Finance minister Nirmala Sitharaman wants large and relatively cash-rich central public sector enterprises (CPSEs) to accelerate their capital spending and achieve 50% of the annual capex targets for the current financial year, in the first half itself. The idea is to soften the blow to the economy from the sharp drop in private investments and slashing of capital expenditures by revenue-starved states.
But early indications of Q1 capex performance by the most significant CPSEs in the energy sector indicates they are too struggling to emerge from torpor caused by the lockdown. Among them, a dozen CPSEs in the oil-and-gas sector achieved only 13% of their FY21 capex target in Q1, compared with 17% of the respective target in the year-ago quarter.
CPSEs in other sectors are also facing difficulties in executing projects due to Covid-19.
This delayed floating of tenders, addressing technical specification issues, transportation of equipment and travel of technical experts.
Arranging finances was also an issue for some CPSEs including Airports Authority of India (AAI).
In Q1FY21, petroleum CPSEs together achieved capex of Rs 12,900 crore, against their annual target of Rs 98,522 crore. Their capital spending in the year ago quarter was higher at Rs 16,137 crore, against an annual target of Rs 93,639 crore (see chart).
Coal India, which has lined up Rs 10,000 crore capex plan for FY21, could achieve only 8.4% of that in Q1 as execution of some projects were delayed due to Covid, a company official said. In Q1FY21, GAIL, a CPSE player in natural gas transmission, has achieved only Rs 401 crore capex or 7.4% of its FY21 target of Rs 5,412 crore compared with 9.2% of respective target in the year ago quarter. “Due to selective lockdown in various states and monsoon season, mobilisation of labour & equipments is a challenge,” a GAIL official said.
AAI, which has plans to invest Rs 5,026 crore in airport infrastructure, is facing liquidity issues as it had plans to fund 60% of investments from internal revenue accruals. With low footfalls in airports due to virtual grounding of international operations and limited domestic operations, AAI’s revenue generation plans have gone awry, sources said.
Sitharaman on July 23 asked select seven CPSEs in aviation, railways and steel to accelerate spending to achieve 50% of their FY21 capex target by the end of September quarter (Q2) to help in the revival of economic activity. These PSUs had achieved only 14% of annual capex target in Q1.
According to official sources, some 250 CPSEs (including departmental undertakings) among themselves spent just 7% of their annual target in Q1FY21, compared with the trend of spending 15% of annual target or thereabouts in the first quarter. Over 70% of the capex materialises in the second half of the financial year.
The CPSEs, under government prodding, have set a target to invest about Rs 4.5 lakh crore from their internal accruals and borrowings in FY21; the target itself was lower than the estimated Rs 5 lakh crore (revised estimate) for FY20RE. In fact, the actual capex achievement by CPSEs in FY20 is believed to be a little lower than the RE, as the economic slowdown accentuated in the second half of last fiscal.
As reported by FE earlier, while revenue constraints led to a slowing of capital expenditure by state governments in FY20, the CPSEs owned by it largely held the fort, preventing public expenditure from losing its share in the gross domestic product (GDP). The combined capital expenditure by the CPSEs with annual capex budgets above Rs 500 crore turned out to be Rs 4.41 lakh crore in FY20. This was 90% of the Rs 4.9-lakh-crore target for the year and 1.1% higher than the capital spending by these entities in the previous year.
With a nearly 40% share, CPSEs have in recent years been the main pillar of public capex and have largely kept pace, even as the other two segments — central budget (25%) and states (35%) faltered.