At close to Rs 92,000 crore, the government’s capital expenditure in the five months to August doesn’t come across as overly exciting given the target for FY16 of Rs 2.41 lakh crore. While bureaucrats may claim this is a jump of close to 40% over the spends in the corresponding period of FY15, the fact is that last year the government was forced to be parsimonious so as to be able to rein in the deficit. Also, unless there is a big jump in September – which is always possible given the lumpiness of certain expenditure – there hasn’t been too much front-loading either. Right now the run rate for government capex is around 38% and for it to even hit the 50% mark, business would have had to be very brisk in September with an estimated spend of close to Rs 28,000 crore. If that has happened it would be creditable; else it means government isn’t really front-loading spends. And that would be disappointing because it’s government that’s supposed to be driving investments at a time when the private sector is neck-deep in debt and apprehensive of adding capacity when there’s so much to spare.
CMIE data shows the number of stalled projects and their value too is once again increasing – in the July to September quarter they were at 7.6% of GDP up from 6.9% in the April-June quarter. The reason this is disappointing is because stalled projects have actually fallen since the March, 2014 quarter when it had hit 8.5%. As HSBC has argued, reviving stalled projects is ‘paramount for any lift in capex activity’ because new investments cannot do well if stalled ones don’t budge. Which is why a spike in new project announcements – after coming off for several quarters, these have seen a rise – may not really translate into ventures as anaemic demand and abundant capacity will compel industry to hold back. In other words, any pick up in capex is likely to be fuelled by stuck projects coming unstuck rather than any new initiatives. As is well-known thousands of crores of bank funds are locked up in stalled projects and lenders would want to see some of this money back with them before they add exposure to sectors such as power, steel or even roads. Unfortunately, there are few business groups or companies – in the capital-intensive industrial sector – that are not highly indebted. Since it is these groups and companies that will be setting up projects, it makes it difficult for banks to lend to them even if they do have the resources.
The fact is that there is no new universe of promoters that has the financial wherewithal to invest. The solution of course lies in kick-starting stuck projects but that is easier said than done since most of these are held up either because land can’t be acquired, environment clearances haven’t come through or there isn’t enough feedstock. Some of these need to be fast-tracked; also the government needs to make the most of the fairly buoyant revenues that it hopes to earn this year and use the funds to boost investment. Next year there will be many more demands on its money.