Cramping resource generation of CPSEs

The central government-owned business enterprises, including departmentally-run Indian Railways, would spend Rs.3.81 trillion (around $61 billion) on plan projects during 2015-16, indicating a 24 per cent rise on BE/RE basis, or 17 per cent on BE/BE basis. The feat reflects a turnaround from 8 per cent decline during 2014-15 (RE), the first decline since around 2006-07. Other capital expenditure, largely on schemes of departments and ministries etc., like residential and other constructions for police, would be around Rs.579 billion, thrice Rs.196 billion in 2014-15 (RE). This would take the total plan capex of the central government for 2015-16 to Rs.4.39 trillion (+35 per cent). The other segment of plan outlay, namely plan revenue expenditure including grants by departments and ministries, would rise by 36 per cent to Rs.1.40 trillion.

Overall, central plan capex spend would go up by 35 per cent to Rs.4.39 trillion comprising 37 per cent increase to Rs.1.21 trillion in budget funded capex and 34 per cent increase in IEBR to Rs.3.18 billion. IEBR during the year would be helped by Rs.1.18 trillion, nearly twice the Rs.614 billion in 2014-15 of debentures and bonds, mainly by Railways and NHAI. The sharp increase in debt capital would be due to tax sops granted for investment in infrastructure sector bonds and debentures.

The 8 per cent decline in central plan capex during 2014-15 was due to lower capex by several central PSUs; the capex of Oil India Ltd declined 66 per cent, IOCL 44 per cent, Damodar Valley Corporation 24 per cent, NHAI 12 per cent, Power Grid Corporation of India Ltd 14 per cent, and NHPC Ltd and SAIL 21 per cent each. Capital outlay by Bharat Broadband Network, however, shot up around 10 times during 2014-15 with a further 26 per cent rise planned for 2015-16. BBNL has planned to connect all the 2,50,000 gram panchayats in the country through optical fibre network (NOFN).

The bulk of central plan capex account disbursement is done by central government-owned enterprises, which finance allotted outlay from their internal sources as also raise external funds on their own account. Thus, internal and external resources (IEBR) of CPEs account for 73 per cent of total central government capex outlay; the ratio would work out to around 78 per cent, excluding departmentally-run and significantly budgeted funded Indian Railways.

We may note here that IEBR has generally fallen short of budget expectations. Thus, IEBR during 2014-15 was 4 per cent short of BE for the year, that for 2012-13 was 26 per cent short, and the same for 2011-12 was 22 per cent short; even as during 2013-14, it turned out to be marginally higher (Actual/BE).

Internal resource generation, mainly retained profit and depreciation write-off, constituted 49 per cent of IEBR amount (RE) in 2014-15, against 63 per cent expected for the year. The sharply reduced share in 2014-15 followed 26 per cent lower internal resource generation (relative to BE) and 32 per cent vis-à-vis 2013-14 (RE). The internal generation of resources would stagnate and the share would drop to a new low of 37 per cent during 2015-16. The eroding base of internal resources in IEBR follows extra-large dividends forked out of profitable CPEs, which, along with passing on price subsidy burden to major profit earners like petroleum companies, cramped their resource generation, though the measures helped the finance minister meet fiscal prudence norms. Even for next year, 2015-16, excluding profits and dividends passed on by RBI and public sector banks to government of Rs.64,477 crore (+ 6 per cent), which too mirror inflation-induced incomes, dividends by non-finance enterprises would shoot up by 27 per cent to Rs.36,174 crore.

Additionally, PSU equity disinvestment receipt of Rs.69,500 crore (+121 per cent) planned for the ensuing year, a capital receipt, which should have gone to enable CPEs strengthen their resource position for plan purpose capex, too has been taken in the general pool. Taking these PSE-oriented receipts totalling around Rs.1 trillion in the general pool would no doubt help contain fiscal deficit for the year and earn the finance minister pats on the back from IMF/World Bank, but it would not kick-start public capex that is badly required to turn around project investment.

We may also note that the Rs.70,727 crore (+37 per cent) increase in central plan outlay, which the finance minister has highlighted in his budget speech, comprises only around a half in capital expenditure.

By the way, defence capital outlay declined 22 per cent during 2014-15 (RE). Earlier, barring a 12 per cent increase during 2013-14, defence capital outlay had increased 4-5 per cent in the preceding three years. The 52 per cent hike budgeted in the outlay for 2015-16 has to be appraised against the subdued average growth in the preceding five years.