67% of capex target achieved till January end; depleting internal investible resources could reflect in FY22
The National Highways Authority of India (NHAI) invested Rs 90,000 crore or 84% of its FY21 target in April-January.
Large central public-sector entities – companies and undertakings (CPSEs) – achieved 67% of their capital expenditure target for FY21 in April-January of the financial year by spending Rs 3.35 lakh crore, according to official sources. This is indeed a creditable achievement in the pandemic-ravaged year, as it reflects a sharp pick-up after the lockdown period (Q1 capex by these entities were just 7% of the annual target) and its immediate aftermath.
The normal pace of CPSE capex in the crisis period is catalysed by the Centre’s constant prodding and monitoring of projects.
The question, however, is whether most of the large CPSEs – all with annual capex budget of Rs 500 crore or more — will be able to sustain the capex pace in FY22. Aggressive investments over the last few years, designed to compensate for the sharp fall in private investments and arrest the fall in investment rate, have depleted the cash reserves and surpluses of many of these entities. This means to maintain the capex levels in FY22 and beyond, they will have to raise resources through augmented borrowings and proactively use the asset monetisation route.
A comptroller general of accounts (CAG) report, tabled in Parliament on Tuesday, showed the return on investment (CAGR) of 53 listed CPSEs declined from 22.91% in 2016-17 to 21.61% in 2017-18 and 19.86% in 2018-19, indicating that the compulsion to keep an accelerated capex pace could have negatively impacted the returns.
The recent Union Budget, too, recognised a likely slowing of CPSE capex. Even as Budgetary capex in the current fiscal is revised to Rs 4.39 lakh crore from Rs 4.12 lakh crore and an impressive outlay of Rs 5.54 lakh crore is made for FY22, the rise in overall public capital expenditure, including CPSE investments, are seen to be modest. Public capex – including those financed by internal resources of CPSEs and extra budgetary resources — are seen at the same level as the BE in the RE for FY21 (Rs 10.85 lakh crore) and only 4.7% higher at Rs 11.37 lakh crore in FY22. Also, since tax transfers to states are heavily impacted by the dip in collections and the states’ declining share in gross receipts, their capex plans could also be adversely impacted in the next financial year.
However, for the current year, the likelihood of CPSEs meeting FY21 capex target of Rs 4.95 lakh crore could give a leg-up to gross fixed capital formation (GFCF) in H2. 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.
Among the government undertakings, the railways as the largest investor deployed capex of Rs 1 lakh crore in the first 10 months of the year, which was about 62% of its capex plan for the full year. The National Highways Authority of India (NHAI) invested Rs 90,000 crore or 84% of its FY21 target in April-January. During the period, Oil and Natural Gas Corporation reported capex of about Rs 20,000 crore or about 61% of its full-year capex target. ONGC was followed by fuel retailer-cum-refiner Indian Oil Corporation with Rs 16,000 crore (64% of full-year target) and power producer NTPC at Rs 17,000 crore (81%).
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.
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.
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 12 states. The FY21 capex target for all states as per their budgets is Rs 6.5 lakh crore.
Compared with this, the Centre has managed to spend `3.1 lakh crore as budget capex during April-December, up 22% 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 or thereabouts in FY21 as the share of states in public capex has fallen.