CPSEs keep normal capex pace in Covid-19 times, but daunting task ahead

Large central public-sector entities — companies and undertakings — achieved 30% of their capital expenditure (capex) target for FY21 in the first half of the financial year, by spending almost Rs 1.5 lakh crore, according to official sources. This is a creditable achievement, as it reflects that these companies have managed to hold on to the capex pace shown in recent years in the first half, despite the Covid-19 shock.

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 speed up capital investments in the current year as it hopes that the slippages on the other investors, including the central and state governments will be offset to a certain extent by the CPSEs/undertakings. The Union finance ministry has already told CPSEs/undertakings that they must achieve 150% of the initial capex target of Rs 4.9 lakh crore in FY21.

However, this is going to be a daunting task for these entities. With little additional budget support expected, they will have to scale up borrowings to augment capex. In a market already over-crowded with higher government borrowings, this would prove to be a costly affair.

“The government wants CPSEs to increase capex in the current financial year to boost economic activity,” an official said. 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.

While most entities were trailing the finance ministry’s target of 50% of annual target in H1FY21, Coal India was an exception by achieving a little over 50% of its capex plan of Rs 10,000 crore for FY21 in April-September. Among the undertakings, the Railways has the largest investment plan in FY21 with capex target of Rs 1.6 lakh crore, followed by the NHAI (Rs 1.1 lakh crore), ONGC (Rs 32,502 crore) and IOC (Rs 26,233 crore).

Capex performance by the CPSEs in the energy sector in April-August indicates they are too struggling to emerge from torpor caused by the lockdown. Among them, a dozen CPSEs in oil-and-gas sector achieved only 25% of their FY21 capex target in April-August this fiscal, compared with 32% of the respective target in the year-ago period, sources said.

CPSEs in other sectors are also facing difficulties in executing projects due to Covid-19 which 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.

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. The combined capital expenditure by the CPSEs with annual capex budgets above Rs 500 crore turned out to be Rs 4.41 lakh crore or 90% of the target in FY20.

With private investments in the doldrums, gross fixed capital formation (GFCF), which was 31.1% of the gross domestic product (GDP) in FY15, declined to 29.8% in FY20. The fall would have been sharper had the CPSEs not acquitted themselves well.

In recent years, public capex has been roughly in the 5:5.5:3.5 ratio among the CPSEs, states (budget) and the Centre (budget). With net tax revenue declining by about 30% on year in April-August of this fiscal, the Centre’s budgetary capex declined 1.3% as against a required growth rate of 22% to achieve the full year capex target. The decline in budgetary capex was a steep 21% on year in August, reflecting efforts by the government to contain the yawning fiscal deficit.

Analysts see the Centre’s fiscal deficit doubling from the budgeted level of `8 lakh crore for FY21, even for maintaining the budgeted level of spending.

Data reviewed by FE for ten states — Madhya Pradesh, Andhra Pradesh, Karnataka, Odisha, Telangana, Kerala, Chattisgarh, Haryana, Jharkhand and Himachal Pradesh — showed that their combined capex declined 19% on year in April-July of FY21.