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Photo: Mint
Photo: Mint

State governments go slow on infra spending

Many states have postponed tendering for new projects, while several ongoing projects are facing delays

The sharp deterioration in states’ finances because of the prolonged lockdown is taking a toll on government-funded infrastructure programmes, with an increasing number of projects being put on hold for lack of funds.

Preliminary data from public sources and conversations with consultants and engineering companies show that many states have postponed tendering for new projects in the past few months, while ongoing projects are facing delays.

The total number of projects, including both private and government, whose implementation has been stalled, rose 32% to 1,377 in the six months ended 30 June from 1,046 in the preceding six months, data from the Centre for Monitoring Indian Economy showed.

Project monitoring organization Projects Today’s data showed new project announcements in electricity, infrastructure, irrigation, manufacturing and mining fell 75% to 1,241 projects, valued at 98,000 crore, from 2,500 new projects, valued at 3.86 trillion a year ago.

State governments that account for more than half of all government-funded capital expenditure in the economy have resorted to the deepest cuts in spending. The overall capex budgeted by states rose to around 5.7 trillion in the current fiscal from 5.11 trillion in the previous year, according to a May report by credit ratings agency ICRA.

Predicting a steep capex cut by states, ICRA estimated that not only would awarding activity fall, the receivables days would also lengthen, triggering a vicious cycle on the cash flows of contractors.

“On the ground, we’re seeing a delay when many of the tenders that were supposed to be floated in March/April have got pushed to June/July or later, and a few of them have also been cancelled," said Sandeep Gulati, managing director, Egis India, an engineering company. “The delay is more pronounced on state-funded projects as compared to those funded by the Centre or multilateral agencies. Some states have budgetary constraints and are diverting existing funds to emergency healthcare."

For instance, Maharashtra in early May announced it would cut its budget for developmental works by 67% this fiscal, in light of falling revenues. Projects Today, which monitors over 74,000 projects across the country, said the state tops the list in number of projects affected by covid-related delays, followed by Delhi, Uttar Pradesh, Andhra and Gujarat.

“Very large scale transport projects that are centrally funded with support from multilateral agencies like the World Bank or JICA are ongoing," said a construction contractor to government projects, who did not want to be named. “This includes the metro train lines and the coastal road projects in Mumbai or the smart city plans. The development work that states undertake with their public works department, such as state highways and water supply, are the ones that have been affected. We’re hoping this trend will reverse and bidding on new projects will start again."

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