Private investment still a concern, IL&FS issue could worsen situation: Vipin Sondhi, MD and CEO of JCB India

Roads and highways continue with their momentum and are still the primary growth driver. There is no lack of demand for building new roads. While national highways are one aspect, we must not forget the state highways and the village roads. Also, on the irrigation front we have moved ahead significantly. While there are some large irrigation projects in Telangana and Andhra Pradesh, what I think is more relevant to our country is the desilting of village ponds and both are happening simultaneously.

How about other sectors?

We have not seen much activity in other sectors such as railways, urban rejuvenation, real estate, etc. There are no signs of recovery in the real estate sector, which has been under pressure for several years now. We thought that affordable housing could be a kickstarter, but we have to still see fruits of that. One aspect to see would be that how much expenditure took place on affordable housing on the ground.

Does it affect you that other areas are not participating?

I think that three out of five areas have to fire for sustainable growth and that has not happened. While road and highway has been a good story, I would say that if this was possible in roads and highways that had got stuck (on issues relating to land and environment etc), it is possible in others too. So, if you ask, would we have expected that to happen at least one year ago, the answer is yes.

How do you see yourself moving on the growth front and where does the optimism lie?

In the first half of this year, the industry has grown by over 40 per cent and the average growth of 2017 and 2018 would be around 20-25 per cent. However, there are uncertainties ahead related to the polls – the code of conduct and a new government. There is some amount of uncertainty on rupee and then there is the concern about the PPP projects because of the IL&FS issue as it can potentially delay private investment. However, the Centre has held its nerve by not cutting the excise on petroleum products which means the revenue is still coming and I think that if we hold our nerve politically, in terms of not cutting the excise on petroleum products then public spending will continue and that will provide certain amount of momentum post the code of conduct.

How big a concern is the lack of private investment?

I would give credit to the government for creating a fiscal space for enhanced public spending on infrastructure in successive budgets. It was done with a view that private investment would come in at some point of time. While government continued with it, the private sector investment did not come in. I think the public-private model for infrastructure has not yet got the confidence of the private sector. While the big corporate, who invested in roads and other infrastructure projects are still overleveraged and have not yet sorted out their issues, some have gone through the bankruptcy code which is a great relief but it will take some time. Now, we are struggling with IL&FS, which was the biggest supporter of public private partnership. So, unless the PPP model gets the confidence, private investment in infrastructure will remain an issue.

How does the IL&FS issue concern you?

The IL&FS issue will create an environment where funding will become an issue for the kind of projects it supported. Hence, the speed and efficiency at which IL&FS is supported and a solution found is going to be the key to any further concerns that may appear. I think a quick resolution to the IL&FS issue to calm the concerns in the market and that is very important. Also, it needs to be seen if there are 5-6 key programmes, which if resolved quickly can actually correct the situation in legitimate manner.

One area that has been subjected to bans has been sand mining. How do you see it?

Yes, from time to time we see imposition and lifting of bans on mining. Sand mining needs proper regulation. While we shouldn’t get our river beds to be used badly but that doesn’t mean that we should move to bans. It has to be seen as an industry and it is a great input into roads and highways and real estate. Sand mining needs policy and regulation rather than ban and no ban situation. It doesn’t get the desired attention but Centre must form an overarching umbrella regulation and then each state should form regulation within the same. I think it is a matter of urgency.