At 20%, the pace of CPSE investment is honorable, but below the target

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Continued momentum in central, CPSE and state capital spending is needed to push GFCF, as low capacity utilization and lingering uncertainties about the pandemic deter private investors from taking the plunge.

Capital spending by large central public sector entities – corporations and enterprises – rose 19% year on year to 3.1 lakh crore in the first eight months of the current fiscal year, official sources told FE.

The investments of these state-run entities, each with an annual investment budget of over Rs 500 crore, represented 52% of their overall capital expenditure target of Rs 5.96 lakh crore for fiscal year 22 in April-November. While these 40 or so large CPSEs and departmental companies are sure to miss the Ministry of Finance directive to reach 90% of their target by December, they must step up their investments over the remaining four months of FY22 to achieve the 30% annual growth target.

Capital expenditure measured by gross fixed capital formation (GFCF) increased by 11% in T2FY22 compared to its level in T2FY21 and by 1.5% compared to its level in 2TFY20. Continued momentum in central, CPSE and state capital spending is needed to push GFCF, as low capacity utilization and lingering uncertainties about the pandemic deter private investors from taking the plunge.

In April-November FY22, the railways were the biggest investor, deploying investments of around Rs 93,000 crore, or 48% of its annual target of Rs 1.95 lakh crore. The investment of the railways is largely in laying new lines, doubling the tracks, increasing traffic facilities and building railways on bridges / roads under bridges.

The National Highways Authority of India (NHAI) was the second largest investor among state-run agencies with an investment of Rs 87,000 crore, or 71% of the annual target of Rs 1.22 lakh crore. NHAI is currently developing several highways including Delhi-Mumbai, Delhi-Katra, Bengaluru-Chennai and Delhi-Dehradun.

Power producer NTPC – which is building a 1,980 MW thermal power plant in northern Karanpura, a 1,600 MW power project in Telangana, a 300 MW solar power plant in Nokhra and a 300 MW solar project in Shimbhoo Ka Burj – invested around Rs 16,000 crore or 67% of its annual investment target in April-November 2021.

Indian Oil Corporation, a fuel retailer and refiner, has invested around 16,000 crore rupees (56% of the annual target). It increases the capacity of the Barauni refinery from 6 million tonnes per year (MTPA) to 9 MTPA, that of Panipat from 15 MTPA to 25 MTPA and that of the Gujarat refinery from 13.7 MTPA to 18 MTPA.

During the period, upstream of CPSE oil, ONGC reported capital expenditure of around Rs 14,500 crore, or about 49% of its FY22 capital expenditure target of Rs 29,800 crore. The deployment of the oil explorer’s capital expenditure mainly focused on KG 98/2 Cluster II, phase IV of the redevelopment of the upper south of Mumbai, the extension of the life of the well platforms and the Heera Phase III redevelopment project.

In recent years, capital spending by CPSEs and other agencies has remained strong. Capex by these entities was Rs 4.6 lakh crore or 92% of the annual target for FY21; this was 4.3% more than the capital expenditures of these entities in FY20.

Improved revenues have helped states maintain a steady pace of investment in the first seven months of the current fiscal year. Data collected by FE from 16 states showed that these states reported a combined investment of Rs 1.5 lakh crore in April-October of fiscal 22, up 70% from the previous year, up from a 34% decrease in the corresponding period of FY 21. The Centre’s capital expenditure in April-October FY 22 amounted to Rs 2.53 lakh crore, an annual increase of 28% .

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