Government capex picks up, private sector remains muted

By Rahul Kamat

The government's capital expenditure has been increasing by 29 per cent quarter-on-quarter, steadily over four quarters—as the December quarter figure of Rs 1 lakh crore indicates. Centre for Monitoring Indian Economy (CMIE) data indicates that the investment for the third quarter is the highest record in the last six quarters, thanks to government's slow but steady capital expenditure on its projects, defying industry's and media's repeated finger-pointing practice. Meanwhile, Goldman Sachs India notes to investors that new projects announced by private sector continued to decline.

Pulkit Patni, Senior Analyst, Goldman Sachs, said, “The private investment was down by Rs 20,000 crore, whereas government shows a sharp increase to Rs 71,000 crore driven by new solar power capacity [addition].”

Interestingly, for third consecutive quarter the government capex is higher than private, and the second consecutive q-o-q increase in government capex.

“With the government reform measures and the Cabinet Committee on Investments (CCI) working on fast-tracking clearances for infrastructure projects, we believe further downside in new investments would be limited and we could potentially be past the bottom,” said Mohit Soni, Analyst, Goldman Sachs.

The increase in investment in new projects is led by the power sector, and manufacturing to some extent. However, growth in projects under implementation continues to be steady across both manufacturing and infrastructure.

Till date, the CCI has accepted 406 projects worth Rs19.2 trillion for consideration of fast-tracking, of which 31 per cent of projects costing Rs 4.2 trillion have seen issues being fully addressed by the CCI, with power seeing the maximum traction – these projects moving to implementation would be key to pickup in broad capex.

Stalled projects and muted Q3 growth:

Meanwhile, the completion of infrastructure projects has witnessed a 25 per cent decline at the end of the year as against earlier. The experts believe this will reflect in the upcoming earnings season (3QFY14) in the form of muted order book and revenue growth. The third quarter saw projects completed continuing to decline and the percentage of stalled projects increase sharply.

“The increase in shelved projects resulted partly from a few large projects getting stalled due to either non-availability of resources or lack of finance viability,” a senior official from Project Monitoring Group told Infrastructure Today.

Though the uptick in government new investment will likely take a few quarters to start reflecting in execution, and the limited private sector announcement remains to be matter of concern. With 31 per cent of the projects accepted having been fully addressed by the CCI, real implementation of those will be key to re-start the capex cycle.