Larsen & Toubro Group Chairman AM Naik
Larsen & Toubro Group Chairman AM Naik in an exclusive conversation with BTVI’s Muralidhar Swaminathan and Piyush Jain says the government should look at divesting its stakes in private sector, and put non-important public sector undertakings on sale as capital earned from these strategic sale initiatives can be utilized to finance big infrastructure projects.
AM Naik points out that many private sectors have faltered in repayment of loans to banks and NBFCs and so for them to bid and take up government’s infrastructure projects will be difficult since they have to spend more money at a time when they are already in huge debt, and thus says financing from government goes a long way in dealing with the situation, and speed up the work undertaken by the bidders.
He asserts that L&T is not interested in buying a government asset like BHEL, also clarifies that they are not interested in taking up government infrastructure projects like building roads if they are already half-done by others, further says such projects have all the potential to throw liability on them.
“If the projects are already taken up by somebody else, then half or one-fourth might have been done. So, we do not touch them at all,” says AM Naik.
On a question whether L&T would bid for taking over BHEL if the government puts the PSU on sale, AM Naik narrates saying their company has surged almost 8 times in terms of market capitalization when compared with the present sad state of BHEL, though both of them took the first steps nearly 20 years ago, and further adds, ‘BHEL is too unwieldy to buy’.
He says the government should put many infrastructure projects back to strength, as there is a lot to be done whether on building roads, highways, railways, water or electricity or any other area.
Speaking on the NPA mess, he says the new government should do a lot in cleaning the current NPA mess though nearly 90% of the problem has been addressed.
Stressing that the government has a lot to do in winning the confidence of the people, AM Naik says lower middle class and farmers have a lot of expectations as many promises about upliftment of social sectors were made during the elections.
Here are the key highlights and the full transcript of the conversation with AM Naik:
On NPA mess, clean up, liquidity crunch, GST:
• ‘Liquidity has to improve a lot’
• ‘All NPAs need to be cleaned up’
• ‘Reforms should be undertaken in GST’
Muralidhar Swaminathan: What do you think are the key priorities for the new Finance Minister Nirmala Sitharaman?
AM Naik: The liquidity has to improve a lot. There is possibility of doing that through the RBI. It should make a move. And, NPAs need to be cleaned up. May be some 90 per cent of NPAs have been addressed. And, teething problems with respect to sale tax should be addressed. And, reforms should be undertaken in GST.
On how to revive investments & need for Govt to address people’s expectations:
• ‘Lot of expectations by people of rural areas, lower-middle class people and farmers’
• ‘Investment in capital formation should begin’
• ‘Government should fulfill what they have committed to social sector’
Muralidhar Swaminathan: If we need to revive demand, investments should be revived. We have not been revived investments for the last 7 years and this has been showing on the economy. What steps do you think help us revive investments?
AM Naik: First, we need resources. Innumerable promises have been made during the elections to the poor and to the lower middle class people. There are lot of expectations by people of rural areas and farmers. Unless the government resolves their concerns, people will lose confidence in this government. I am sure this is key priority for the government. This issue must find a place when investment in capital formation will begin. I don’t think we have so much of resources which can be managed within the 3% deficit and be able to go in a big way in capital formation and at the same time and manage commitments they have made to the social sector.
On bidders facing problem of liquidity and incomplete road projects:
• ‘If the projects are already half-done, or one-fourth done, then we do not touch them at all’
Piyush Jain: Road transport is being managed by Nitin Gadkari and General (Retd) VK Singh. Do you see speeding up of work? How is it looking to you?
AM Naik: About 96 odd roads are half-done, or quarter-done. They have to be completed first. They have to take 10 roads on priority and complete them, and again go for more 10 roads and finish. Why does L&T want to touch half-done infrastructure projects? Because the foundations are ready, they have been done by some designers. Entire project liability falls on us if we take up the task. They have provide a solution to these and more infra projects could come.
On the need for Govt to fund infrastructure projects undertaken by private players:
• ‘Govt should give financing which will enable many private sectors to get going with the projects’
• ‘Private sectors deserve to get one more funding to start new projects’
Muralidhar Swaminathan: You talked about raising resources. It is always a concern. One needs to go to banks. The gestation period is so long that firms face NPA problem. Do you think there should be an innovative way of funding the infrastructure?
AM Naik: They have tried to implement many innovative ways. The latest one is hybrid funding where the government will give financing and this will enable many private sectors to get going with the projects. If we look at the NPAs of the last 10 years, we find that number of banks have taken haircut, number of NBFCs are in trouble. I think industrialists have not fulfilled their commitments to the financial community. We deserve to get one more funding to start new projects.
On expectations from new Water Minister Gajendra Singh Shekhawat & challenges faced in water management:
• ‘There should be largescale funding for infrastructure, water, electricity’
• ‘Govt should bring international funding’
• ‘Govt should sell unimportant assets and finance infra projects’
Piyush Jain: Industries have been receiving orders for treatment of water. Gajendra Singh Shekhawat is given the Water Ministry. What do you expect from him in terms of challenges in way of fulfilling 100% waste water treatment in India?
AM Naik: The government should first sort out the funding and resources problem for anything that they take up. This government will be in deep trouble if it does not fulfill the requirement of the social sector. There should be largescale funding for infrastructure, water, electricity or other areas. The government should find innovative ways of funding and financing. They have to bring international funding for high-speed railways. Bullet train would not have taken place without Japan’s finance. The harbor bride from Mumbai to Navi Mumbai is also with Japan financing us. A few hundred crores are required. Hasten the process by selling assets which are not important. The government should use this money to finance the projects.
Piyush Jain: Government wants to cut capital on infrastructure capital. Is this possible in the next 5 years?
AM Naik: It looks very difficult to me.
On strategic sale of PSUs by Govt:
• ‘Govt should sell unimportant PSUs’
• ‘Many PSUs have lost their value because they were not sold in time’
• ‘Why should Govt be in a tobacco company or in consumption company?’
• ‘If the Govt sells its stake in private sector, it will get Rs 120,000 crore’
Muralidhar Swaminathan: Is strategic sale of public sector units as an option should be exercised by the government?
AM Naik: It should. It is very very important. 20 years ago, L&T and BHEL had the same kind of market cap. Had they sold off then, they would have made money. Today, BHEL has gone down and L&T has multiplied. We are today 8-9 times bigger than BHEL in market cap. Many public sector companies have lost their value because they were not sold in time. Why should government be in tobacco company? In ITC? Why should the government be in consumer companies? If the government sells their part, they will get Rs 120,000 crore.
On whether L&T would bid for BHEL:
• ‘Not interested in buying BHEL. It has been made too much unwieldy’
Muralidhar Swaminathan: Suppose the government says it wants to do strategic sale of BHEL, would you be the first one to make the bid?
AM Naik: No. It has been made too much unwieldy.