The government on Thursday pushed state-owned enterprises to step up their capital spending by Rs 25,000 crore for the current fiscal year and warned chiefs of these utilities that slackness in this regard will not be tolerated. The government’s directions to boost capital expenditure, that came during marathon sessions held by Finance Minister Arun Jaitley with chiefs of CPSEs yesterday, are over the budgeted combined capital spending target of Rs 3.85 lakh crore for the central government and PSUs.
The FM, it is learnt, warned CPSEs that “no slackness” would be tolerated if they falter on capital spending. The government expects the additional spending by CPSEs to give the economy a much-needed boost along with the Centre’s budgetary spending.
The FM is also learnt to have sought “liberal dividends” to the government by these CPSEs so that the money could be used for funding physical social infrastructure. Since most public sector undertakings have low debt-to-equity ratios, they were asked to “raise more debt and not to rely entirely on cash and free reserves for finding new investments and capital expenditure”.
On the other hand, the government has decided to stick to its budget target of raising Rs 2.08 trillion through market borrowings in the second half of the financial year. It has, however, not ruled out the possibility of selling more government bonds for additional spending.
The majority of the borrowing would be completed by December, Economic Affairs Secretary Subhash Chandra Garg said in a press briefing on Thursday. According to the calendar released by the Reserve Bank of India (RBI), the government will raise Rs1.65 trillion by the end of December.
Garg said the need for additional borrowing would be assessed in December once the supplementary demand for grants is placed in Parliament. He said the government was sticking to the fiscal deficit target of 3.2 per cent of GDP “as of now”.
The development comes amid slagging economic growth that fell to its three-year low of 5.7 per cent in the April-June quarter. In April-August this year, the fiscal deficit stood at Rs 5.24 lakh crore, or 95.97 per cent of the full-year target as against 74 per cent of the annual target in the year-ago period, meaning the government has little room left to boost spending without breaching the target.
The FM’s meeting with CPSE chiefs comes even as Centre’s own capital spending increase has slowed down as compared to the first quarter. Budgetary capex of the Centre touched 36.56 per cent of the full-year target in the April-August period of 2017-18, against 36.97 per cent a year earlier. Even states’ capacity to increase the capital spending this fiscal has been restricted due to farm loan waivers.
On the other hand, CPSEs and departmental undertakings had invested Rs 2.54 lakh crore in large (Rs 500-crore-plus) projects in 2016-17, achieving a creditable 96 per cent of the annual target. So investments by them from their internal and extra budgetary resources kept pace when private companies’ capex remained muted and the Centre’s budgetary capital expenditure also slowed a bit in the final months of 2016-17.
Going ahead, the government’s move to kick-start the capex cycle with PSUs may not necessarily yield desired results for the economy, experts say. The idea has been floated in the past but hasn’t given the expected results, the reason being that most of the PSUs are not in a financial health to make large investments.