India Has A Real Problem Of Financing Priority Sector Projects, Says L&T’s Naik
Larsen & Toubro’s Group Chairman said India must stop investing in companies that deal with tobacco and consumer products.
India has the real problem of financing infrastructure projects that can have a multiplier effect on the economy such as job creation, according to AM Naik.
Calling Nirmala Sitharaman’s appointment as finance minister a surprise, the group chairman of Larsen & Toubro Ltd. said her biggest problem would be tackling the lack of resources. For example, the harbour link project between Mumbai and Navi Mumbai wouldn’t have come up without Japanese financing, he told BloombergQuint.
“They have made lot of commitment to the farming community and social sectors,” he said. “In almost all sectors, we need huge investments.” The government, he said, needs to stop investing in companies that deal with tobacco and consumer products, and focus on priority sectors.
Watch the entire conversation:
What have you made of the design of portfolio allocation? Are you happy with it?
I think It’s not a question how happy or not but how will they finally perform. There were couple of surprises. One was the finance minister appointment although she is competent, but I don’t know. We’ll have to wait and see how the well the finance performs as it is a very very important portfolio. Very important. Home I had expected, there is no problem. Defense, Rajnath Singh expected. I think foreign minister is a surprise for all. But he was very competent foreign secretary. So, he will do well as a foreign minister. On the whole, otherwise it is very well balanced.
The focus shifts on priorities in various different segments. What according to you should be the priorities that could be tackled by new FM? Most say that farm distress has to take center stage.
First and foremost they must do what I expected, like it was in case of the Vajpayee government, the ministry of divestment. There is huge amount of resources required. They have made lot of commitment to farmers community and to the social sectors. And of course, in almost all the sectors,we need huge investments. Infrastructure will need a tremendous priority because apart from multiple economic value add, it creates lot of jobs. Therefore,I think mobilizing resources is major thing.
One of them is divestment of stressed resources or divestment of public sector undertakings. Or for that matter, I would say that there are companies which are in tobacco or which are in consumer products.Government has no business to be investing in those kinds of things and they can mobilise few hundred thousand crores, I know for sure. That will, in a way be path for resource requirement for all the priority sector which we really need to work on.
Would you believe that it is restricted to stressed assets? Or would you believe that strategic divestment could be overarching theme for Modi 2.0?
No,I said in strategic sector, they should divest and not just stressed assets as that could be peanuts and you will get small things. But in strategic divestment they will get lot of resources.
And this will give them budgetary headroom as they will not be too much fiscal strain on them even if they want to make big ticket funding pushes for mainstream industries.
I agree with you. The real issue will be where they will get resources from to be able to give all the priority sectors the required resources. The liquidity in the market is very tight. They have to release more liquidity through RBI policy decisions and almost 60-65 percent of private sector has created NPAs and they have to brought back into health as early as possible. Otherwise the private sector investment has almost dried up.
Even public sector investment without compromising on fiscal prudence. Anything you are expecting particularly from the defense sector now. Is that your primary focus?
Number of tenders which were half done or rather not gone ahead because of resources, I claim it is because of resources, number of them. There worth may be few hundred thousand crores. Like we talked about, Nuclear submarine some are pending. The conventional six submarines worth more than Rs 60,000 crores are pending. Missile program is pending. The platforms and the sorting docks for helicopter landing is pending.So, there are innumerable projects which are held back because of resource availability. All of them have to really start moving and for which you need resources.Just imagine, high speed railway would not have come up for hundred thousand crores where we are getting financing on soft loan basis from Japan. So as harbor link project from Bombay to New Bombay would not have come up without Japanese financing.
So, I think we have real problem of financing all the infra projects and the priority sector project. Partly it would be made by divestment including some of the priority sector. But there is no need for them to be in government sector because there are already a lot of private sector who are already in that business.
And then of course the liquidity improvement, so that the private sector will get some money. At least those who are in position to borrow and some of the retail sector and consumer sector will come up. NBFC will come back to health. I don’t think there are thousands of NBFCs. We have to really take a priority and make sure that only 50-60 really healthy NBFCs are allowed to be financed.
Nitin Gadkari gets the MSME portfolio.Speaking to the financers across suggest that, that sector is in bit of a turmoil. Is it right man for the right job? He has done fabulous job with road surface transport ministry. Is this the think that was needed in the MSME space?
I think it’snot the question of right man for the right job. In majority of the cases, the ministers and the IAS officers are generalist they are not specialist. It’s the question of willingness to really move dynamically forward and the resource mobilisation to make sure that you can move dynamically forward. And minister concerned, who did a fairly job on transportation sector, I am sure that he will try well for MSME and things will move up.