State’s Capex to Hit Construction Sector

With states staring at huge revenue deficits in the wake of the COVID-19 pandemic, the overall capex budgeted by state governments is likely to witness a steep cut impacting the construction industry, says Icra, rating agency. The overall capex budgeted by states for FY2021, which was around Rs 5.7 lakh crore, is now likely to witness steep cut, as the headroom available to them for incurring capital expenditure has reduced substantially. State-led capex accounts for around half of the total government driven capex in the country. Over the last three years, it grew by 16 per cent to Rs 5.11 lakh crore in FY2020 (Revised Estimates) from Rs. 3.73 lakh crore in FY2018. The projects funded by the central government, multilateral agencies and financial institutions through corporations are expected to fare relatively better. Projects dependent solely on state budgetary allocations are likely to suffer most. Not only is the awarding activity for these projects likely to reduce sharply but the receivable cycle isalso likely to get elongated by 60-90 days. States such as Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu and Gujarat are the top five states accounting for 43 per cent of the total state capex. The construction industry players who have a good mix of projects from states, Centre and funded corporations, will have a better cash flow as compared to those who are exposed to projects solely funded by state governments.