Capex push to aid economy: CEA

Source: Livemint

What is the News?

According to the Chief Economic Advisor(CEA), the Government is following a Capital Expenditure(Capex) driven strategy to boost economic activity in the country.

Key facts mentioned in the article:

What is Gross Fixed Capital Formation(GFCF)?

• Gross Fixed Capital Formation(GFCF) represents investment demand in the economy.
• As per RBI, GFCF refers to the aggregate of gross additions to fixed assets (i.e. fixed capital formation) plus changes in stocks during the counting period. Fixed asset refers to the construction, machinery, and equipment.

Increase in GFCF:

• The Gross fixed capital formation(GFCF) has increased by almost 30%.
• Hence, due to this the ratio of GFCF to gross domestic product (GDP) was 34.3%, the highest in the last 26 quarters. However, a lot of it was Government Capex (capital expenditure).

Impact of Increase in GFCF: The two key spillover effects of the increase in GFCF are:

• Firstly, Consumption declined for three quarters because of both the pandemic-induced restrictions and pandemic-induced risk aversion. Now, it has grown by 2.7% in the fourth quarter.
• Second, contact-sensitive sectors were affected across the world because of the pandemic and declined in high double digits. But, in the previous three quarters, it has declined by only 2.3% in the fourth quarter.