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State governments have increased tendering and awarding of new projects in the past few months in line with the lifting of covid-19 restrictions on building and construction activity.

Data from project monitoring organization Projects Today showed that in the September quarter, there was a 146% jump in infrastructure spending and project tenders by states, and a 67% rise in public and private sector tenders compared to the June quarter, hinting at early signs of an economic recovery.

Fresh investment announcements by state government agencies surged 146.3% in Q2 with 1,139 new proposals with a total outlay of 81,222 crore. A bulk of these investments are for projects in community services, hospitals, irrigation, roadways, real estate, tourism, and water supply and treatment sectors, and are led by Chhattisgarh, Tamil Nadu and Karnataka.

The Centre has separately announced new projects entailing fresh investments of 54,339 crore in the Q2, a sequential increase of 93%.

Mint reported in July that the sharp deterioration in states’ finances due to the prolonged lockdown was taking a toll on government-funded infrastructure programmes, with an increasing number of projects put on hold for lack of funds.

States, which account for more than half of all government-funded capital expenditure, have resorted to the deepest cuts in spending due to the pandemic. The improvement in Q2, although over a low base of Q1 when most of the country was under a lockdown, shows that states are willing to return to investing in building physical infrastructure.

In Q2, the private sector announced 618 new projects worth 83,608 crore, rising sharply from 315 new projects worth 44,714.6 crore in Q1.

While the sequential increase is a robust 87%, project announcements declined 7% from the same period last year and is far less than the average quarterly fresh investment of 1.69 trillion and 1.32 trillion seen in FY19 and FY20 respectively.

To be sure, while the Q2 numbers were an improvement over the previous quarter, experts believe that constrained fiscal position of state and central governments will keep overall activity subdued this fiscal.

Amar Kedia, equity analyst with Emkay Securities, said that for FY21, tendering and awarding activity will remain subdued. “Larsen & Toubro, for example, has so far reported an order inflow (excluding services) of only 17,500 crore for the whole of Q2 as compared to a normalized run-rate of over 30,000 crore," he said.

On Monday, finance minister Nirmala Sitharaman said an additional budget of 25,000 crore will be provided as capex to develop roads, water supply, urban development projects to boost economic growth

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