Cash-strapped government has cut back on budgetary support to PSUs

Through internal resources, PSUsare expected to finance capital spending of Rs 4.78 trn in 2018-19, marginally higher than Rs 4.76 trn in 2017-18

The Centre has cut budgetary support for capital spending by public sector enterprises (PSEs) to Rs 1.76 trillion in 2018-19, from Rs 1.82 trillion in 2017-18 (Revised Estimates or RE).

However, if recapitalisation to public sector banks is excluded, the picture is not too dismal.

Through internal resources, public sector units (PSUs) are expected to finance capital spending of Rs 4.78 trillion in 2018-19, marginally higher than Rs 4.76 trillion in 2017-18. The capital outlay of PSEs has been pegged at Rs 6.54 trillion in 2018-19, marginally lower than Rs 6.59 trillion in 2017-18 (RE).

Capital spending by PSEs will fall to 3.5% of the gross domestic product (GDP) in 2018-19 from 3.9% in 2017-18. With the Centre’s capital expenditure expected to decline marginally from 1.63% of the GDP in 2017-18 (RE) to 1.60% in 2018-19 — it was 1.85% in 2017-18 (Budget Estimates or BE) — the situation does not bode well for a revival in the investment cycle.

As private investments are still sluggish, public sector spending is critical to kick-start the investment cycle.

In 2017-18, the Centre had pegged budgetary support for PSUs at Rs 1.15 trillion. But with the government providing Rs 800 billion for recapitalisation of public sector banks, its support to PSUs shot up to Rs 1.82 trillion. For 2018-19, the Centre has allocated Rs 650 billion for bank recapitalisation.

Excluding these allocations for bank recapitalisation, budgetary support to PSUs has grown by 8.6% in 2018-19, implying that support to PSUs in other sectors has been ramped up.

Against a capital outlay of Rs 5 trillion in 2017-18 (BE), spending by PSUs has been pegged at Rs 6.59 trillion (RE), nearly 32% up. But a closer look reveals that much of this increase is largely on account of a single line item. In last year’s Budget, the capital outlay for Food Corporation of India was pegged at Rs 470 million, but in the Revised Estimates, it is Rs 720 billion.

Sector-wise data show capital spending by the National Highways Authority of India (NHAI) will touch Rs 916 billion in 2018-19, from Rs 831 billion in 2017-18. Of this, the Centre is expected to contribute Rs 296 billion.

Capital spending by the railways is expected to rise to Rs 1.46 trillion in 2018-19, after it dipped to Rs 1.2 trillion in 2017-18 (RE) against a target of Rs 1.31 trillion.

In the power sector, while NTPC has projected its capex will decline from Rs 280 billion in 2017-18 to Rs 223 billion in 2018-19, Power Grid Corporation expects it to be Rs 250 billion, the same as last year.

In the oil and gas sector, Indian Oil Corporation expects capital spending to rise to Rs 203 billion in 2018-19, from Rs 161 billion before. ONGC expects it to decline from Rs 372 billion in 2017-18 to Rs 320 billion in 2018-19.