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 winding down of the fiscal stimulus since FY11 explained the GFCF turning lower and lower in relation to the gross domestic product (itself witnessing a growth decline) in recent years.
The fixed investment rate (GFCF/GDP) had fallen steadily from a peak of 32.9% in FY08 to 29.6% (provisional) in FY13, with only the household sector somewhat bucking the trend. GFCF growth has fallen sharply from double-digit levels a couple of years back to as low as 1.7% in 2012-13, HDFC Bank said in a recent report. While this has had a debilitating effect on demand and growth, the Prime Minister’s Economic Advisory Council (PMEAC) has said that the decline in growth has proven to be steeper than what this would have warranted because whatever assets that were created hadn’t optimally translated into output due to the delays in project clearances.
CIL chairman S Narsing Rao told FE: ?If we include investments made by contractors, our annual capital expenditure will go up by Rs 2,500 crore.? While Rao sounded confident about meeting the investment target for FY14, he does not see any jump in capex next year. The coal major has lined up a Rs 50,000-crore investment plan for the next five years, which also includes Rs 24,500 crore capex for the next five years meant for increasing production.
According to finance ministry sources, Concor, Bharat Electronic, HAL, ONGC, PGCIL, SIVNL and NMDC have exceeded their half-yearly capex targets and are expected to exceed it for the full year as well. Apart from little-known Bharat Dynamics, all companies are expected to meet their capex targets, they added. The sources said the budget target for dividends would be met comfortably.
SAIL chairman CS Verma said: ?We are on course to complete our capex of Rs 11,500 crore for the current fiscal. Already, more than 40% of this has been spent.?
NTPC chairman Arup Roy Choudhury said the FY14 capex target of Rs 20,200 crore would be met. The power major achieved a record capex of Rs 19,925 crore FY13 ? a 24% increase over the preceding year.
ONGC chairman Sudhir Vasudeva said:”We’ve given the government the assurance that we will be able to complete our capex plan of Rs 35,045 crore for this year. Our five-year plan is Rs 1.64 lakh crore. Our interim dividend will be of last year’s level because our profit will be of the same level.”
In FY13, these 23 PSUs had a full-year capex target of Rs 1.41 lakh crore and achieved Rs 1.12 lakh crore or 80%. IOC achieved 97% of its capex target last fiscal, while NTPC achieved 94%. ONGC fell short of its target by 11% while Oil India achieved 83% of the target. Coal India and NHPC were able to spend 76% and 81%, respectively, of their promised capex amounts in FY13.
