Mixed news on pvt capex PDF Print E-mail
Tuesday, 10 April 2018 04:08
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Shobhana edit

Going by the sharp 12% year-on-year increase in gross fixed capital formation (GFCF) in the three months to December, and the latest projects data from CMIE, it would seem like capex is making a comeback. CMIE says companies have announced new projects worth Rs 1.95 lakh crore in the three months to March, the first increase in four quarters, and that the pace of stalled projects has slowed. However, the bad news is that close to 11.5% of all ongoing projects remain stalled; for the private sector alone, this share is a fairly high 24%.

That the private sector isn’t adding capacity is no secret. Had it not been for the large investments by Reliance Industries, which has spent close to Rs 3 lakh crore on its telecom venture in the last three years or so, the share of the private sector in the country’s total investments would have been far smaller. Most companies remain over-leveraged and do not have the financial wherewithal to commit to new ventures; those that do are buying distressed assets either via the M&A route or by bidding for bankrupt companies. To that extent, the funds are not being deployed to create fresh assets, they are instead being used to salvage existing assets and repay bankers. These purchases will ensure the assets are salvaged and help save jobs even if no new ones are created. However, given there is a fair bit of unused capacity, it is hard to see any meaningful expansion by the private sector in the near future.

Meanwhile, the central government is spending on infrastructure as are the PSUs. The government is estimated to have spent the entire budgeted amount of Rs 3.1 lakh crore in 2017-18. However, a study by ICRA showed how the combined capital outlay of 22 states had contracted 6%, between April and December 2017, because revenue growth had slowed. While the complete data for 2017-18 is awaited, states are estimated to have spent close to Rs 2.5 lakh crore. The problem is a high consolidated fiscal deficit that will crimp investments in infrastructure. Moreover, with state-owned utilities financially hamstrung, thanks to services being uneconomically priced, their ability to take on new projects is limited. The public-private partnership (PPP) model seems to have failed, especially in sectors such as roads where almost all projects are now being taken up in the HAM (hybrid-annuity model). The metro projects taken up in the PPP mode have also run into trouble, partly because of the lack of regulatory clarity. If the government wants to revive the PPP model, which it should, it needs to frame clear laws and also put in place a redressal mechanism. It could also build projects and then hand them over to the private sector to operate.



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