EUR 125.00 For Business Accounts Only

MOSL: Fuel or Engines (Economy)-Rising role of CPSEs in economic activity and financial markets

Fuel or Engines (Economy): Rising role of CPSEs in economic activity and financial markets; Investments budgeted at 5-year low of 3.7% of GDP for FY20

 

Over the last few years, the role of central public sector enterprises (CPSEs) such as Food Corporation of India (FCI), National Highways Authority of India (NHAI), etc. has increased significantly; with its capital outlay in FY18 being the highest in eight years at 2.4% of GDP and at 1.5x of the Central government (CG). Total borrowings of CPSEs more than doubled from 1.1% in FY17 to 2.6% of GDP in FY18 (much higher than FY18RE of 1.8%), crossing 2% for the first time. The combined capital outlay of the CG and CPSEs was broadly unchanged at 4% in FY18 (vis-à-vis FY17 and FY18RE), while total borrowings (market bonds and others) were revised up from 4.6% in FY17 and 5.4% in FY18RE to six-year high of 6.2% of GDP in FY18. Although the combined capital outlay has increased from budgeted estimate (BE) of 3.8% to 4.1% of GDP in FY19RE, it is budgeted at 3.7% of GDP for FY20BE, the lowest in five years and the third lowest since late-1990s. Within total borrowings, reliance on non-market instruments (such as NSSF, banks, LIC, etc.) has increased tremendously because the share of market loans has declined from ~90% in FY14 to 63% in FY18 and is expected to decline further to 57% in FY20BE. These trends confirm that (1) CPSEs play a very important role in undertaking investment spending, (2) CPSEs borrowings have risen tremendously and thus, analysis of CG finances presents only a part and limited picture, and (3) reliance on non-market instruments has increased sharply during the past few years.