The lockdown which came into effect towards the end of March has caused new projects to plummet and existing projects to stop work, amid what is expected to be the worst year for the economy in decades.
New projects in the June quarter were at Rs 0.56 trillion, down 51.7 per cent compared to the same period in 2019, showed data from the Centre for Monitoring Indian Economy (CMIE). Completed projects were down 83.9 per cent to Rs 0.14 trillion (see chart 1).
Interestingly, the number of revived project showed an 82.8 per cent rise, while stalled projects also fell 23.1 per cent.
Growth measured in terms of gross domestic product (GDP) was already seen to be at an 11-year low, before much of the lockdown to contain the Covid-19 pandemic had taken effect.
Rating agency CRISIL had said that there is a recession ahead, which has happened only three times previously over the last 69 years (see chart 2). Poor monsoons affecting agriculture was the trigger each time, it said.
“The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors. And three, the global disruption has upended whatever opportunities India had on the exports front,” said the May 26 note.
The government has also been spending less on creating new assets (capital expenditure). It has instead focused on spending money on expenses like running its own operations or the payment of subsidies and salaries (revenue expenditure).
“Capital expenditure, in fact, was allowed to contract by (-) 7.5%. In order to generate higher multiplier impact of an increase in government expenditure on growth, a sharper increase in government capital expenditure viz.-à-viz. revenue expenditure is required during the course of the year. It is not only the size of the fiscal stimulus but also its composition in terms of low multiplier expenditures (revenue expenditures) viz.-à-viz. high multiplier expenditures (capital expenditures), which matters,” said D K Srivastava, Chief Policy Advisor, EY India in his June 2020 Economy Watch report.
“How soon the government extend support to revive core infra projects is anybody’s guess,” said the June 12 Engineering and Capital Goods sector report from brokerage firm Edelweiss Securities, authored by analysts Amit Mahawar, Swarnim Maheshwari, Ashutosh Mehta and Manish Agarwall.
The report noted that companies which are involved in creating infrastructure projects are facing issues of labour and liquidity as work dries up. It noted that large players like Larsen & Toubro, KEC International, Kalpataru Power Transmission are focusing on attracting and retaining contractual labour. They are also looking to increase their cash levels to tide over current challenges as payments from public sector companies and states have dried up.