Slowing economy affected profits, wages but investments upbeat in FY20

Annual Survey of Industries shows that firms' GVA shrank 3.4%, while GFCF touched 8-year high

Economy
Indivjal Dhasmana New Delhi
2 min read Last Updated : Aug 20 2022 | 12:20 AM IST
Investments by companies remained upbeat at the factory level even though the economy was slowing in the pre-Covid period of financial year 2019-20 (FY20), showed the latest Annual Survey of Industries (ASI). The effect of the slowing economy was felt on workers’ wages, profits of these companies and their gross value addition that year.

The gross fixed capital formation (GFCF) by these companies grew almost 21 per cent at Rs 4.16 trillion at current prices during FY20, double the growth of 10 per cent in the previous year. This growth rate was at an eight-year high, the previous peak being 21.21 per cent in FY12.

Despite that, these companies’ profits declined 15.6 per cent without inflation adjustment in the pre-Covid year against a fall of 3.4 per cent in FY19. Gross value added (GVA) by these firms shrank 3.4 per cent in FY20.

The ASI provides data at the factory level and not at the enterprise level. As such, profit figures are operating profits, explained former chief statistician Pronab Sen.

Declining GVA and profits led to a dip in the growth of workers’ wages to six per cent in FY20, against 11 per cent or more growth at least since FY15.

These factories are manufacturing, repair service units, and electricity, gas and water supply ones. It seems a bit perplexing as to why profits and GVA of these factories were down when investments were so high. 

Sen explained that the GVA of these companies and profits contracted as the economy slowed in FY20. Gross domestic product (GDP) grew by just 3.7 per cent that year against 6.5 per cent in the previous year. GVA rose 3.8 per cent against 5.8 per cent the previous year. GDP at current prices grew  6.2 per cent during 2019-20 against 6.2 per cent in the previous year. GVA at current prices expanded 6.9 per cent against 10.8 per cent during this period.

As to why investment rose, Sen said investment intentions take several years to fructify. “After 2017, corporate India was doing very well. They have enhanced their investments,” he said. They were impacted later in FY21 and FY22, he said.
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Topics :India economyeconomy

First Published: Aug 18 2022 | 4:22 PM IST

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