For foreign capital to rush in, India must execute infra projects apace

However, the government should focus on expediting project execution to attract foreign capital to India’s infrastructure sector and speed up the country’s development journey, R. Shankar Raman, the finance chief of the engineering and construction major, told Mint.

The government on 1 February allocated ₹11.11 trillion for developing infrastructure projects in the 2024-25 budget, an 11.1% increase from last year. While infrastructure capital expenditure (capex) in absolute terms is higher, the growth rate has tapered. Infrastructure capex had grown by 37% in 2023-24, 24% in 2022-23 and 40% in 2021-22.

“Directionally, what the finance minister indicated on Thursday is that they will continue to use investment as a basis for creating growth," Shankar Raman said.

“If with ₹10 lakh crore ( ₹10 trillion) we were targeting and getting what we wanted, ₹11 lakh crore ( ₹11 trillion) is only a better platform. But if you go by the potential of the country, it requires far more allocation," he said.

The infrastructure sector can improve its access to capital by attracting foreign investors. However, delays in execution of projects make investing in India’s infrastructure less attractive to foreign funds, he said.

“Today, we lose a lot of time in getting clearances and getting right of way. The government has to crack that. If they’re able to crack that, there are a lot of international funds which are willing to partner with India," he said.

Mega projects such as the Mumbai trans harbour link, the city’s coastal road project, metro projects across the country or the high-speed rail project are succeeding because they were able to attract global capital, he emphasized.

“And international funding came because the programmes were well conceived. They created SPVs, created accountability for delivery, etcetera, and kept project management consultants and companies on a global scale. And that enabled the project to go forward," he said.

A key challenge for infrastructure projects in India has been land acquisition, he said. The process gets complicated as various government agencies are involved at both Union and state levels and land records often tend to be ambiguous or absent, he lamented.

“But the good part is that the government is determined and there is no change of track about which way to go. And that gives us a lot of confidence," he said. “Assuming the government comes back to power, from April 2025 to end of their term, I think this period will see a lot of activity and momentum, in my opinion. And 2024-25 will be a preparatory effort towards that."

Speaking about private sector capex, the L&T’s CFO said while it is going up, it may not match government spending. “Even though MoUs (memorandums of understanding) are signed for several lakh of crores of rupees, these are large programmes spread over large periods of time and committed by a few large industrial houses," he said. “They cannot take the burden of entire private capex of the country."

A majority of the businesses in India are small or medium, which affects their ability to raise capital and contribute to capex meaningfully, he said.

L&T has given a guidance that bookings of new infrastructure orders may slow in the coming quarters, as the country gears up for the general elections. Already, new orders for the company during the October-December quarter nearly halved year-on-year, which Raman attributed to elections in several states.

However, he said it was too early to gauge if the general elections will have a lasting impact on the company’s business. The new government will typically take the first half of the next fiscal year settling down before they start awarding new infrastructure projects. “In the second half of the next (financial) year, if opportunities to bid and our win rates are not picking up, then we will have to say okay, the election has had an impact on us. But at the moment, we have given ourselves six months to assess that."