State governments have slowed down investments significantly in the current fiscal year and the Centre's Budget capex also looks constrained, due to the pandemic-induced revenue shortfalls.
Large central public-sector entities – companies and undertakings – achieved about 30% of their capital expenditure target for FY21 in the third quarter of the financial year, by spending Rs 1.4 lakh crore, almost matching their investments in the first two quarters, according to official sources. The jump in CPSE capex comes after constant prodding by the finance minister Nirmala Sitharaman.
State governments have slowed down investments significantly in the current fiscal year and the Centre’s Budget capex also looks constrained, due to the pandemic-induced revenue shortfalls.
The jump in CPSE capex in Q3 could give leg-up to gross fixed capital formation (GFCF) in the quarter; a sharp narrowing of contraction in GFCF was already seen in Q2 (down 7.3% on year) from a record decline (47.1%) in Q1.
Three dozen CPSEs, with capex plan of at least Rs 500 crore, invested Rs 2.9 lakh crore or about 60% of their annual capex target of Rs 4.95 lakh crore in April-December of FY21.
This is a creditable achievement, as it reflects that these companies have managed to hold on to the capex pace shown in recent years, despite the Covid-19 shock. Among the government agencies, the railways was the largest investor in the first nine months of FY21 with Rs 95,000 crore, which was about 60% of its capex plan for the full year.
The National Highways Authority of India (NHAI) invested Rs 75,000 crore or 68% of its FY21 target in April-December 2020. During the period, Oil and Natural Gas Corporation reported capex of about Rs 17,000 crore or about 52% of its full year capex targe. ONGC was followed by fuel retailer-cum-refiner Indian Oil Corporation with Rs 15,000 crore (60% of full-year target) and power producer NTPC at Rs 15,000 crore (71%).
In the last few years, CPSE capex has remained robust; the ratio of capex deployment between the first and second halves of a financial year has been 3:7.
Of course, the Centre is putting extra pressure on these entities to augment capital investments in the current year as it hopes that the slippages on the part of other public-sector investors, including the state governments will be offset to an extent by the CPSEs.
Even though the Union finance ministry and prime minister’s office have already told many CPSEs that they must strive to achieve 50% more than their annual capex target in FY21, this is going to be a daunting task for these entities. Officials expect the capex achievement by CPSEs will be within targeted Rs 4.95 lakh crore for this fiscal.
The combined capital expenditure by the CPSEs turned out to be Rs 4.41 lakh crore or 90% of the target in FY20. More than 80% of the capex by these CPSEs and departmental units usually comes from their own surpluses and loans while the balance funds are provided from the Union Budget.
As against a 30% year-on-year jump projected for FY21, budgetary capital expenditure by state governments might have dropped by a quarter in April-November, going by an FE review of data from twelve states. Among them, these twelve states — Uttar Pradesh, Tamil Nadu, Madhya Pradesh, Andhra Pradesh, Karnataka, Rajasthan, Odisha, Telangana, Kerala, Chhattisgarh, Haryana and Jharkhand — reported combined capital expenditure of Rs 1,09,860 crore in April-November FY21, compared with Rs 1,48,571 crore in the year-ago period, down 26%. The annual capex target for all states as per their budgets is Rs 6.5 lakh crore.
Compared to this, the Centre has managed to spend Rs 2.41 lakh crore as Budget capex during April-November, up 12.8% on year, even though the FY21 target is Rs 4.12 lakh crore (up 22.4% on year).
In FY20, public capex was roughly in the 5:3.6:3.4 ratio among the states (budget), CPSEs (own funds) and the Centre (Budget). However, this ratio will likely change to 3:4:4.5 in FY21 as the share of states in public capex has fallen.