Spends by the government and public sector companies on infrastructure projects rose sharply in 2015-2016. While the value of tenders floated rose 58% to Rs 6.24 lakh crore, contracts worth Rs 3.4 lakh crore were awarded, an increase of 33%, Emkay Research estimates.
However, the increases came off a low base in 2014-15 when there was a fall in the value of contracts given out partly because the government was struggling to rein in the fiscal deficit and consequently curbed expenditure. The renewed focus on infrastructure last fiscal saw the government upping spends.
The investments are critical as most private sector firms remain over-leveraged and are are not in a position to add fresh capacity.
Data released by CMIE showed stalled projects between January and March rose for the third straight quarter.
“While unfavourable market conditions gained in importance, policy bottlenecks continued as the main cause for stalling, underscoring once again the need for government action,” HSBC economists wrote in a note. However, appetite for fresh projects improved and after falling in the December quarter, new project intentions rose in the three months to March. While in the July-September quarter much of the increase had been driven by two projects, in the March quarter the increase was spread across electricity generation, roads, refinery and housing construction.
The increase in infra spends will boost the order books of capital goods manufacturers. Engineering heavyweights such as Larsen & Toubro and BHEL have been struggling to win orders as have smaller companies such as ABB and Thermax. However, the government has outlined big plans for the construction of roads and also intends to invest heavily in railways. Indian Railways achieved a capital expenditure of Rs 94,000 crore in FY16, up 44% year-on-year, with IR cutting the timeline for approving projects to six months from 24 months earlier. The government hopes to award 10,000 km of roads in FY17 and has increased the allocation by 25% over that in FY16.The rate of execution per day has picked up for the sector to 15 km per day in the nine months to December, 2015, from 11-12 km per day in FY15.