Government announcements for the building of new roads, railways, and other capital expenditure (capex) projects may have hit an all-time low, according to numbers for the December quarter.
It was at Rs 26,987 crore (Rs 269.87 billion) in the three months ended December, according to data from project tracker Centre for Monitoring Indian Economy (CMIE).
The data, which covers central and state government projects, is subject to revision as additional information comes in. But the number as of the quarter-end is the lowest in data going back to March 2009.
It was unclear how much upside subsequent revisions could bring. The previous quarter had recorded Rs 70,081 crore (Rs 700.81 billion), also near the record low of Rs 62,369 crore (Rs 623.69 billion) for December 2020 during the initial months of the COVID-19 pandemic.
The December 2023 number as it stands marks an 81 per cent year-on-year (Y-o-Y) decline in new government projects.
Private sector new projects also show a similar decline of 77 per cent Y-o-Y to Rs 1.9 trillion in December as of the latest available data. Completion rates have also fallen 30 to 50 per cent.
The government's need to cut down on spending is likely to result in a slowdown in capex relative to gross domestic product, an October 2023 Economics Research report from Goldman Sachs had noted.
With subsidies already near the pre-pandemic lows it is likely that a cut in public capex (as a percentage of GDP) will have to share the burden of fiscal consolidation, among a reduction in other current expenditure, and likely some improvement in tax receipts.
In other words, the growth in government capex seen in the past few years cannot be sustained going forward, in our view, said the Goldman Sachs report authored by analysts Santanu Sengupta, Arjun Varma and Andrew Tilton.
Private companies could fill the gap over this decade given their low debt levels, the report had added. They have greater room to borrow and invest in new factories and other projects.
Private companies invest in setting up new factories when existing capacity is close to being fully utilised.
India's capacity utilisation has improved since the pandemic and is close to 70-75 per cent utilisation levels, according to the Reserve Bank of India's Order Books, Inventories and Capacity Utilisation Survey as of June 2023.
The data is released with a lag and the latest was released in October. Private sector investments are often said to slow down ahead of general elections due in May. But analysts expect the capex to continue over the longer term.
The Bharatiya Janata Party win in three state elections is expected to signal continuity in government, according to a December 4 India Strategy report from global financial services group Jefferies authored by equity analysts Mahesh Nandurkar, Abhinav Sinha and equity associate Nishant Poddar.
The BJP's recent performance is much better than market expectations and further reinforces the consensus expectations of a Modi win in the 2024 national elections with a greater likelihood of over 300 seats for the BJP.
The probability of the BJP not retaining power now appears quite low; however, if that were to happen, we would be buyers in the market correction post elections as India's capex cycle would sustain, the Jefferies report said.
Feature Presentation: Ashish Narsale/Rediff.com
