“While a smaller part of this enhanced investments next year will be supported by budget, a large part will likely be funded via enhanced borrowings and asset monetisation proceeds of the CPSEs, such as railways, NHAI, GAIL and Power Grid,” said a source.
Large central public sector entities (CPSEs) and departmental undertakings may scale up their capex plans by 50-60% on year to Rs 7.5-8 lakh crore in FY22, complementing in good measure the Centre’s effort to accelerate public sector investment expenditure. In order to generate the extra resources, the CPSEs will unlock capital trapped in the immovable assets, including surplus land parcels, on an unprecedented scale.
“While a smaller part of this enhanced investments next year will be supported by budget, a large part will likely be funded via enhanced borrowings and asset monetisation proceeds of the CPSEs, such as railways, NHAI, GAIL and Power Grid,” said a source. Of course, given the level of internal resources, some of these companies may resort to the market to raise funds.
Despite the pandemic, these entities, each with annual capex budget of Rs 500 crore or above, may reach close to the capex target of Rs 4.95 lakh crore in FY21.
The CPSEs (excluding the likes of the railways and NHAI) will likely set a target to invest about Rs 3.5 lakh crore for FY22, 64% more than the estimate for FY21. Recently, the Prime Minister’s Office has asked oil sector CPSEs to double their capex from the orginal estimate for FY21 by investing Rs 2 lakh crore.
While there isn’t much scope to invest beyond Rs 1 lakh crore in FY21 due to paucity of time, these firms are expected to significantly step up their capex in FY22. Coal India has plans to double capex to Rs 20,000 crore in FY22 from Rs 10,000 crore initially planned for FY21. CIL has revised its investment target to Rs 13,000 crore for FY21.
Among departmental arms, the railways will be the biggest contributor by investing at least Rs 2 lakh crore in FY22, up from Rs 1.6 lakh crore planned for FY21. The other major investor will be the NHAI, which will likely further scale up capex in FY22 from Rs 1.1 lakh crore estimated for FY21.
Three dozen CPSEs and departmental arms, 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. These entities achieved about 30% of their capital expenditure target for FY21 in the third quarter of the financial year, almost matching their investments in the first two quarters. The jump in CPSE capex came after constant prodding by the finance minister Nirmala Sitharaman.
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.
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%).
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. The acceleration in capex by CPSEs will aid the country’s gross domestic product (GDP) recover faster in FY22 after a likely 7.7% contraction in FY21.
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.
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.