The Centre would keep the pressure on companies owned by it to arrest the fall in public capital expenditure, a stance that could scale up borrowings by these entities in the year, from a market where the government already has an unusually high presence.
During a video conference on Monday, finance minister Nirmala Sitharaman asked fourteen central public sector enterprises (CPSEs) in the petroleum and coal sectors to accelerate spending to achieve 75% of their annual (FY21) capex targets by the end of December quarter. This is daunting task for these firms, since in April-September, they have met only 32% (Rs 37,423 crore) of their FY21 capex target of Rs 1.16 lakh crore. The achievement was lower, compared with 39% (Rs 43,097 crore) of the relevant target achieved in the year ago period. In FY20, against the capex target of Rs 1,11,672 crore for these 14 CPSEs, the achievement was Rs 1,16,323 crore or 104%.
As reported by FE earlier, the finance ministry has already told CPSEs/undertakings with an annual capex budget of Rs 500 crore and more that they must achieve 150% of the initial capex target of Rs 4.9 lakh crore in FY21. This is despite the fact that these large CPSEs – companies and undertakings – achieved 30% of their capex target for FY21 in the first half of the financial year, by spending almost Rs 1.5 lakh crore. That was still a creditable achievement, as it reflected 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.
Monday’s video conference was the fourth by the finance minister this year related to CPSE capex. Sitharaman asked the CMDs of the 14 CPSEs, secretaries of administrative ministries of petroleum and coal to closely monitor the capex performance. Oil and gas sector companies, which make up for bulk of the capex in this group of 14 CPSEs, had achieved 67% of their FY20 capex target of Rs 93,639 crore in the first nine months of the last fiscal. The petroleum companies’ together have capex plans of Rs 98,522 crore for FY21 while Coal India has a capex plan of Rs 10,000 crore.
Sitharaman said that better performance of CPSEs can help the economy in a big way to recover from the impact of Covid-19. “While reviewing the performance of CPSEs, Sitharaman said that capex by CPSEs is a critical driver of economic growth and need to be scaled up for the FY21 and FY22,” the finance ministry said in a statement.
FM is holding such review meetings on the performance of capex of CPSEs every month, scoring the urgency to revive economic growth, which is projected by many agencies to contract by 10-15% in FY21. 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.
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 `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).