Sustained improvement in capital use efficiency will be a big boost to India's growth prospects in coming years

There is a distinct improvement in capital use efficiency compared to the pre-Covid decade. If this trend in capital efficiency is sustained, it will be a big boost to India’s growth prospects in the coming years as cross-border capital flows become hostage to geopolitical developments, Finance Ministry stated in a latest monthly economic update. As per the first revised estimates (FRE) for FY24, real GDP has grown by 9.2 per cent in FY24, up from 8.2 per cent as per the provisional estimates (PE) made in May 2024. This is the highest in the previous 12 years except for FY22 (the post-covid year). This growth has been contributed by double-digit growth rates in the manufacturing sector (12.3 per cent), the construction sector (10.4 per cent) and the financial, real estate & professional services sector (10.3 per cent).

The FRE of National Income also gives interesting insights into the developments in the savings-investment balance. In FY24, fixed investment (Gross Fixed Capital Formation) increased by 9.2 per cent. This was predominantly on the back of robust investment by the general government and public sector undertakings, while the private corporate sector was cautious in its approach amidst global uncertainties. During the three-year block of FY22 to FY24, savings and investment as a per cent of GDP averaged 30.9 per cent and 32.2 per cent, yielding a savings-investment gap (current account deficit) of 1.3 per cent. Real GDP growth averaged 8.8 per cent during the period, which signifies an incremental capital-output ratio of below 4 and reflects improved capital efficiency.

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