There was a need to up spending on infrastructure to 9% of GDP from 4.5%, and that the Finance Ministry may raise the infrastructure spend to 7% of the GDP in FY10 said Hindustan Construction, Ajit Gulabchand.
He added that the tax structure should allow for concessions for infrastructure spend.
Here is a verbatim transcript of the exclusive interview with Ajit Gulabchand on CNBC-TV18.
Q: A word on your fund raising plans whether that has been finalized in terms of the quantum and how soon you want to raise the money?
A: No we have not finalized anything as yet. We have not taken a decision on that matter. We have taken an enabling resolution to raise money. We have been able to talk to people but we have not made a decision in the matter.
Q: Could you tell us when the Bandra-Worli Sea Link is opening?
A: Well I am told that we are waiting for a VIP to confirm the date but it is more likely to be on June 30. If not it would be at the weekend, say around July 4––but June 30 appears to be more likely.
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Q: What are you expecting from the Budget? The Construction Federation of India had some very specific recommendations like allowing pension funds invest 15% of their funds. So, do most of your requests from this Budget pertain to channelization of funds into infrastructure projects?
A: Let me tell you something. One of the most important things I am looking forward to in the Budget is that we need to spend at least 9% of our gross domestic product (GDP) on infrastructure. We have been spending only about 4.5% to 5% so far, that too only for the last one or two years, unlike China that spends 9% of its GDP on infrastructure and are continuing with a GDP growth of almost 10% for a long time. We need to raise this figure from 4.5%–5% to at least 7%–7.5% this year and go to 9% by next year. Unfortunately, even though the Fifth Five Year Plan envisages that we will go to 9% of GDP by 2012. The Finance Minister in his Interim Budget in February extended this date to 2014. So we need to spend more money and it is an important feature that we cannot go on just talking about infrastructure and not providing adequate funds for infrastructure like China does. Therefore, I would expect that the Finance Minister will not only advance the date back to its original of spending 9% of GDP to 2012 but even this year would make a provision for going up to at least 7.5% of GDP, this is one. The other requires a lot of fundamental reforms to the administration of delivery infrastructure contracts. I think those probably are not in the realm of the Finance Minister, but if he could hint this would also be done during the course of the next few months by the respective ministries. It would give a great boost to creating those reforms that are so essential for a very sound implementation.
Q: Besides funding what do you expect the government to deliver by way of speeding up this process? In a recent interview, Kamal Nath indicated he had a 100-day plan and it was almost 70 km of road construction per day. How do you think that will get done on the ground?
A: Te minister has been making all the right statements. He has clued on to the issues confronting those who are providing the services to infrastructure and it has comprehended the problems that have actually slowed down the implementation of roads in the country. He has taken it upon himself to start solving those problems. We did reach 11 km per day under the NDA Government. It has slowed down in the last five years due to poor administration of infrastructure and road contracts. Also, almost extremely indecisive National Highway Authority that took every decision that they took to arbitration and to high court. These are some fundamental changes in administration of contracts that the minister can bring about. That will help to speed up I mean 20 km a day sounds like an enormous amounts of roads to be build given the performance of the last 2–3 years. Yet, for a country of almost 1.5 billion people this is a ridiculously small amount. I have no hesitation in saying that the minister will be able to achieve his target provided he finds the money for it, which I am sure he will, and second is to carry out those administrative reforms in the conduct of contracts both cash contracts as well as concession contracts.
Q: Aside from liquidity and time line, then do you expect the Budget to address some kind of sops for the infra sector as well by way of taxation tweaks?
A: As far as the tax structure or infrastructure is concerned, it is quite clear that the tax structure is already in place for giving concessions for investment in infrastructure. Perhaps an improved concession, which was originally believed to have been given but was subsequently withdrawn by clarification, a further statement was that to avoid even construction profits this particular tax concession. I think maybe restoring that would help to strengthen the implementing agencies and make them more contributory in developing their capacity for delivering the speed at which we want infrastructure to be build. Having said that, it is really about allocating the money. We need to go to minimum 9% of GDP to be able to say that we are serious about infrastructure.
So at least as a first step if they go to 7.5%, it would be a very-very clear indication that next year we will go to 9%, and therefore, would restore the confidence of those implementing infrastructure, those wanting to be investing in infrastructure.
Q: A clarification on your capital raising plan––the fine print of which has not been decided yet––are you leaning more towards a QIP or a private placement or could it be a public issue? What are you leaning towards now like a GDR?
A: Our enabling resolution gives us a variety of options and we are finally examining exactly what we would do over this week in order to do that. For that a number of things have to be right. The price has to be right; the offerings have to be right. There are a lot of questions to be debated over before we go ahead.
Q: You mentioned that you are waiting for a VIP to confirm the date before announcing the date of the link. Who is this VIP?
A: I think that is a question that is best answered by the Maharashtra State Road Development Corporation (MSRDC) that happens to own the bridge.
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