The infrastructure sector in India is slowing down. BE’s Kishore Kumar Biswas and Tushar K. Mahanti spoke to Hemant Kanoria, Chairman, Srei Infrastructure Finance Limited, regarding the PPP model in infrastructure and the role of NBFCs.
Q. Infrastructure growth has slowed down in recent months. How do you read the situation?
A. Infrastructure sector has slowed down because several projects undertaken by the government are still to be implemented. Furthermore, Public-Private Partnership (PPP) projects in infrastructure sector have witnessed many challenges and therefore the appetite of private sector for infrastructure projects is almost negligible. At present, the only panacea could be the government substantially increasing their investment in infrastructure projects.
Q. Finance Minister Nirmala Sitharaman announced certain new policies, recently. Do you think these will ease the stress of the economy?
A. The Finance Minister last week has announced many positive steps towards easing the stress in the economy. We are confident that once the steps are implemented it will result in easing of stress in the economy.
Q. There is a common view that the problems of power and NBFCs must be addressed immediately to get the economy out of stress. You are a major player in these two sectors. Why are these sectors stressed?
A. For power sector, the problems seem to be very complex but the solution is very simple. It is also true for NBFCs. The government has to go to the root of the problem to find out solutions. We have shared simple solutions for these sectors with the highest government body.
Q. The NBFCs are the lifeline for the micro, small and medium enterprises (MSMEs). But MSMEs’ access to credit has virtually dried up as the NBFCs, their principal financier, are going through a liquidity crisis. What may be the possible way out of this impasse?
A. For NBFCs, there are two issues. First, to get liquidity for meeting the present liabilities, which most NBFCs can manage as of now. Second, steady access to liquidity and capital for smooth running of their business – where NBFCs are facing challenges. My suggestions are: 1) NBFCs with a minimum net worth of Rs. 1,000 crore be allowed to merge with a bank or convert into a bank. 2) NBFCs with a minimum net worth of Rs. 1,000 crore be allowed to accept public deposits with immediate effect.
Q. Government has declared in the current Budget to spend a huge amount on infrastructure development. Do you think it is possible for the government alone to fund the investment?
A. At present, the private sector appetite for investments in infrastructure projects is very low. Banks are also cautious while offering loans for infrastructure projects. Hence, to kickstart the revival of the economy the government must increase its investments in a substantial way in infrastructure sector.
Q. It is known that the private sector investment has not been happening for some years due to financial stress. Is it really so or the reason lies elsewhere?
A. Private sector investment has not been happening not because of financial stress alone. Many projects have been stuck because of lack of clearances, unavailability of land and several other factors. As a result the whole process has become cumbersome and it has led to high interest costs. At the time of undertaking a project it may have seemed viable but due to rising interest costs the project has turned unviable resulting in stress for both private sector and banks. Therefore, at present, no one is interested in making fresh investments.
Q. What may be some measures, which can help the economy to come out of the present slowdown?
A. There are some immediate doables which, if addressed quickly, can infuse fresh momentum to the growth engine. Here are a few suggestions to facilitate this transition.
Judicial reforms, which would ensure speedy and quality justice. Sectoral reforms in infrastructure, which has been a big contributor to NPA of the public sector banks. For that, while the governance of public sector banks needs to be reformed, it is even more important to address the problems at the industry level. In most cases, the root causes of bad loans have been the regulatory and policy loopholes in each sector. Infrastructure creation will be the prime driver of growth and for that to happen, the construction sector has to be vibrant.
Land is a key resource in economic development. But in India, land acquisition has been a major irritant for industrialisation and infrastructure projects. A pan-India exercise to map and record the details of land resources in India can be initiated.