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Home >News >India >Centre’s  infra  push drives up project spending in  Dec qtr

Announcements of new capital expenditure plans, a key measure of government and private spending in capacity building, continued to grow in the December quarter after grinding to a near halt at the beginning of the fiscal year.

New project spending announced in the December quarter rose by 10.29% from the preceding three months, according to data from Projects Today, which monitors the activity. In all, 2,085 new projects, entailing a total investment of 2.76 trillion, were announced in the fiscal third quarter. Total investment had doubled sequentially in the second quarter, albeit on a smaller base.

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Rising spending on productive assets such as roads, ports and factories support economic growth but the slow pace of growth in the December quarter indicates that the recovery may still be on shaky ground and that state governments have not fully recovered from the economic disruption caused by the pandemic. Declining tax collections have crimped their ability to spend more.

In the public sector, major areas of new spending were roads, water supply, community services, and irrigation while the private sector stepped up investments in drugs and pharmaceuticals, metals, electronics and automobiles.

The private sector accounted for 711 new projects, entailing a total investment of 1.36 trillion, a 36.5% rise from the preceding three months. On the other hand, government-sponsored project expenditure plans fell in the third quarter, declining 7.21% from Q2. Private foreign investment in capital goods fell 34% as well.

State governments which account for more than half of all government-funded capital expenditure in the country have had to resort to deep spending cuts this fiscal to redirect resources towards fighting the pandemic. The Centre has stepped up efforts to fill in some of this vacuum, but faced with the prospect of fiscal deficit widening to 7.5-8% this year, its firepower is also limited.

“For sure, there’s an uptick on the number of projects being announced," said Sandeep Gulati, managing director, Egis India, an engineering firm. “The government has been pushing hard, especially on certain water supply projects like the 3.6 trillion Jal Jeevan Mission. Even though water is a state subject, centrally-sponsored projects are seeing a big push. We are also seeing opportunities in water resources, desalination , waste management and Namami Gange projects.

“States with limited funds are also trying to get more multilateral funding into their infrastructure projects, like in Tamil Nadu and Kerala," Gulati said. “Central-sponsored projects like high-speed rail are expected to trigger significant commercial development along these corridors. We were expecting higher investment from the private sector, especially in manufacturing where there have been plans to move away from Chinese supply chains. But developments are yet to meet these expectations."

Project execution hasn’t improved substantially either, with the data firm’s project implementation ratio rising only marginally from 37.5% in September to 37.9% in December.

“In recent years, the project expenditure cycle is largely propelled by government capex. Hence, the fall in state-promoted investment is not a good sign," a note from Projects Today said. “While the Centre has rolled out a number of stimuli, private investors, especially foreign firms are looking for more support in the form of policy reforms."

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