Maharashtra's Capex Impact: How Welfare Schemes Affect Infrastructure and Real Estate
The recent election in Maharashtra has raised concerns about the state's capital expenditure (capex) plans, particularly in the infrastructure and real estate sectors. Lofty welfare promises could lead to a fiscal deficit, impacting key industries.
MaharashtraCapexInfrastructureReal EstateFiscal DeficitReal Estate MaharashtraNov 27, 2024
If these election promises are implemented, it is likely to put substantial pressure on the state's fiscal resources. For instance, the state's budget allocation for the Ladki Bahin scheme is set to increase by 40 percent, from Rs 46,000 crore to Rs 64,400 crore. This shift in focus towards welfare schemes could dampen capital expenditure, which is already relatively low.
Impact on EPC and Real Estate Sectors
During the first seven months of the current financial year, the Maharashtra government had awarded projects worth Rs 1.5 lakh crore across roads, railways, real estate, and other sectors. Key players in this market include L&T, HG Infra, J Kumar Infra, Ashoka Buildcon, and GR Infra. Emkay Global's data shows that GR Infra received Rs 5,300 crore, J Kumar Rs 6,000 crore, HG Infra Rs 4,100 crore, Ashoka Buildcon Rs 4,000 crore, Welspun Enterprises Rs 3,800 crore, and Afcons Infrastructure Rs 3,500 crore.
However, there are concerns about delays in project awards, which could lead to topline pressure for these companies. The election-related uncertainty has already impacted the real estate sector, where developers are struggling with obtaining approvals for new projects. Despite this, real estate firms like Lodha, DLF, and Oberoi Realty have a strong launch pipeline skewed towards H2FY25, giving them hope for the future.
Cement Sector Dynamics
The infrastructure projects awarded so far are expected to drive demand for cement. According to a report by Prabhudas Lilladher, cement prices in Mumbai remained flat in November due to subdued demand caused by the election uncertainty. However, dealers anticipate an improvement in demand in December, driven by the formation of a stable government focused on infrastructure development.
If the infrastructure development theme does not materialize, the cement sector, which is already facing low demand, will face further pressures. Companies with a significant presence in Maharashtra, such as UltraTech Cement and JK Cement, are closely watching these developments.
Fiscal Challenges and Economic Outlook
The commitment to welfare schemes is likely to have a significant impact on the state's fiscal health. With committed expenditure (salaries, pensions, and interest payments) already accounting for 55 percent of revenue, only 26 percent of revenue is available for discretionary spending, including capex. This situation is concerning as it could challenge the state's fiscal consolidation path and slow down the pace of capital expenditure.
Data from the Ministry of Statistics and Programme Implementation (MoSPI) shows that Maharashtra’s GSDP growth is projected to fall to 5.5 percent in the coming fiscal year, down from 10.9 percent in FY24. This slowdown in economic growth, coupled with the fiscal pressures, could have far-reaching implications for various sectors.
Conclusion
While the election victory is positive from a policy continuity perspective, the implementation of welfare schemes will likely strain the state's fiscal resources. This could have adverse effects on capital expenditure and, consequently, on sectors such as infrastructure, cement, and real estate. However, with a strong launch pipeline and the potential for improved demand, there is still hope for a rebound in these sectors as the government focuses on infrastructure development.
Frequently Asked Questions
What is the projected fiscal deficit for Maharashtra if the election promises are implemented?
According to analysts at Elara Capital, if the election promises are implemented, Maharashtra’s fiscal deficit is likely to widen to 4.8 percent of GSDP, significantly higher than earlier estimates of 2.6 percent.
Which sectors are likely to be impacted by the slowdown in capital expenditure in Maharashtra?
Sectors such as infrastructure, cement, and real estate are likely to be impacted by the slowdown in capital expenditure in Maharashtra, as these sectors depend heavily on government projects and spending.
How much has the budget allocation for the Ladki Bahin scheme increased?
The budget allocation for the Ladki Bahin scheme is set to increase by 40 percent, from Rs 46,000 crore to Rs 64,400 crore, according to Emkay Global.
What are the key players in the infrastructure projects awarded by the Maharashtra government?
Key players in the infrastructure projects awarded by the Maharashtra government include L&T, HG Infra, J Kumar Infra, Ashoka Buildcon, Welspun Enterprises, and Afcons Infrastructure.
What is the projected GSDP growth for Maharashtra in the coming fiscal year?
Data from the Ministry of Statistics and Programme Implementation (MoSPI) shows that Maharashtra’s GSDP growth is projected to fall to 5.5 percent in the coming fiscal year, down from 10.9 percent in FY24.
Related News Articles
Indian Real Estate Sees Surge in Joint Development Agreements
Joint development agreements for 1546 acres of land inked in the last 18 months, with a focus on residential projects in Delhi NCR, Bengaluru, and Mumbai.
MahaRERA's New Guidelines: Enhanced Protection for Homebuyers in Maharashtra
From July 1, developers in Maharashtra will be required to maintain designated bank accounts to ensure transparency and accountability in financial operations of housing projects.
Arnya RealEstates Marks First Close of ₹375 Crore for Maiden Fund
Arnya RealEstates Fund Advisors raises ₹375 crore for its maiden real estate fund, with a focus on providing early-stage growth capital to residential projects.
Maharashtra Elections 2024: Nawab Malik Files Nomination from Mankhurd-Shivaji Nagar
Today marks the final day for candidates to submit their nominations for the Maharashtra state elections. Notable political figure Nawab Malik is set to file his nomination from the Mankhurd-Shivaji Nagar constituency.
Bombay High Court Stays REAT Order on Rs. 38.18 Cr Deposit in Real Estate Dispute
In a significant development, Justice Gauri Godse of the Bombay High Court has stayed an order by the Real Estate Appellate Tribunal (REAT) that directed a developer to deposit Rs. 38.18 crore in a real estate dispute.
India's Office Space Market Surges to 515 Lakh Sq Ft in 2024, Setting New Records
Mumbai leads the growth in new completions by 170%, while the IT-ITeS sector drives leasing activity. With demand soaring, 2025 is poised to be another year of robust growth in India's commercial real estate.