Speedy green clearances, review of PPP model needed to revive investment cycle

What?s the macro scenario in the infrastructure space?

Investment in infrastructure comes from four sources ? the central government and its PSUs, state governments and their PSUs, domestic corporate and foreign investors. During the 11th five-year plan period (FY08-12), 63% of the investment came from the public sector and the rest 37% from private. For the 12th plan period, which started in April 2012, the ratio of public-private investment is envisioned at about 52:48. In the first phase of the 12th Plan, i.e. , April 2012-December 2013, private investment has been far below expectations and public expenditure through central PSUs such as NTPC, Coal India and DMIC is being pushed by the government. And there are clear signs of slackening (in investment) at the state government level.

Domestic private companies are wary of making fresh investments because the public-private partnership model (PPP) is in a state of suspended animation. It seems to the private sector that the last P in PPP ? partnership ? is still to be understood by government. In roads, ports and other sectors, there has been a marked lack of enthusiasm in bidding for PPPs. The government is now looking to create a credible institutional mechanism for ?PPP renegotiations?. The Planning Commission is structuring something to this effect, and this should go a long way in reviving private sector confidence in PPPs.

On the other hand, foreign investors are seeing good acquisition opportunities as there is a bunch of distressed infra assets available at attractive valuations.

Overall, the investment progress is far slower than what was envisaged in the 12th Plan. While the overall investment target for the plan period is set at $1 trillion, we are not sure at this time that the overall target will be met in the remaining period.

But the market is rallying on the hope that India may get a stable government, possibly with Narendra Modi at the helm? Is the worst phase over?

Yes, it is believed that the worst is over. But the infrastructure sector is still down and it will take some time to revive. The power sector is moderately upbeat, roads are still on a wait-and-watch mode, the construction sector is beginning to smell a public expenditure-driven revival with increase in volumes of EPC contracts in highways, metro rail projects, ports, dedicated freight corridors and DMIC. News of positive policy changes in allowing more FDI in construction, realty and rail is also raising expectations.

Is the fast-track clearance mechanism by the Cabinet Committee on Investment and Project Monitoring Group actually working?

The CCI / PMG intervention is directionally correct, but it has come too late in the tenure of UPA-II. I wish it were set up in 2009. Signals were clear even then that policy logjams were affecting projects. The media picked it up in 2010, when the term DPLS (decision paralysis led slowdown) started appearing in reports. The reaction time from the government was not at all quick. It was like tickling a rhinoceros ? the laughter comes after a long time.

The CCI first cleared the NELP projects that were stuck due to security concerns of the defence ministry. In the second burst, they cleared power projects that were stuck for fuel-supply agreements (FSAs). Their next target appears to be projects that are stalled due to delays in forest and environmental clearances. A new minister appears to be part of the solution So, CCI / PMG is following a pattern. But, there are doubts in people?s minds as to whether the ?cleared? projects are really cleared. We are told that Department of Economic Affairs in the ministry of finance has created a special cell to track real-time movement, following the clearances.

What will be the points of friction coming in the way of faster environmental clearances?

The need of the hour is to frame a comprehensive new charter for the environment ministry, something that is credible and rational. There is evidently a perception that the MoEF has become a surrogate form of ?license-raj?, and that the institution itself has become a rent-seeking, patronage-dispensing outfit. This has to change and we have to overhaul laws and regulations to balance the two goals of economic development and preservation of the environment. The new Land Acquisition Act, for instance, has succeeded largely in turning around a highly negative and contentious issue into a far more positive orientation.

When can we expect the investment cycle to revive?

If the push that UPA-II has lately given in two areas ? PSU investments and clearing stalled projects through CCI / PMG ?impact early, investment revival could be expected from the spring of 2014. If there is continuing tardiness, the cycle may not revive before 2015 and, that too, if we are lucky to get a stable government at the Centre. The silver lining is that some of the states are again showing high energy in project development. But, overall, the state data is mixed. While some states remain unattractive for investments, others such as Punjab, Gujarat, Bihar, Rajasthan, Madhya Pradesh, Chhattisgarh and Orissa are generating renewed interest as investment destinations.

With the investment cycle remaining sluggish, will GDP growth languish in FY15 also?

This fiscal, we are expecting GDP growth to be 4.5-5.0%. For FY15, much will depend on investment demand because the 9% aspirational GDP number broadly comes from 4.5% of consumption-led growth and 4.5% investment-driven growth. The growth in consumption will continue in FY15, but whatever incremental growth we get from investment will add to the 4.5% growth.

What are your company?s plans in coming years? Are you considering an IPO and buyouts to expand your operations? What?s your vision?

We have recently acquired Dubai Consultants, one the largest companies in our line of business in the UAE. We have projects and operations in Nepal, Indonesia and Sub-Saharan countries. We expect 10% of our revenues to come from overseas operations in 2014-15, and think they will keep growing thereafter.

As for fund-raising, we are gearing up for a capital-raising effort in mid-2014 to raise around R500 crore. We will, in all probability, not take the IPO route, but go in for new strategic investors to complement our existing external institutional shareholders, who are IDFC, L&T and HDFC.

We are committed to building a world-class infra services company with an Indian DNA, and our dream is to leave behind a respected and well-regarded institution created and crafted with Indian entrepreneurial energy, vision and impeccable values.