Centre’s budgetary capital expenditure down 35% in April-June, CPSE investments fall 37%.
The capital expenditure by the Centre and central public sector enterprises (CPSEs) declined by 35% and 39% respectively in the first quarter of the current financial year on an annual basis, indicating challenges ahead to meet their respective targets for FY25. The decline, primarily caused by the general elections, has also raised the possibility of the economic growth in Q1 to come in significantly below the Reserve Bank of India’s estimate of 7.3%.
Given the Centre’s policy of public capex-led economic growth revival in recent years, the pace of capex would, however, pick up from the second quarter of FY25 as general elections, new government formation and full budget presentation have been completed, analysts said.
In Q1FY25, the Centre’s capex declined to Rs 1.81 trillion compared with Rs 2.78 trillion in the year-ago period. In the month of June, the Centre’s capex fell by a massive 66% on year to Rs 37,426 crore compared with Rs 1.1 trillion in June 2023. The Centre’s capex target is Rs 11.11 trillion for FY25 compared with Rs 9.49 trillion invested in FY24, up 17% on year.
“To meet the FY25 Budget Estimate, Rs 9.3 trillion of capex needs to be incurred in the last three quarters of the year, a growth of 39% relative to the same period of FY24 (Rs 6.7 trillion), which appears quite challenging,” Icra chief economist Aditi Nayar said.
The decline in the Centre’s capex is also reflected in the overall CPSE capex as railways and the National Highways Authority of India (NHAI) investments are largely funded through budget. Both entities accounted for 55% of the CPSEs’ capex target of Rs 7.8 trillion for FY25.
As a result, investments by CPSEs fell to Rs 1.46 trillion in Q1FY25 compared with Rs 2.38 trillion in the year-ago period, reflecting the impact of the slowdown in spending during general elections (April-May). The CPSEs, having annual capex target of Rs 100 crore and above have set a combined target of investing Rs 7.8 trillion in FY25.
After railways and NHAI, petroleum sector undertakings in aggregate are the third biggest public sector investors in the CPSEs. Petroleum CPSEs have invested Rs 26,523 crore in Q1FY25 as against their annual target, marginally higher than Rs 25,644 crore invested in Q1FY24 (annual target Rs 1.06 trillion).
“Q1FY25 shouldn’t be looked as the right benchmark for what can happen for rest of the year as it was a quarter that saw general elections. The capex spending trend of Government of India also shows lower run rate than last financial year. Additionally, due to extreme heat wave, consumption indicators were also uneven,” said Garima Kapoor, economist, Elara Securities.
Thanks to a 9% growth in gross fixed capital formation led by public capex including states, India’s GDP grew by 8.2% in FY24, exceeding the expectations of both domestic and multilateral institutions.
“There is a possibility that Q1FY25 (GDP) growth may come below RBI’s estimates by 20 to 30 bps,” Kapoor added. The RBI has projected the first quarter’s GDP growth rate at 7.3%, and the entire year’s at 7.2%.
“With capex numbers intact, in fact including CPSEs, it is higher than interim estimates, and if we factor in OMC (oil marketing companies) support of Rs 15,000 crore shifted towards state capex, the aggregate capex for FY25 by Center and CPSEs are much higher than interim estimates. We should see a ramp up in the coming quarters which should support growth,” said Anitha Rangan, economist, Equirus Securities.
Source:financialexpress.com