India can see annual capex of $50 billion: Larsen & Toubro’s CFO R Shankar Raman

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December 28, 2020 7:30 AM

He explained that with multilateral funding agencies monitoring projects very closely and insisting on escrow accounts, the state governments too would be able to scale up capex.

Among the areas that are expected to see the biggest amounts of capex are water, followed by power transmission and renewable energy. The fourth would be urban congestion.Among the areas that are expected to see the biggest amounts of capex are water, followed by power transmission and renewable energy. The fourth would be urban congestion.

R Shankar Raman, director and CFO, Larsen & Toubro, believes India can expect to build out around $50 billion of infrastructure every year post the recovery from the pandemic in about 12-14 months. Of this, the smaller share of about $10-15 billion would expectedly be built by the private sector while the government sector would need to do the bulk of the spending of $35 billion.

“The potential for investment in infra in India is about $80-100 billion annually but $50 billion is a realistic level to start with and it will be an upward sloping curve. There are six to ten active players, so each will have an opportunity of $8-10 billion a year,” Shankar Raman said.

He explained that with multilateral funding agencies monitoring projects very closely and insisting on escrow accounts, the state governments too would be able to scale up capex.

Among the areas that are expected to see the biggest amounts of capex are water, followed by power transmission and renewable energy. The fourth would be urban congestion.

However, with the number of bidders for projects in the construction sector not high currently, the awarding of projects could slow down, he felt. “In our government system unless you have three or four bids they somehow feel it is not proper price discovery. So not being able to sight half a dozen bidders is also becoming a bit of a constraint in releasing these projects,” he said.

Shankar Raman expressed concern about the rapid slide in tariffs, pointing out that while some of it could be accounted for by the advancements in technology, the investment would not be sustainable without returns of 13-15%.

“I am concerned that if this trend continues, we may soon have a situation where like in coal power plants you will not have people to put up the facility,” he said. He added that pension funds and insurance companies needed to invest in these projects since they called for committed capital.

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