Budget 2021: New investments fail to pick up in Dec quarter, big project announcements expected in FY22
BusinessToday.In February 1, 2021
There's a growing realisation in the industry that the country's post-pandemic revival will be spearheaded by the big infra push. With several large-scale projects in railways, highways, and ports in the pipeline, the infrastructure sector is likely to get a major boost in the Budget 2021.
The government, in last year's budget, allocated Rs 1.7 lakh crore to the sector, an 8.3 per cent leap over the previous fiscal. Experts expect the allocation to rise further this year, given projects such as the Dedicated Freight Corridor, Delhi-Mumbai Expressway, and Mumbai-Ahmedabad bullet train are in the works.
The big infra push by the government will not only check the economic slowdown but will also spur growth and create jobs. Meanwhile, the Centre has already hinted towards such a thrust by reaching out to highways and railway ministries to accelerate spending.
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The government will reportedly focus on the National Infrastructure Pipeline (NIP), announced by Finance Minister Nirmala Sitharaman in 2019. The government's CAPEX target in the Union Budget 2021 could rise significantly.
With infrastructure the main plank for post-pandemic recovery, the finance minister is also expected to announce plans to set up a new development finance institution (DFI) in the Budget 2021. The new DFI will be part of the Centre's thrust to invest more in the infrastructure sector. The aim of this institution will be to grant funding for stuck or long-gestation projects. FM Sitharaman is also expected to announce measures to overhaul the bond market to fund infrastructure projects.
Covid-19 pandemic severely dented new project announcements in FY 21. Both private and public sector enterprises announced new projects amounting to Rs 80,000 crore in December quarter, which is an 89 per cent year-on-year dip and a 22 per cent slump as against the September quarter this fiscal, according to latest numbers from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE). These numbers are provisional and subject to change.
This decline in new projects in December is a matter of concern for the government, although economic indicators had improved in the said quarter due to festivals, better COVID-19 curve, increased public mobility, which led to hopes of a revival.
The major areas of new spending in the public sector were irrigation, roads, community services and water supply, while the private sector increased investments in automobiles, drugs, electronics, metals and pharmaceuticals.
State governments, which make up more than half of all government-funded capital expenditure, have had to fall back on major cost-cutting measures to divert funds towards fighting the COVID-19 pandemic. However, the government has intensified steps to fill some of this vacuum, although it's faced with the possibility of a widening fiscal deficit (7.5-8 per cent this year).
As many as 450 infrastructure projects, each worth Rs 150 crore or more, have been hit by cost overruns totalling more than Rs 4.28 lakh crore, according to a report by the Ministry of Statistics and Programme Implementation, which monitors infrastructure projects worth Rs 150 crore and above.
Of the 1,687 such projects, 450 reported cost overruns and 558 were delayed."Total original cost of implementation of the 1,687 projects was Rs 21,44,627.66 crore and their anticipated completion cost is likely to be Rs 25,72,670.28 crore, which reflects overall cost overrun of Rs 4,28,042.62 crore (19.96 per cent of original cost)," the ministry's latest report for December 2020 said.
The expenditure incurred on these projects until December 2020 was Rs 12,17,692.37 crore, which was 47.33 per cent of the anticipated cost of the projects.
However, the report said the number of delayed projects decreases to 408 if the delay is calculated on the basis of latest schedule of completion.
Further, for 923 projects, neither the year of commissioning nor the tentative gestation period have been reported.
Out of 558 delayed projects, 111 projects have an overall delay in the range of 1-12 months and 135 projects have a delay of 13-24 months. As many as 187 projects reflect a delay in the range of 25-60 months and 125 projects show a delay of 61 months and above. The average time overrun in these 558 delayed projects is 45 months.
Reasons for time overruns as reported by various project implementation agencies include delay in land acquisition, delay in obtaining forest and environmental clearances, and lack of infrastructure support and linkages.
Delay in tie-up for project financing, finalisation of detailed engineering, change in scope, delay in tendering, ordering and equipment supply, and law and order problems, among others, are other reasons, the report said.
The report also cited 'state-wise lockdown due to COVID-19' as a reason for the delay in implementation of these projects.
Project agencies are not reporting revised cost estimates and commissioning schedules for many projects, which suggests that time and cost overrun figures are under-reported, it added.