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MOSL: Fuel or Engines (Economy)-Investments by CPSEs budgeted to stagnate in FY19-Share of central capex to fall below 4% of GDP

Fuel or Engines (Economy): Investments by CPSEs budgeted to stagnate in FY19; Share of central capex to fall below 4% of GDP

“Fuel or Engines” is our new monthly product, in which we intend to expand our consumption v/s investment theme. This is an extension to our ‘India 2020’ report released in June 2016.

One of the biggest misses in the Union Budget 2018-19 was the central government’s capital spending, which was revised down sharply for FY18 – from budgeted growth of ~11% to a decline of ~4% – and budgeted to grow only ~10% in FY19. While gross taxes are budgeted to cross 12% of GDP for the first time in history, capital spending is budgeted at 1.6% of GDP – the lowest on record. What is more worrying is that investments by central public sector enterprises (CPSEs) is budgeted to grow only 0.3% in FY19, following ~21% growth in the past three years. As a percentage of GDP, the investments by the public sector (central government + CPSEs) are budgeted at 3.8% in FY19, down from 4% in FY18 and 4.9% a decade ago. Barring Railways, Coal & Telecommunication, most PSEs – especially Power, Civil Aviation and Shipping – are budgeted to witness a decline in capital spending in FY19. Overall, as we argued last year, public investments reached their limits in FY17 and their share in total investments is set to fall in FY19. The entire onus to revive the investment cycle and offset softening consumption now lies on the private sector, which holds the key for 7% real GDP growth next year.