Indian registered factories pulled back on new investment in the financial year 2024-25 (FY25) even as employment generation during the year hit a record high.
Gross fixed capital formation (GFCF) fell 8 per cent to ₹63,497 crore, the first decline since the pandemic year FY21, after rising 77 per cent in FY23 and 18 per cent in FY24, data from the latest Annual Survey of Industries (ASI) showed.
The data is backed by the fact that fixed capital per worker — how much machinery backs each job — grew 3.1 per cent, about half of FY24’s 5.9 per cent pace. Thus, factories mostly grew by adding people to existing capacity, not by building new capacity to go with them.
“There are two years of high capital formation, so there is a tendency for growth to come off — that’s a base effect,” said Madan Sabnavis, chief economist, Bank of Baroda, while cautioning that normally there is also something happening on the ground; you cannot ignore that part.
“It is mainly because of the private sector slowing down, but it will be more in terms of the consumer goods segment. That is a segment which had a pushback on account of inflation, rural demand, urban demand at that time. So I would say that is the reason why investment from this segment has slowed down,” reckoned Sabnavis.
He also pointed to the lumpy nature of capital expenditure in infrastructure-linked sectors such as steel and power — investment tends to come in bursts rather than every year.
Worker productivity showed why that matters. Output per worker fell 0.4 per cent in FY24 and crept up just 0.5 per cent in FY25 — the only two-year stretch in the ASI’s record since 1981-82 this close to zero in both consecutive years. Productivity had risen 25.3 per cent in FY22 and 13.1 per cent in FY23.
Profit per factory grew 5 per cent in FY25 to ₹4.33 crore, while wages per worker grew 5.3 per cent to ₹2.28 lakh. This marks a reversal from FY24, when ASI data had shown profit per factory growing faster than wages — 7 per cent against 5.5 per cent — a divergence that was flagged in the Economic Survey 2024-25 as well.
The gap between profit and wage growth has narrowed sharply since and remained small for three years. Further, the two have swung back and forth almost every year since the pandemic: profit surged 28.7 per cent and 55.1 per cent in FY21 and FY22 against wage growth of just 0.8 per cent and 10 per cent, before FY23 flipped the pattern.
However, workers in some states witnessed higher wage increases than the national average increase in emoluments per person engaged of 4.6 per cent: Sikkim (47.7 per cent), Tripura (15 per cent), Bihar (12 per cent), Chhattisgarh (9 per cent) and Telangana (8.9 per cent).
On productivity, Odisha remained the best-performing state by output per person engaged in FY25, at ₹1.42 crore, followed by Sikkim (₹1.29 crore), Chhattisgarh (₹1.1 crore), Jharkhand (₹1.04 crore) and Gujarat (₹1.03 crore).
