Tata Projects has urged the government to look for ways to encourage private capital expenditure, which is vital to India emerging as the third largest economy in the world, in the Budget 2024 and also take a more holistic view to aid growth in the construction sector.
"I think private sector capital expenditure will play a significant role in growth, going forward, and the government should look at ways to boost private sector capital expenditure," Tata Project's managing director and chief executive officer Vinayak Pai told Moneycontrol.
While public sector spending by the government will play a pivotal role in the growing economy, the government should consider ways to encourage private capital expenditure in sectors such as semiconductors, electronics and data centres, the CEO of the Tata Group’s construction arm said.
Batting for infra
Pai also asked the government to consider reducing the goods and services (GST) tax rate on cement, which is at 28 percent.
"Another thing that should be re-looked is GST. In the construction sector, the GST on cement, which is at 28 percent, continues to be one of the challenges," Pai said, adding the Budget should consider measures to improve the dispute resolution mechanism for infrastructure projects in India.
"There is definitely a liquidity issue in the industry at the moment. And the government can work towards better project definition and better DPR (detailed project report) quality, going forward, so that projects don't change after a few years of execution," Pai said.
He also requested the government to consider the introduction of surety bonds instead of bank guarantees to make it easier for construction companies to execute projects.
Pai said in the Interim Budget for 2024-25 the government indicated that it would continue to spend heavily on roads and rails.
Apart from these sectors, Pai expects public capital expenditure to pick up in the power and green energy industries.
"(I think the government understands the importance of) power security and the need for the growth of renewables energy, which is why I expect more incentives and faster growth in these sectors related to energy transition and energy security," Pai said.
He also asked the government to draw measures to create a skilled workforce and also find ways to retain skilled engineering talent in the country. "We have a strong shortage of skilled manpower at the moment," Pai said.
Pai told Moneycontrol that Tata Projects has started internal discussions about a potential initial public offer after the company’s turnaround to profitability in 2023-24.
"We have been discussing it (the IPO). However, our financial performance needs to be steady and strong for the next few years before we can fully consider an IPO," Pai told Moneycontrol.
After reporting a profit of Rs 10,365.15 lakh in FY21, Tata Projects slipped in the red for two consecutive years in FY22 and FY23. The company returned to profit in FY24 with a net profit of Rs 14,548.04 lakh.
Pai has also called for stricter quality standards and said the government needs to put a system in place that encourages accountability at every stage of the design, construction and maintenance of infrastructure projects.
“There are a lot of leading indicators which are very important. At Tata Projects, we track and control our leading indicators. The industry should focus on of course the lagging but also the leading indicators, which I think is missing,” Pai said.
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