Funds crunch cripples govt. spend on new projects
A continued rise in private investments in the third quarter (Q3) of 2020-21, led by a 102% surge in manufacturing investments, helped India register a healthy 10.3% increase in fresh project spending in Q3 over the previous quarter.
However, new capital expenditure proposals from the government collapsed between October and December 2020, as funding constraints began to pinch the States, dragging their new project investments down nearly 25% from the previous quarter.
The Q3 project investment numbers suggest a reversal from recent years’ trend of government capital expenditure propping up the economy while the private sector remained reluctant to invest due to flat consumer demand and weak balance sheets, said Projects Today, an independent firm that tracks investment projects. “The fall in state-promoted investment in Q3 is not a good sign. We hope this will be a short-term phenomenon,” said Shashikant Hegde, director and CEO of Projects Today. This has raised private sector’s share in new projects from 40% in the previous quarter to 49.5% in Q3, he added.
Mr. Hegde said the sequential increase registered in fresh projects by the private sector of 102.5% in the second quarter, and 36.5% in the third quarter, indicates willingness of private promoters to undertake new capacity building in the future.
This comes especially in critical areas like drugs & pharma, electronics, data centres, IT parks, etc.
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Overall fresh project expenditure between the April and December 2020 remained 26.1% lower than the same period a year ago, indicating that “we are still far away from the normal projex (project expenditure) activities registered in the pre-COVID-19 period,” the firm’s latest Survey of Project Investments in India noted, predicting a possible return to normalcy soon.
With interest rates expected to remain low in near future and COVID-19 vaccination to gain traction in Q4/FY21, Projects Today expects projex activities to return to normalcy by the first quarter of 2021-22.
Also read | ‘Manufacturing grows fastest since 2007’
A total of 2,085 new projects, entailing a total investment of ₹2,76,482.7 crore, were announced in the third quarter of 2020-21, as against 2,326 projects worth ₹2,50,697.5 crore announced between July 2020 to September 2020.
While manufacturing sector investments surged 102.2% in Q3 over Q2, utilities (11.25%) and mining (1.12%) were the only other two sectors to record growth. Investments in electricity projects collapsed by 35.2% over the previous quarter, and fell by a sharper 66.9% in irrigation.
Among the States, Maharashtra received the highest investment projects in Q3, followed by Andhra Pradesh and Gujarat. Tamil Nadu, which had topped the project investment charts in Q1 and received the second highest investments in the Q2, came in a close fourth with 156 projects worth over ₹24,100 crore in Q3.
Also read | Q2 manufacturing rebound puzzles economists
New project investment intentions from the government declined by 7.21% in terms of project expenditure and 19.32% in terms of projects, compared to the previous quarter.
“Within this segment, the fall was steeper at the State government level. After recording 175.1% increase in fresh investment intentions in Q2, the segment registered a steep fall of 24.5% in Q3. The fall in revenues has been cited as one of the main reasons which forced State-controlled agencies to prune their investment intentions at least for the time being,” the report said, adding that infrastructure spending, critical for reviving growth, has also suffered.
“Pruning of fresh capital expenditure plans by funds-constrained, State government-owned agencies slowed down the recent growth seen in projects investment in the Infrastructure sector. As a result, the sector which had registered a whopping increase of 105% in new projex in Q2 saw such investment increasing by just 11.25% in Q3,” the survey noted.
The number of project investments announced by the Central government fell from 473 in Q2 to 381 in Q3, but the outlay on the projects rose 22.8% quarter-on-quarter from ₹54,900-odd crore in Q2 to ₹67,475 crore in Q3.
Importantly, Projects Today recorded improvements in the implementation ratio of existing projects, and saw more projects shifting from the drawing board to the execution stage between October and December 2020.
“For an economy to benefit from increased fresh projex announcement, the rate of execution should also increase alongside. The small increase in the project implementation ratio from 37.53% in September 2020 to 37.86% in December 2020 points to some pickup in project execution pace,” the report said.
“While the total project contracts awarded during April-June 2020 stood at ₹46,283.21 crore, it jumped by around 120% to ₹1,01,704.2 crore in Q2. In Q3, 1,237 new project contracts entailing a total value of ₹1,29,388.84 crore were awarded, indicating a 27% quarter-on-quarter increase. These figures will improve further as information on contracts awarded comes with some time lag,” it added.