Even as the roads and highways sector has delivered fast growth over the last couple of years, Vipin Sondhi, MD and CEO of JCB India, a leading construction and agricultural equipment manufacturer, told Sandeep Singh that it alone can’t sustain the growth. While the industry is coming out of degrowth, he said that in order to have sustainable growth of 10-15 per cent, other sectors such as irrigation, railways, urban rejuvenation and real estate have to start firing.
How has the pick-up in roads and highways sector benefited you?
While the fiscal 2011 was the best year for our industry, we witnessed a quarter by quarter reduction in growth between April 2012 and September 2015 and during this period the industry saw de-growth of almost 45-50 per cent. However, beginning October, things started to stabilise and from January 2016 till today, we have had growth of 45 per cent as an industry and its driven by the roads and highways sector.
Is the growth from roads sector enough to sustain the revival?
The growth for the industry has come essentially from this sector. Growth in roads and highways can bring growth of 5-10 per cent every year but since these projects can go through ups and downs depending upon how projects pan out and on execution, therefore, for sustainability, one sector is not adequate. To have a 10-15 per cent sustainable growth, some new sectors have to come in. Hopefully, irrigation which is critical for our country will kick in but then railways, urban rejuvenation and finally real estate have to also start moving at some point in time. At least three sectors (out of the five) have to deliver at any point in time for sustainable growth.
While railways seems to be moving systematically, irrigation has been showing some signs of greenshoots. We expect that if 2016 was the year of roads and 2017 it will continue, we think that 2017 will be the year of a sector such as irrigation and by 2018 railways will start firing.
Do you see other sectors beginning to deliver?
We need two more sectors to fire, and at the end of the day it has to be a whole set of things that need to fall in place. One sector has done it and that shows that it can be done. In case of railways now we have to see if tenders are coming, but we have seen action in irrigation. Tenders are coming out especially in Maharashtra and Telangana and going forward we expect other states to copy the good practices of these two states. One positive is that they were preparing for the monsoon and it wasn’t in reaction. While funding has to come in, a mechanism has to be developed to ensure that contracts are honoured, executed and cash flows happen. In the road sector, the payments were delegated. While earlier everything had to come to Delhi, now payments to local people are happening in some of the hubs that have been created by the road sector.
However, urban rejuvenation is not taking off. As a concept smart cities is great but now you have got to do what has to be done. For works such as laying pipeline, sanitation, schools, hospitals etc. you don’t have to keep waiting.
Do you see any noteworthy development in greenfield Smart City projects?
The first step has begun and we are aware that the consultancy firms are getting engaged and people doing the planning and preparing project report. The next phase will be sanctioning, land acquisition and environmental clearances. We have to see how soon and how fast it happens. While these are large projects they will go into sustainability over 10-15 years time frame. While we need more cities and smart cities, these are steps that any government should take as they look beyond the immediate 3-4 year period.
Credit growth to industrial sector slipped into negative in August for the first time in at least a decade. How do you read that?
It needs to change very very quickly. What is happening is that funding is being done essentially through the Budget, which is great but ultimately, the government and the private sector must be able to spend. I think PPPs will come back as and when some amount of confidence gets gained. Now, off-Budget financing vehicles, SPVs, NIIF and private sector funding needs to come in as budget can fund up to a point.
What is the sense you are getting from contractors and developers?
The big developers are over-leveraged and even though some debt has been restructured, it is not adequate. The banks would be very careful till they see a clean balance sheet. The positive is that we are seeing tier II contractors coming forward as they are in much better position and their balance sheet is relatively clean. While their capacity may not be that great and the growth will be smaller but they are the ones who are executing contracts.
There is a growing concern around the world that manufacturing won’t create many jobs because of disruption from automation and robotics. How real is the threat and is it already playing out?
The answer is yes. But will jobs get created? I think they will. And, should we aspire to become another China? I don’t think we should because that capacity was enough to cover the whole world. I think the industrial growth in any country takes place on the backbone of small and medium scale industries. So you have hundreds and thousands of small industries, sitting on them is a medium size industry and on top of them is the mother industry. In the mother industry critical operations related to quality can be robotised and which is what everyone sees. But in the medium and small industries, one can’t afford robotics and secondly they don’t need robotics because the finishing operation to the precise specification and quality is done by the mother industry and to some extent by large medium enterprises. We must support small and medium enterprises as they are the backbone and at the end of the day that is what will drive the industrial growth.
What are the things that you would still want changed?
We would have loved to see greater speed in the areas of infrastructure but for roads and highways. They need fire quickly. A lot of it is to do with de-bottlenecking, clean up of banks and de-leveraging corporates. The solution to NPAs has to be found. While most of the banks involved are PSBs, if you want to retain them in the public sector then the government has to take action or we have to find a way of raising money alternatively.