The focus on infrastructure creation underlines its commitment to reviving the investment cycle.
With most of the projects under National Infrastructure Pipeline likely to be tendered out in the next two years, Larsen & Toubro expects order inflows to improve in FY21, CEO & MD SN Subrahmanyan tells Anwesha Ganguly. Excerpts:
The government has recently identified projects worth Rs 102 trillion under its National Infrastructure Pipeline (NIP). How do you see the move impacting the sector?
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It is a positive move from the government to give the economy a booster shot. The focus on infrastructure creation underlines its commitment to reviving the investment cycle. While the size may be impressive, more than 70% of the NIP projects are at various stages of approval and implementation. At the same time, when extrapolated to the next 5 years, it shows continuity of infrastructure spend as a percentage of GDP. The government needs to tackle issues such as financing, land acquisition, and operational problems with PPP projects, to name a few. And the cycle of project announcement, tendering and award needs to be shortened.
Would NIP manage to revive the sector, given that private sector capex is yet to pick up?
Across the world, the development of public infrastructure is predominantly carried out by governments. India is no exception. As far as NIP is concerned, 78% of the capex is to be made by governments and 22% by private players. The focus should now shift to boosting consumption by improving GDP growth. Private capex has suffered owing to the experience of low capacity utilisation in the past. We need measures that cut payment delays and permit mid-course changes in project implementation even as targets for completion are met.
What more can the government do to improve ease of business in the sector?
While India’s position on the ease of doing business index has improved dramatically, it ranks 163 out of 190 countries on enforcement of contracts. Also, there is a growing trend to challenge arbitration awards in high courts. Honouring contracts is something we need to learn from other countries. We must also insulate contract enforcement from changes in state leadership and judicial activism.
What measures are needed at the policy level to boost infrastructure growth?
Apart from the reforms envisaged in NIP, ensuring uniformity across sectors on public procurement, adopting a Quality-Cost-Based Selection system to select competent bidders, protecting Indian companies in international bidding, and promoting domestic manufacturing would boost sectoral growth.
Are the states deploying capex adequately?
Of the proposed spend under NIP, approximately 39% is to be made by the states. They would, therefore, have to improve their fiscal health and build institutional capacity to sustain far higher levels of capex than in the past.
With several banks now focusing on retail instead of project finance, would the sector find it difficult to fund projects?
The banking sector has been very stressed in recent years, with banks being cautious about infrastructure projects, fearing delays and cost escalations. Fortunately, the implementation of the IBC has changed the scenario, allowing banks to finance projects. Apart from banks, there are institutions like pension bodies/insurance companies with appetite for long-term investment. The government should take steps to channel the resources of such long-term investors into infrastructure creation.
Do you fear delays in your Maharashtra projects owing to review of projects in that state?
With the new government settling down, the projects have regained momentum. We don’t foresee any impact on our financials.
By when do you see activity picking up in the road, airport and other key infra sectors?
Almost all the metro airports are increasing capacity and L&T is part of the ongoing projects. The government has also come up with a plan for new airports like Jewar, which would increase activity in the sector. There has been no doubt a slowdown in award of road projects by the NHAI over the last couple of years. However, with the Bharatmala plan in place, we expect ordering to pick up in the near term. In the rail sector, we expect the high-speed rail tenders to be finalised in the coming quarters. The new dedicated freight corridors announced by the government would also open up opportunities for us.
Do you expect order inflows in FY21 to be better than in FY20?
As we discussed, the government is pushing infrastructure projects worth a staggering Rs 102 lakh crore. Given that most of the new projects are likely to be tendered out in the next two years, we expect FY21 to be better than FY20.