Opinion Express View on latest RBI reports: A limited growth
Centre's capex push and residential housing drive investment activity. But there are few signs of broad-based pick-up in private sector spending
The study says that investment activity is driven by the government’s sustained push on capex, which is beginning to crowd-in private investment, and investments by households in residential housing. The Centre's capital spending is up around 31 per cent in the first nine months (April-November) of the year 
As per the first advance estimates of national income, released by the National Statistical Office in early January, the Indian economy is expected to grow at 7.3 per cent in the ongoing financial year. This growth estimate has surpassed even the most optimistic assessments by analysts.
Now, a study by economists at the RBI notes that this stronger than expected growth is “underpinned by a shift from consumption to investment”. Investments, as measured by gross fixed capital formation, are estimated to grow at 10.3 per cent in 2023-24. Growth this year will push the investment to GDP ratio (at current prices) to 29.8 per cent in 2023-23, up almost one percentage point from 28.9 per cent in 2021-22.
The study says that investment activity is driven by the government’s sustained push on capex, which is beginning to crowd-in private investment, and investments by households in residential housing. The Centre’s capital spending is up around 31 per cent in the first nine months (April-November) of the year. And till November, it had sanctioned Rs 97,374 crore under the scheme for special assistance to states for investment as per the study. (This is roughly 75 per cent of the Rs 1.3 lakh crore allocated for the financial year). However, investment spending by state governments has been slower as per a study by economists at Bank of Baroda. Of the Rs 7 lakh crore of capex projected by 26 states, by November only Rs 3.18 lakh crore or 45 per cent had been spent. Household investments in real estate, though, continue to grow at a brisk pace. As per the study, the housing market “is seeing its highest sales in more than a decade”.
On private corporate sector investments, the study notes that public sector spending is beginning to crowd-in private investment, “as high corporate profitability… has begun to induce creation of fixed assets”. However, as per a report by economists at Bank of Baroda, new investment announcements during April-December were at the lowest levels in recent years (excluding 2020). Moreover, of all the new investments announced, almost half of them can be traced to the aviation sector, where airlines have placed large orders for new aircrafts. Gross inward foreign direct investments have also fallen by 4.1 per cent to $47 billion during April-November. So while private investments may have picked up in some sectors, there is little indication of a broad-based pick-up in corporate investment activity.
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