Large CPSEs post record capex of 4.6 lakh crore in FY21

While revenue constraints led to a sharp decline in capital expenditure by state governments in FY21, the Centre and public sector enterprises (CPSEs) owned by it largely held the fort, retaining the share of public expenditure in the gross domestic product (GDP).

The combined capital expenditures by 37 large CPSEs and departmental undertakings – all with annual capex budgets above Rs 500 crore – were Rs 4.6 lakh crore in FY21. This was 92% of the Rs 5-lakh-crore target for the year and 4.3% higher than the capital spending by these entities in the previous year.

Among these government entities, NHAI was the largest investor with capex roll-out of Rs 1.25 lakh crore in FY21, overtaking Indian Railways for the first time. NHAI’s achievement was 110% of its annual target and up 20% on year. Road minister Nitin Gadkari recently said that the pace of highways construction in the country touched a record 37 km/day in FY21.

Railways invested Rs 1.24 lakh crore in FY21, which was about 78% of the annual target, and down 8% on year.

Railways was followed by IOC (Rs 30,000 crore or 115% of its target), ONGC (Rs 25,000 crore, 77%), NTPC (Rs 23,000 crore, 110%) and HPCL (Rs 18,000 crore, 156%). Power Grid also exceeded its FY21 investment target of Rs 10,500 crore by achieving Rs 10,800 crore. However, Neyveli Lignite Corporation achieved only Rs 2,800 crore or 42% of its FY21 target of Rs 6,700 crore.

Of course, as the chart shows the CPSE capex growth too slowed considerably since FY18, but the rate of decline in the growth has been lower than that in other segments of the economy like private investments and private consumption or, of late, even in state government capex.

In FY21, state governments have developed cold feet in sustaining the capex tempo, but CPSEs, despite an erosion of their cash surplus and profits in a slowing economy, largely maintained the pace, thanks to constant prodding by the finance minister Nirmala Sitharaman.

Reacting to the Q3FY21 GDP data, the finance ministry said recently that the 0.4% growth in the quarter after two consecutive quarters of deep contraction reflected “further strengthening of V-shaped recovery” that began in Q2. The resurgence of the gross fixed capital formation was also triggered by robust capex by the CPSEs and the Centre. The fiscal multipliers associated with public capex are at least 3-4 times that of government final consumption expenditure, it said.

While public capex appeared to have sustained the tempo in Q4FY21 as well, the second Covid wave is now threatening to slow the pace. More than 80% of the FY21 capex by the 37 CPSEs and departmental units are funded by their own surpluses and loans while the balance funds came from the Union Budget.

The Centre has managed to spend Rs 4.1 lakh crore as budget capex during April-February, up 33% on year; the FY21 target was Rs 4.38 lakh crore (up 30.8% on year).

As reported by FE earlier, Capital expenditure by state governments will likely shrink in FY21, bucking the trend of robust growth in fixed asset creation reported by most of them in recent years. According to an FE review of budgetary spending by 16 major states, their capex was down 16% on year in April-February, compared with a negative growth of 5% in FY20.

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 or thereabouts in FY21 as the share of states in public capex has fallen.