CHENNAI: India’s macro environment is seeing a lopsided growth recovery largely led by consumption whereas private investments remain sluggish in the short term. It is in this context that all eyes have turned to public capex to fill the void. The country’s top ten state-run firms have planned a capex of Rs 1.33 lakh crore in FY18, as the government is pushing the investment cycle by getting firms it controls to boost spending.
After slowing down between fiscal years 2011-12 and 2014-15, public capex is beginning to gain traction. Shobana Krishnan, an economist of Edelweiss, said in a recent report that “Corporate leverage is one of the biggest hurdles to capex cycle. Higher public capex on infrastructure in FY18, efficient execution and reduction in interest costs may crowd-in private investments.”
The ten firms include government oil and gas companies Oil and Natural Gas Corp. Ltd (ONGC), Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and GAIL (India) Ltd; power generator NTPC Ltd; transmission firm Power Grid Corporation of India Limited; miners Coal India Limited and telecom provider Bharat Sanchar Nigam Limited (BSNL); and capital goods maker Bharat Heavy Electricals Ltd.
Oil and Natural Gas Corp alone plans to invest Rs 30,000 crore, the maximum among all state firms. The second-biggest investment has been planned by NTPC, which aims to spend about Rs 28,000 crore. Power Grid will be the third highest spender with Rs 25,000 crore marked for the year. IOC plans to spend Rs 20,000 cr followed by Coal India, BPCL, HPCL and others.
Meanwhile, private capex continues to face impediments in the form of weak corporate performance, stress in the banking sector, excess industrial capacity, and regulatory and policy challenges.
A sharp contraction in capital goods production was also a sign of concern. In June, the industrial production index for capital goods shrank 6.8 per cent, while credit to industry contracted 5.2 per cent in February 2017, and has only managed to recover to (-)1.1 per cent in June, suggesting a meaningful recovery in private investments is unlikely until later in FY18.
But, there are good reasons why state-run companies have to lead the charge. “The industry is reeling under heavy debt and unless restructuring of overleveraged balance sheets of the respective companies take place, the ability to invest is rather limited,” said Utkarsh Palnitkar, partner and national head – Infrastructure, KPMG, India.
While, the state-owned firms are in better position to invest, experts say it may take another six to seven months before private investments and credit growth picks up for the industrial sector.
The total expenditure of the central government is likely to touch Rs 26 lakh crore in 2019-20, up from Rs 21.46 lakh crore, which is estimated for the current financial year, according to the Medium-term Expenditure Framework Statement. It has budgeted for Rs 3.09 lakh crore as capital expenditure during the current fiscal which will rise to Rs 3.41 lakh crore in the next one, and to Rs 3.9 lakh crore in 2019-20, it said.
On the positive side, consumption will remain robust, given declining inflation and solid household credit growth, and pick-up in trade is likely to endure at least through the first half of the fiscal year, helping lift investment, pointed out World Bank in its latest ‘India Economic Update’.