While the private-sector investment cycle remains in limbo, public expenditure has been doing the heavy work to accomplish the ambitious goals set out in the National Infrastructure Plan (NIP).
Despite the pandemic posing severe financial issues, the federal government’s capital spending (CAPEX) increased by 26% year over year in fiscal 2021. This emphasis on capital expenditure is beneficial to the economy since it has a bigger multiplier effect than revenue expenditure.
Given that the Union Budget for this fiscal year has penciled in a 26 percent increase in financial support, such government spending is expected to continue. The federal government’s capital expenditure increased by 26% year over year to Rs 1.1 lakh crore in the first quarter of fiscal 2022, and by 77% compared to the first quarter of fiscal 2020, which was plagued by a slowdown in post-election spending. In the first quarter of fiscal 2022, investment on four main infrastructure verticals — roads, rail, ports, and housing – virtually doubled year over year, with the roads and rail sectors leading the way.
Roads: The Ministry of Road Transport and Highways and the National Highways Authority of India (NHAI) continued to award contracts, increasing national highway construction to over 2,300 km in the first quarter of fiscal 2022 from 1,800 km in the first quarter of fiscal 2021. The total award of 2,434 kilometers in the April-July period of this fiscal was 10% lower than the previous fiscal’s high of 2,702 kilometers, but 2.4 times higher than the award in the same period of fiscal 2020.
Railways: The Ministry of Railways’ spending increased by 26% year over year in the first quarter of fiscal 2022, and by a stunning 58 percent when compared to the same period in fiscal 2020. (pre-pandemic levels).
These initiatives improved income visibility for engineering, procurement, and construction (EPC) firms, with the top five road developers’ order books climbing 8-10% year over year in the first quarter of fiscal 2022, compared to a high base (up 22%) in fiscal 2021.
States: As a result of the second pandemic wave, state capital expenditure had a substantially lower impact. In the first quarter of fiscal 2022, spending by India’s top 14 states increased by 2.2 times year on year to 52,000 crores, matching pre-pandemic levels in the first quarter of fiscal 2020.
The boost was driven by states like Uttar Pradesh, Madhya Pradesh, Rajasthan, Karnataka, and Telangana, which raised their spending in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2020. (pre-pandemic levels).
When compared to fiscal 2021RE, the Centre’s capital outlay for nine main infrastructure ministries is likely to increase by 20% this fiscal (excluding a one-time loan to the railways which has been classified under CAPEX last year). While the Centre is likely to drive the investment cycle, as it did last year, state CAPEX, which was severely damaged last fiscal, is projected to rise up this fiscal, further accelerating the investment cycle.