Trigger happy?
ROADS & HIGHWAYS

Trigger happy?

It is crystal clear, right at the beginning of 2012, that inflation regulation has choked growth; policy paralysis has caused government expenditure to dwindle; the government is way behind all targets of growth; forex volatility, a blot from the blue, has exaggerated our negative balance of trade; our fiscal deficit is set to overshoot the budgeted figure of 4.6 per cent of the GDP by 2 per cent; and the results of the Uttar Pradesh elections will determine the pace of reforms.

Here are some rays of hope though:

  • The government has acknowledged that the pace of reforms has slipped and the IMF, World Bank and Moody’s have urged for improvement.
  • The rupee is amongst the most undervalued currencies in the world according to the Big Mac index; this would warrant an inflow of FDI and FII investment as currency downward risk is limited.
  • Inflation has been tamed.
  • Single-brand retail with 100 per cent FDI has been permitted, which is likely to bring in $15 billion in the next five years.
  • Power CEOs have expressed serious concern on the need to resolve environment clearances for power plants and coal supply issues. The prime minister has put Pulok Chatterji from the PMO in charge to fast-track issues with a review in 90 days.
  • The monetary regime is likely to be eased with a reduction in interest rates in coming months.
  • The cumulative FDI flows of $22.83 billion for the April-November period have crossed $19.43 billion, the figure for the fiscal 2010-11.
  • Further, the finance minister has urged cash-rich PSUs to step up spending this fiscal and introduced a system of review of their investment commitment, which will now be part of their agreement. This will have implications for their ratings and the performance appraisal of their executives. It is likely to provide an economic stimulus of sorts without straining the resources of the Centre.
Given the above, a movement seems to be building to shake off the inertia that has depressed business confidence. Severe challenges in the contracting sector have made companies use best technologies and enhance efficiencies to compete and grow despite thin margins. Good financial management and discipline are the keys to survival and growth. Consolidation moves are being made and some international majors like Hochtief are reportedly in talks with Indian construction companies.

The NHAI, which has been the beacon of infrastructure growth and provided opportunities to the construction sector, has now raised enough funds for its plans until the end of 2013. It recently raised Rs 10,000 crore through sale of bonds. The major portion, nearly 70 per cent of the money raised, will be used to acquire land for various projects, including expressways. The remaining will go to fund projects.

While the government is correct in maintaining a stand on guidelines for environment and land acquisition, it needs to ensure clarity on these guidelines and that investors who follow them get quick clearances. A complete clampdown on approvals would create a void in the project pipeline that will hit growth adversely. Currently, we are already facing this void as a delayed effect of the clampdown carried out by certain ministries. If the government could only release the bottlenecks on approvals by  offering the ‘correct course’ to follow, the economic machinery would witness acceleration. The budget in March is likely to be one such event that could trigger an uptick. Let’s hope the government is ‘trigger happy’ after the Uttar Pradesh verdict.

It is crystal clear, right at the beginning of 2012, that inflation regulation has choked growth; policy paralysis has caused government expenditure to dwindle; the government is way behind all targets of growth; forex volatility, a blot from the blue, has exaggerated our negative balance of trade; our fiscal deficit is set to overshoot the budgeted figure of 4.6 per cent of the GDP by 2 per cent; and the results of the Uttar Pradesh elections will determine the pace of reforms.Here are some rays of hope though:The government has acknowledged that the pace of reforms has slipped and the IMF, World Bank and Moody’s have urged for improvement.The rupee is amongst the most undervalued currencies in the world according to the Big Mac index; this would warrant an inflow of FDI and FII investment as currency downward risk is limited.Inflation has been tamed.Single-brand retail with 100 per cent FDI has been permitted, which is likely to bring in $15 billion in the next five years.Power CEOs have expressed serious concern on the need to resolve environment clearances for power plants and coal supply issues. The prime minister has put Pulok Chatterji from the PMO in charge to fast-track issues with a review in 90 days.The monetary regime is likely to be eased with a reduction in interest rates in coming months.The cumulative FDI flows of $22.83 billion for the April-November period have crossed $19.43 billion, the figure for the fiscal 2010-11. Further, the finance minister has urged cash-rich PSUs to step up spending this fiscal and introduced a system of review of their investment commitment, which will now be part of their agreement. This will have implications for their ratings and the performance appraisal of their executives. It is likely to provide an economic stimulus of sorts without straining the resources of the Centre. Given the above, a movement seems to be building to shake off the inertia that has depressed business confidence. Severe challenges in the contracting sector have made companies use best technologies and enhance efficiencies to compete and grow despite thin margins. Good financial management and discipline are the keys to survival and growth. Consolidation moves are being made and some international majors like Hochtief are reportedly in talks with Indian construction companies.The NHAI, which has been the beacon of infrastructure growth and provided opportunities to the construction sector, has now raised enough funds for its plans until the end of 2013. It recently raised Rs 10,000 crore through sale of bonds. The major portion, nearly 70 per cent of the money raised, will be used to acquire land for various projects, including expressways. The remaining will go to fund projects.While the government is correct in maintaining a stand on guidelines for environment and land acquisition, it needs to ensure clarity on these guidelines and that investors who follow them get quick clearances. A complete clampdown on approvals would create a void in the project pipeline that will hit growth adversely. Currently, we are already facing this void as a delayed effect of the clampdown carried out by certain ministries. If the government could only release the bottlenecks on approvals by  offering the ‘correct course’ to follow, the economic machinery would witness acceleration. The budget in March is likely to be one such event that could trigger an uptick. Let’s hope the government is ‘trigger happy’ after the Uttar Pradesh verdict.

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