Mains Marathon

Approach:

• Briefly introduce IEBR and its significance in CPSEs’ capital expenditure.
• In the body, explain the major reasons for the decline in IEBR mobilisation, followed by the challenges this poses to infrastructure financing goals.
• Conclude with a balanced forward-looking note.

Introduction:

Internal and Extra Budgetary Resources (IEBR) have traditionally been the primary source of capital expenditure for Central Public Sector Enterprises (CPSEs). A sustained decline in IEBR mobilisation poses structural and financial challenges for India’s infrastructure-led growth strategy.

Body:

Reasons Behind Declining IEBR Mobilisation by CPSEs:

• Rising debt burdens of CPSEs, especially in infrastructure sectors like roads and telecom, have constrained their ability to raise market-based funds.
  • For instance, NHAI’s debt rose from ₹23,797 crore in FY14 to ₹3.48 lakh crore in FY22.
• Greater dependence on budgetary support has substituted IEBR.
  • Government equity and loans to CPSEs grew over 150% from ₹2.1 lakh crore in FY20 to ₹5.48 lakh crore in FY25 (RE).
• High dividend payout expectations from the government have limited CPSEs’ ability to retain earnings for reinvestment.
• Limited financial autonomy and government influence in key investment decisions have reduced operational flexibility of CPSEs, affecting their ability to mobilise funds efficiently.
• Private capital mobilisation has weakened in key sectors like roads.
  • The National Infrastructure Pipeline (NIP) envisaged 38% road sector funding from private players, but this has not materialised due to investor risk aversion.
• Cash erosion from mergers and acquisitions, such as ONGC’s acquisition of HPCL, has further reduced internal surpluses of CPSEs.

Challenges Posed to India’s Infrastructure Financing Goals:

• Increased burden on public finances as infrastructure development increasingly relies on gross budgetary support rather than self-sustained CPSE financing.
• Mismatch with NIP targets, which aimed for diversified capital sourcing, including substantial private and CPSE-led investment.
• Reduced efficiency and competitiveness of CPSEs due to declining reinvestment and innovation capacity.
• Crowding out of private players due to CPSE dominance backed by budgetary support, which may distort market dynamics.
• Risk to fiscal sustainability, since over-reliance on public funds may widen future fiscal deficit pressures if growth targets are not met.

Conclusion:

The decline in IEBR mobilisation reflects structural constraints and policy misalignments in CPSE functioning. To meet infrastructure financing goals, India must reinvigorate CPSE financial autonomy, incentivise reinvestment of profits, and revive private capital participation through regulatory and risk-mitigation reforms.