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Construction of an infrastructure project in Bengaluru. Karnataka is among the biggest losers in devolved tax revenue as its per capita income growth has been much faster than most other states.
Construction of an infrastructure project in Bengaluru. Karnataka is among the biggest losers in devolved tax revenue as its per capita income growth has been much faster than most other states.

State-funded infra projects facing covid-related delays, cancellations

  • The pandemic has led to shrinking revenue streams for states, with tax collections hit. The Centre, also, could meet only 45% of its revenue target in April-May and thus devolution of indirect tax revenues to states is expected to crash

MUMBAI: A crash in states' revenues since the covid-19 pandemic led to lockdowns across the country in late March have taken a toll on local government-funded infrastructure projects.

Over the last few months, many states have postponed bidding and tendering for new projects while ongoing projects have faced delays, according to preliminary data from public sources and conversations with consultants and engineering companies.

Data from the Centre for Monitoring Indian Economy showed that till June end the number of stalled projects had gone up to 1,377 from 1046 in December. Data from Projects Today showed that the number of new project announcements in electricity, infrastructure, irrigation, manufacturing and mining fell to 1,241 valued at 98,000 in the June quarter from 2,500 new projects valued at 3.86 trillion in the same period last year.

States that make up for over half of government-funded capital expenditure in the economy, accounted for the worst of this fall.

According to a May Icra report, the capex budgeted by states for FY21 was around 5.7 lakh crore, having grown from 5.1 lakh crore in FY20. Predicting a steep capex cut by states, Icra estimated that not only would awarding activity fall, the receivable cycle 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," Sandeep Gulati, managing director, Egis India, a consulting engineering company, told Mint. "The delay is more pronounced on state-funded projects as compared those funded by the central government or multilateral agencies. Some state governments have budgetary constraints as their funding capacities have been impacted due to covid-19 and they are diverting existing funds to emergency healthcare."

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

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

The pandemic has led to shrinking revenue streams for states, with tax collections hit. The Centre, also, could meet only 45% of its revenue target in April and May and as a result the devolution of indirect tax revenues to states is expected to crash.

Using the number of e-way bills as a proxy for measuring taxable transactions shows that the number crashed from 57.1 million in February to 8.6 million in April. With June’s e-way bills returning to 42.7 million and the Centre speeding up tax devolution to states, there is hope that states' finances may recover in the coming months.

Gulati of Egis expects things to turn for the better in a few months. "While there are budgetary constraints, obviously everybody understands that fiscal deficit is going to increase due to covid and that there is an inflow problem, I think because these projects carry public interest to such a large extent, the government will eventually move ahead with them."

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