp

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