With the Budget 2024-25, the Union government has indicated that it may not “carry the burden” of investment in infrastructure and states need to improve their finances, increase investments as they cannot continue to rely on central budget, R Shankar Raman, chief financial officer told in a reply to question by Moneycontrol after the company announced financial results.
On July 23, Finance Minister Nirmala Sitharaman announced that the capex budget for 2024-25 would be Rs 11.1 lakh crore, or 3.4 percent of GDP. While she maintained it at the levels announced in the interim budget, some experts see it as a strategic shift towards decentralizing infrastructure investment.
“Don't expect the central government budget to carry the burden of India's entire investments– I think that's the signal they're giving. And to ask states to take that load on their balance sheet since it is a distributed responsibility. Fiscal improvements should be adapted by the states. Unless the state finances improve, it's not going to be able to attract lenders, be it multilaterals or any other agency, to participate in their program,” Raman said.
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L&T is often seen as a proxy for India’s infrastructure story given its diversified presence in all segments of the sector. In the last three fiscals, India pushed the pedal on its capex budget, increasing it 34–37 percent each year, to spur growth at a time when state and private sector investments were drying up.
With this budget, Sitharaman has nudged the states to scale up investments.
Raman said that states will have to work on two aspects– improve their finances and ensure they have robust program management. Just as the different ministries, or even the Prime Minister’s office monitors programmes at the centers, states too need to follow suit.
“For finances to improve, we have to step away from the freebie culture. I think one of the biggest hindrances that we'll have for development is people begin to expect that dinner will be served on their table. They have to earn it,” Raman said.
He clarified that while poverty alleviation is a key agenda and support should be given where needed, states need to move away from a culture of freebies if they want to attract investment and enable fiscal improvement.
No liquidity challenge
Raman dismissed concerns over availability of funds to finance capex-intensive infrastructure projects.
“Liquidity is not a constraint. A credible program, commitment to execute the program within stated time, support for the program through the periods of change in government, etc. are critical,” Raman said.
Raman said that the private sector investment continues to be measured and on a need basis.
“Why did the private sector shy away from public investments? Because of the unpredictability of the counterparty and the contract agreements,” Raman said.
He said that infrastructure projects should be on the national agenda and should not be vulnerable to changes in the political environment.
“I don't think any private sector (company) in its right mind will deny itself an opportunity to grow, but the conditions for growth should be enabling. Whether it is policy prescription, on-ground clearance, joint commitment to make sure that the proposed transactions get consummated– all this has to be done,” Raman said.
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