Economic slowdown: Key ministries told to fast-track capex

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Updated: September 28, 2019 6:52:26 AM

The Centre’s budget capex is estimated to rise about 10% year-on-year in FY20 compared with Rs 3.03 lakh crore in FY19 while the CPSEs would invest about Rs 4.5 lakh crore, up 3.2% y-o-y.

Banks tend to reduce the availability of working capital loans to firms which have accessed the guarantees.

The extra fiscal pressure from the recent slashing of corporate taxes isn’t leading to any compression of public expenditure. Finance minister Nirmala Sitharaman on Friday held a meeting with key infrastructure and other ministries and asked them to ensure their capital expenditure targets for FY20 are indeed met. The minister also urged government agencies like the NHAI and CPSEs to clear their outstanding dues to the industry by next week. The ministries have also been asked to provide their detailed capital expenditure plans for the next four quarters for faster execution of projects.

The move clearly signals the government’s thinking that apart from giving a cash booster to companies with steep tax cuts, the government-sector will also have to play a timely and complementary role in advancing the much-awaited revival of investment cycle.

Addressing media persons along with the minister, expenditure secretary Girish Chandra Murmu said that out of the total outstanding dues of about Rs 60,000 crore by government agencies and CPSEs to the industry, about Rs 40,000 crore has already been cleared and that balance amount would also be paid soon.

After lagging behind trend in the initial months of this fiscal, the Centre’s budgetary capex gathered pace recently.

About Rs 1.36 lakh crore or 40.3% of FY20 target was spent by August-end, compared with 44.1% of the relevant target achieved in the year-ago period.

On the difficulties faced by firms to secure bank guarantees to receive 75% of the arbitration awards from government entities as announced on August 23, Sitharaman said fees charged by the banks for guarantee are high and the matter would be taken up with the Reserve Bank of India.

Among the CPSEs and other government undertakings, NHAI has recently released Rs 3,300 crore to the contractors against bank guarantee of Rs 4,000 crore. Going by the diktat to release 75% of the claimed amounts, NHAI should have released Rs 12,000 crore.

Industry has been complaining that bank guarantee requirement for release of dues is imposing an additional cost on them as well as locking up their working capital. Banks tend to reduce the availability of working capital loans to firms which have accessed the guarantees.

It may however be noted that the budget capex size is not big enough to trigger investment revival. DK Srivasatava, chief policy adviser, EY India wrote recently: “the direct contribution of the Central government in the augmentation of the investment rate is quite limited. Both in FY19 and FY20, the Centre’s capital expenditure relative to GDP is estimated to be 1.6% which is about 5% of the aggregate investment. Investment through CPSEs is estimated to be 2.4% of GDP in FY19 but is projected to fall to 2.1% in FY20.”

Besides budgetary capex, the Centre also released Rs 82,000 crore for creation of capital assets in the first five months of this fiscal, about 40% of the FY20 target of Rs 2.07 lakh crore. It also approved release of extra budgetary resources worth Rs 46,000 crore, the principal and interest of which are to be paid from budget in later years, in the first five months of this year.

The Centre’s budget capex is estimated to rise about 10% year-on-year in FY20 compared with Rs 3.03 lakh crore in FY19 while the CPSEs would invest about Rs 4.5 lakh crore, up 3.2% y-o-y. Under prodding by the government, many large CPSEs have accelerated their capital spending in recent years and they have also had to pay liberal dividends and buy back own shares to support a revenue-hungry government. While this was expected to slow their capex growth a bit in the current year, the latest corporate tax cuts might boost the cash position of CPSEs too.

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