Covid packages may dry up funds for infrastructure builders

Labour shortage, costs or the lack of paid users — of course these issues are weighing on infrastructure builders. But what’s an even greater worry is the very basis of the foundation — financing. The Centre’s ability to award projects appears constrained for the moment, and that’s not what investors in infra companies might want to hear.
Further investments in infrastructure projects might be sacrificed in favour of Covidrelated relief packages. In the past few weeks, the government has already doled out a stimulus of Rs. 1.7 lakh crore, which covers the welfare of migrant workers and other essential services. Besides, key sectors hit by the lockdown restrictions want special packages, further restricting the government’s ability to fund capital-intensive projects.

Separately, tax collections (GST, excise, corporate and personal income tax) are expected to be weak, likely causing government borrowing to bloat and limiting its fund flow to infrastructure projects — at least for the next one year. Philip Capital estimates that due to Covid packages and weak tax collections, fiscal deficit may slip to 5-8% of the GDP.

According to budgetary plans, for FY21, the government has allocated Rs. 1.5 lakh crore for roads, Rs. 1.6 lakh crore for railways and Rs. 0.9 lakh crore for urban departments. Given the reluctance of banks and the lack of alternative funding avenues, infrastructure companies have become more dependent on the government for cash. In the current circumstances, that might be rather hard to come by.