Business

In Charts: How investment in India Inc. plunged after demonetisation

Photo for representation.

Photo for representation.  

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In Financial Year 2017, investments by corporates sank by 63.7% compared to Financial Year 2013, according to a government-commissioned report accessed by journalist Puja Mehra and published in The Hindu on Thursday.

The report also shows that the percentage of loss-making companies went up from 42% to 45% in the aforementioned period. Though the report does not specifically point to demonetisation, it can be noted that the fall in investments is particularly pronounced in the Financial Year following the announcement.

The documents, Volume I of which is titled 'Report on Income Tax Reforms for building a new India', is dated September 2018. Chapter X of the report, which deals with reform of corporate income tax, flags several issues.

A look at some of the key findings of the report:

Investment crunch

Investments by both profit- and loss-making corporates came down drastically in the Financial Year demonetisation was introduced (FY16). In fact, investments of profit-making corporates went into the red, while investments by loss-making corporates nearly halved. Overall, the fall in investments after the announcement of demonetisation was nearly 60%.

 

It can also be seen that the investments dropped to just 2.8% of GDP in the year following demonetisation (it was 7.5% the preceding year).

More loss-making firms

The percentage of loss-making firms went up from 42% to 45% between FY 2013 and FY 2017. It is to be noted that the share of profit-making firms remained higher, at 55% in FY17.

Note: The 'total' and 'service' lines overlap till FY16.

 

Building and entertainment companies were hit the most between FY16 and FY17.

Quantum of profits and losses

The profit-making firms continued to make higher profits, while the loss-making companies lost higher amounts of money.

While manufacturing companies showed the biggest cumulative profits (before tax) among profit-making firms, they also had the highest cumulative losses among loss-making companies in FY17.

In the below charts, the data for 'total' profits and losses correspond to the scale on the right axis, while sector-wise data follows the scale on the left axis.

 

The service industry also recorded a high percentage of loss in FY17 compared to the previous year.

More profit, more tax

About 1,200 companies (accounting for about 0.2% of the total) account for 67% of the tax liability, while over half the companies put together account for just 5.4% of the tax liability.

 

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Printable version | Jan 23, 2020 11:39:45 PM | https://www.thehindu.com/business/performance-of-corporate-firms-declines/article29231755.ece

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