Indian states have collectively announced more new projects than the Union government in the April-September period this year, data from the capex-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows. At a time when India’s growth engine is slowing, the burden of driving public investments and growth seems to have fallen on the shoulders of state governments, as the Centre has slowed down spending on capital expenditure.
New project announcements by state governments (taken together) and the central government have fallen this year but the fall has been sharper in case of the central government, with new project announcements falling by as much as 74% compared to the year-ago period. As a result, the share of state governments in new project announcements has increased from 39% in the first half of 2016-17 to 63% in the first half of this fiscal year.
The Centre’s share of projects under implementation is still higher than that of the states at 57.8% but even this share might fall in the coming quarters given its drying pipeline of new project announcements.
It is worth noting that not all new project announcements are initiated or completed: some are junked at an early stage for various regulatory roadblocks or other reasons, while others can get stalled even after they have been started. Nonetheless, the announcements of new projects serve as a lead indicator for actual investments.
So far this year, Uttar Pradesh has led states in new project announcements. It accounted for 11.85% of new state projects so far this fiscal. Karnataka, Tamil Nadu, and Maharashtra are the other states which have large capex plans this year.
In terms of projects under implementation, Maharashtra leads the pack, accounting for 15% of all state government projects under implementation. Telangana and Karnataka follow close behind, with each having a share of 11% in projects under implementation.
The fall in public investments this year would have been sharper had it not been for these states. As early as 2014, the chief economic adviser to the finance ministry, Arvind Subramanian had argued that public investments should drive India’s capex cycle. But over the past few quarters, new public project announcements have been muted even as project announcements by the private sector have dried up. As fiscal space for states shrink, state governments may cut back on their capex plans, further denting the capex cycle.
The only silver lining is that the stalling rates in public sector projects have declined marginally unlike in the case of the private sector, where stalling rates have spiked up. More than a fifth of private sector projects are stalled but the stalling rate is less than 10% for public sector projects, CMIE data shows.