Unable to enhance its own spending or halt the fall in private corporate investment levels, the government is leaning on central public sector units (PSUs) to bolster the sagging aggregate demand in the economy.
On Friday, 23 such PSUs, with specific capital spending targets, told finance minister P Chidambaram that together they have achieved 96.2% of the half-yearly target of R53,000 crore. The firms also reasserted their commitment to remain on course to meet the full-year target of R1.38 lakh crore (excluding investments abroad), without reneging on their dividend payment obligations for the year.
This indicates that these PSUs’ capex performance this fiscal could be better than in FY13, which saw a 20% slippage from an identical target. The fiscally stressed government won’t lose out on its dividend revenue target of R73,866 crore for FY14 either.
After a closed-door meting with the PSU chiefs, Chidambaram said: “Most of the companies will achieve their capex targets. We will review the situation in January 2014. In no case are we expecting dividend less than last year. As long as they meet their capex plans, we cannot ask them to (pay additional dividends).”
Among the PSUs sitting on piles of retained earnings, most are willing to invest up to their potential. Coal India, with the highest cash reserves among PSUs of R62,000 crore, has been a laggard on the capital spending front (only R2,454 crore spent in FY13 or 76% of the target). The PSU, which is working against a capex target of R5,000 crore for FY14, attribute its under-performance to half of the production at its open-cast mines and 80% of the transportation being outsourced, besides the focus on investments in mines abroad.
The incremental capital expenditure (R20,000 crore over last year without adjusting for inflation) by the PSUs because of the constant prodding by the government, however, will have only a moderate impact on the aggregate demand. Public sector companies contribute only a small fraction (less than 12%) of the gross fixed capital formation (GFCF), the closest proxy of productivity-enhancing investment in the economy.
In fact, until 2009-10, PSUs maintained their share of GFCF only to falter a bit in the subsequent years. In comparison, the private corporate sector's share of GFCF, which peaked at 43% in the pre-crisis year FY08, has since fallen sharply — to less than 32% in FY12 and presumably to a still lower level in FY13.
That and the