Private sector's investment share declined to the lowest level in four years in FY23

The private sector’s share in investment declined to its lowest level in four years in FY23 as the share of private non-financial corporations in gross fixed capital formation dipped to 36.2% in FY23 compared with 36.3% in the previous fiscal, as per the latest National Accounts Statistics, Monday.

Meanwhile, the government share in real terms went up to 13% in FY23 from 12% in FY22.

“States share may have increased more, as they stepped up investments in FY23,” said Paras Jasrai, senior analyst, India Ratings and Research.

Public non-financial corporations or public sector companies were the worst performers as their share in investment declined to 9.4%, the lowest level in 12 years. The share of households in investment also declined to 40.5% in FY23 from 41.4% in FY22.

Jasrai notes that there is likely to be a marginal increase in the share of households in FY24.

“Real estate and professional services are doing well, especially as the upper middle-income category is booming, but the general government would have increased significantly in FY24 given the push from states,” he added, highlighting that private non-financial companies share would remain stagnant.

More real estate
A sectoral comparison shows that the share of real estate, ownership of dwelling and professional services, hotels and restaurants, public administration and defence increased in FY23.

Real estate accounts for a fifth of the total investment by the country in real terms, followed by manufacturing which accounts for nearly 16% share. The share of public administration and defence was nearly 10% in FY23 compared with 9.1% a year earlier.

Communication & services related to broadcasting witnessed their share increase to 4.9% from 4.4% earlier, whereas the share of construction declined as the investment in the sector shrunk.

The gross fixed capital formation rose 6.6% in FY23, easing from 17.5% in the previous year.

Investment is the primary driver of growth in FY24 and is likely to be a significant driver according to the International Monetary Fund in FY25.