Incorporation of new firms jumps in India

Registration of new companies in India surged to the highest in more than seven years in July in one of the clearest signs yet of renewed investor interest and plans by entrepreneurs to set up new business ventures.

A total of 16,487 were incorporated in July, data from the corporate affairs ministry showed. This is the highest since January 2013—the maximum available historical data—when 5,508 companies were registered.

The July figure is a sharp rise from the 3,209 companies incorporated in April when Asia's third-largest economy was under a strict lockdown to control the coronavirus pandemic. In May, 4,835 were registered, increasing to 10,954 in June.

To be sure, setting up a company shows the intention to invest, but prevailing economic conditions will play a big role before the companies finalise their investment decisions. The total authorized capital of all companies set up in July is Rs2,294 crore, reported Livemint.

Data for new company registrations in July is more optimistic than certain other high-frequency economic indicators, which had suggested that a revival of the Indian economy may be prolonged due to the severe impact of the pandemic and the extended lockdown measures.

The spike in the number of companies registered merits a lot of attention, said Mahesh Vyas, managing director at Centre for Monitoring Indian Economy (CMIE), a business information company and think tank. "However, whether it is indicative of investor interest can only be known after investigating it. Setting up a company is an act of commission and I would not ignore this data," said Vyas.

The spurt in new company registration suggests a shift in economic activity after the pandemic. The number of companies in agriculture, an employment generating sector that weathered the shock dealt by the coronavirus crisis, rose from 138 in April progressively to 903 in July. The share of farm and allied sector companies among all the companies set up in a month too rose from 4.3% in April to 5.4% in July. Farm activity was exempted from the national lockdown.

The number of industrial companies registered, comprising mostly manufacturing entities, too rose from 803 in April, accounting for 25% of all companies formed in the month, to 5,041 in July, representing 30.5% of all the companies.

The services sector, which accounts for the lion's share of all new companies formed as well as more than half of India's gross domestic product (GDP), has a slightly different tale to tell. While the number of services companies set up rose more than fourfold from 2,268 in April to 10,543 in July, its share came down from 70.6% in April to 63.9% in July.