GN Bureau | November 23, 2015
Despite being a busy season, spends by the government and the country’s public sector corporations on infrastructure projects have risen just 8% year-on-year in October. Even more disappointing is the fact that the value of tenders floated fell by nearly 30% y-o-y.
Investments by the government assume importance since most companies in the private sector remain over-leveraged and, therefore, are unable to add new capacity. Moreover, surplus capacity across sectors and the lack of visibility on demand have made the private sector cautious. As such, the loss of momentum in government spending in October is discouraging.
According to Centre for Monitoring Indian Economy, the pace of India’s investment recovery, which had been on an upswing since mid-2014, moderated in Q2FY16. Incremental investment was flat quarter-on-quarter in the three months to September as the private sector remained virtually on the sidelines. Worse, the value of stalled projects rose sharply to Rs 9.8 lakh crore, the biggest rise in any quarter since 2012.
While tenders worth R3.02 lakh crore, up 34% y-o-y, have been floated in the seven months to October by the government and public sector undertakings (PSUs), the value of contracts awarded is up just about 19% to 1.90 lakh crore.
The data must be viewed in the context of the fall in the value of projects by some 13% last year to Rs 3.53 lakh crore, as estimated by Emkay Research. The reduced spends resulted from the government’s need to trim expenses so as to rein in the fiscal deficit.
While large PSUs typically invest large sums every year, this time around cash flows are under pressure; most firms have reported poor revenues for H1FY16. Some like PowerGrid and IOCL have indicated spends this year could be flat. Among those that may increase capex are ONGC, Coal India and GAIL. NTPC, which had earlier pruned its allocation, has now upped the guidance from Rs 21,000 crore to Rs 25,000 crore mainly for its solar plants in Andhra Pradesh and Madhya Pradesh.
Capex by companies in the private sector will remain subdued this year. An assessment by FE showed that for a group of top 17 firms it would fall by about 3% to Rs 2.8 lakh crore. The collective capex guidance of the top three steel producers — SAIL, Tata Steel and JSW Steel — at close to Rs 23,500 crore remains 8% lower than that in FY15.
Already, gross fixed capital formation, a measure of investment in the economy, has fallen over the last few years from 33.64 % of GDP in FY12 to 28.72% of GDP in FY15. While the capital goods segment within the IIP jumped 10% y-o-y in July and 21% y-o-y in August, the numbers come off very small bases since the segment had de-grown both in July and August 2014.
Infrastructure stocks have fared poorly since the start of the year. The CNX Infra index has lost close to 11% since January while the CNX100 has lost just 4%.
There are going to be 18.9 million unemployed people in the country by 2019, parliament was informed. Union minister Santosh Kumar Gangwar said that the International Labour Organisation (ILO) has released a report “World Employment and Social Outlook Trends – 2018”. As per
For quite some time now there has been a lot of talk and focus of the government on the ease of doing business. Recently, the World Bank’s Doing Business 2018 report showcased the progress India has made by making a 30-point jump in its rank. Though there are about a 100 countries performing better t
Should Lingayats be granted religious minority status in Karnataka?
The PNB fraud involving Nirav Modi seems to have shaken the confidence of diamond jewellery buyers, especially from the unorganised jewellers, on purity concerns, resulting in drop in business in the trade, according to an Assocham survey. While the well-known branded jewellery makers issue
The Telugu Desam Party, a former ally of the BJP, wants to move a no confidence motion against the Narendra Modi government. What is a no confidence motion? If a no confidence motion, also called a no trust motion, is passed, then the prime minister will have
While train accidents get much attention, there’s something else that should equally be attended to: the railway’s drinking water supply, which could well have caused many more deaths than train accidents. Indian Railways has been routinely receiving complaints about the quality