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The Finance Minister has announced a growth-oriented budget with a focus on capex rather than on consumption. Budget receipts estimates both on the tax and non-tax front are quite conservative and should be achievable. The tax-GDP ratio has been kept at about 10.7 percent of GDP, which is realistic. Divestment and other non-tax revenue estimates are also realistic.

On the expenditure side the government has budgeted healthy growth in capex, a significant part of which is going to States for their capex expenditure. The Budget is also making an attempt to bring off-balance sheet expenditure within the balance sheet and is thus positive on the transparency front.

The fiscal deficit as a percentage of GDP has been budgeted at 6.4 percent for FY23 versus the FY22RE of 6.9 percent. This was more aggressive than the market consensus, which was in the range of 6-6.4 percent. Overall gross market borrowing has been budgeted at INR 14.95 trillion and net market borrowing at INR 11.1 trillion, both of which are higher than market estimates and would be little challenging for bond markets given the possibility of less RBI support.

States were also allowed to run a deficit of 4 percent of GDP in FY23 with 0.5 percent tied to power sector reforms. The medium-term commitment to reach a fiscal deficit of 4.5 percent by FY26 was retained although a larger part of the consolidation now appears back-ended.

Infrastructure focus continues

The Budget has reiterated the government’s focus on public investment to modernise infrastructure over the medium term. For the infrastructure sector, unlike last year, when there was a step change, this year has seen 8-10 percent growth in the budgetary allocation for most segments, except Railways, which got a 17% hike.

In the case of the housing sector also, the budget has allocated INR 48,000 crore for the PM Awas Yojana, up from INR 25,000-30,000 crore in the past few years. In addition, the Jal Jeevan mission to provide households with tap water has received an allocation of INR 60,000 crore. Overall, increased investment is expected to benefit companies in sectors such as capital goods, cement, logistics, infrastructure, pipes, real-estate etc.

Supporting the private sector

The government is continuing its efforts to support private sector growth and support new business models. In the Defence sector, 68 percent of the capital procurement budget will be earmarked for domestic industry, up from 58 percent last year. Also, 25 percent of Defence R&D will be earmarked for the private sector. One of the key highlights of this budget is its focus on the digital economy, start-ups, and tech-enabled development as well as energy transition and climate action.

The budget also takes forward the steps taken in last year’s budget to stimulate domestic manufacturing. It has simplified customs duty for various sectors, including chemicals, provided duty concessions for electronics manufacturers, and made an additional allocation to facilitate domestic manufacturing of solar PV modules, which in congruence with the PLI scheme.

The timeline for a lower tax regime of 15 percent for newly incorporated manufacturing companies has also been increased till March 31, 2024. This is slated to incentivise companies in the manufacturing space and make them globally competitive. Extension of the timeline and amount under the Emergency Credit Line Guarantee Scheme (ECLGS) should aid MSMEs and encourage banks to lend.

A key highlight is that there was no negative news for taxpayers in terms of a change in tax rates. A stable tax regime has removed a major overhang, which is contributing to the positive sentiment for equity markets.

Overall, Budget 2022-23 is pro-growth, conservative in assumptions and transparent. In this backdrop, we continue to remain positive on the overall construct of equity markets. Within sectors, we are constructive on Banks and Financials, Domestic cyclicals and Industrials.

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The Union Budget will boost the order pipeline for the infrastructure sector, but the pace of implementation and execution of the big-bang capital expenditure plan announced by the Finance Minister Nirmala Sitharaman on February 1 will be key to success, said R Shankar Raman, chief financial officer of Larsen & Toubro Limited (L&T).

Some ongoing issues in the infrastructure sector, like dispute resolution and pace of ordering, need to be addressed to help the industry accelerate growth, Raman told Moneycontrol’s Rachita Prasad.

Raman also spoke about the opportunities and risks and how L&T is preparing for 2022-23. Pushing project execution, managing people and closing the divestment of its non-core assets is on the top of the agenda for the engineering giant. Edited excerpts:

Key takeaways from Finance Minister Nirmala Sitharamans Budget speech

The Rs 7.5 lakh crore is generous. The good part of the allocation is that they've chosen sectors where there is likelihood of a multiplier effect in terms of job generation, distributed income, earning potential, etc.

They have focused on transportation sector, like on transit-oriented cargo terminals, logistics parks. These are all connected projects and they are linear; this will take employment generation to different corners of the country. The Finance Minister spoke about renewable energy, water and housing, which are important issues from the political point of view common man's needs as well as development as more of these centres are coming up. While no specific tax incentive exists today, (with) the inclusion of data centres and energy storage systems, financing these projects will become easier.

Except for the removal of the surcharge on long-term capital gains, which is good in a way, they've have kept the tax structure stable. This is a good strategy because one moving part in the entire investment and return on investment gets addressed if the tax regime is stable. That in a way adds to the attractiveness of the infrastructure sector from a capital attraction point of view.

The most telling thing about the viability of these investments doing well is the thrust on manufacturing. Today, one of our biggest constraints is logistics—moving goods to the market of a manufacturing unit. The thrust to defence, manufacturing, electronics, telecom equipment, solar modules, will improve the viability of these transport and logistics projects. If there is traffic movement of goods, it will justify the investments. Often investors look at these investments which are perceived as good, but the viability is so long-term that only pension funds and sovereign wealth funds are able to invest.

Also read: Budget 2022 | Government strikes a fine balance between growth and fiscal consolidation

India needs to invest $1.4 trillion by 2024-25 on infrastructure to achieve $5 trillion gross domestic product. The Budget spoke about capex, infrastructure, and even climate financing but did not give specifics. Where will the financing come from? 

The numbers are suggesting almost Rs 15 lakh crore for financing. The tax collection is expected to be robust. They are also talking about allocating almost Rs. 1 lakh crore to the states for them to participate because they now realize that some of these projects cannot get stuck at state boundaries, they need to flow to  the natural destinations. It's important to get states on their side and get projects on track. All this is going to possibly going to come from the Rs 15 lakh crore gross market borrowing that they mentioned, and also the sovereign green bonds. But clearly the financing has taken a backseat and they have put the end-use first. If the economy grows the way they are projecting it, if tax collection continues to be robust, if the market continues to be attractive, then funding would be available through market borrowing or FII remittances.

Also read: Budget 2022: FM focuses on speeding up cargo movement, improving logistics network

What are the risks to this plan? 

The biggest risk in this is implementation. In the past, too, we have always had decent announcements, but the ability to follow through and implement has been our biggest challenge. Secondly, with so much money mobilization, interest rates are at a risk. If interest rates rise, then they puncture the viability of the project. Finally, all these projects require steel, cement and other commodities, the supply of which are constrained as it is. With additional demand for all this due to the additional capex, there will be a need to manage the supply-side; otherwise inflation will spiral and to that extent, assets will become uncompetitive. These three items are risks to this plan—implementation that includes ability to find the money, interest rates and inflation. If they are able to manage this, this budget could be the much-needed dose for sustainable growth. Because of last year’s base effect, growth looks attractive. But when you talk about the next year on the basis of the current year's estimated growth, unless the implementation plan is solid, there could be issues in terms of handling the expectations.

As the largest infrastructure company in the country, what are the opportunities and challenges for the sector now? 

We had said after our financial result last week (that) the project pipeline looks good, the pipeline even without this budget announcement. That was based on what activity we saw around. The budget announcements give further emphasis on investment and growth through investment. It makes the pipeline more certain for a longer period of time than it was before the budget. But how much of that is going to be put into smaller programs, when will it be rolled out, timing of bids, conversion of bids to order—this needs to be seen. The biggest challenge is to complete the whole cycle from bidding to awarding quickly. If it happens as briskly as it did in 2020, then we could even see the benefit of all these investments within the budget period.

Also read: Budget 2022 opens coffers wide for road, rail investments

L&T is seen as a proxy of India’s infrastructure story as you have a presence across sectors. What are the growth drivers now and would you revisit plans after the budget? 

We have been pitching out tent in all the areas of infrastructure. We were not sure about the sizing of our defence business because we were not sure how much preference would be given to domestic manufacturing. There seems to be a little more definitive direction towards that. So now we will have to see how much we are able to deliver from our factories; it’s a good development.

We have been talking about energy storage as part of this energy transition, and electrolysers, etc. The budget gives attention to these segments on a national level so that will help in firming up the plans. The benefit out of this budget will be seen over a two-three year period if we are able to sustain. They continue to talk about projects like river interlinking, but that requires consensus with the states. These could take more time and have long-term prospects. But the rest of the areas that have been talked about are all workable. But if we are looking at a private-public partnership model for financing projects, we need to ensure these projects are more viable. The PPP projects in the past did not contain sufficient relief measures for dispute resolution, speed of clearances, right of way, etc.

The government announced National Monetisation Pipeline last year but the Union Budget did not specify the plans for it… 

I don’t know where the asset monetisation plan figures in this. The budget spoke about kilometres of expressways, but are we planning to finance it by divesting some developed assets? They have not made that clear.

But would L&T be looking at these assets if they came up for sale? 

No, we will not looking at it at all. We are watching this space because asset monetization would pump liquidity into the industry, and to that extent new programmes would get financing. We are interested in engineering, procurement and construction (EPC) projects and we are looking at it only from the point of availability of liquidity with our customers.

The other thing the budget did not touch talk much about was the thermal power sector. L&T’s power business has been a laggard due to the challenges in the sector, what do you make of this budget? 

The Economic Survey very clearly talks about fossil fuel; how it continues to be relevant and we can’t scrap it overnight to switch to renewables. The budget is very silent on this. Our belief is that the desulphurisation of existing power projects will continue, but we don’t expect any major EPC order for a new thermal capacity asset. But if India is going to grow at the pace at which it's predicted, I wouldn't be surprised if some thermal capacity addition comes about. While solar projects take only 18 months to come up, it requires a lot of land and then the cost of modules continue to be high. The government will have to revisit some conditions to give confidence to developers that power purchase agreements will be honoured.

Dispute resolution continues to be challenge for the industry with many projects stuck in arbitration. What more can be done? 

Of late, there is a movement to settle cases outside of court. But that works well only when the two parties are equals; the government is not really an equal party. The conciliation becomes difficult when the other party has a more powerful position at the table. The arbitration has some ticking timelines, but conciliation is open-ended. If a plan has been implemented we have to respect time; interest during the construction itself can make it unviable. Speed is money.

After the second quarter of FY2022, you sounded more confident of achieving you sales and order inflow targets for the year than how you did last week after the third quarter. Should we be worried that an industry bellwether like L&T is not as confident on execution and implementation? 

Things are improving with every quarter. We have hit a good season now in terms of weather conditions and festival season getting over. We get an uninterrupted run of about six months, till about June. This is possibly the best period for execution of projects and planning budgets. There is always the pressure to execute more projects faster because ultimately the order book has to be converted to sales, profits and cash. The turnover of people is very high, managing people movement is a challenge. But we were far more worried this time last year as compared to where we are right now.

Does that mean this is the best time for mobilization of people? No, we have seen better times but we are moving forward.

Also read: L&T Q3 results | Profit, new orders dip but order pipeline remains strong, says CFO

This fiscal is coming to an end, what will be the top priority for 2022-23 for L&T? 

The priority is to catch up with the commitment to clients because we have been pushed back on time due to the three waves of the pandemic. The second priority is to ensure that the non-core assets exit that we have been working on gets completed. The third priority, we catch up with our commitment to the plan; we have to make sure working capital stays disciplined and money management has to remain intact. And finally, we have to manage talent, some of the businesses in our portfolios like IT (information technology), IT-enabled services and financial services have a lot of attrition, so we have to manage that well. Of course inflation is always an important factor to manage.

L&T have identified the Hyderabad Metro project for divestment. You have been in talks with the government to reduce the stress on the projects due to Covid19 disruptions. What is the status of the plans for this project? 

Every month is two steps forward; we are definitely making headway. We refinanced the loan in December, that is giving us a saving of Rs 300 crore – 400 crore on interest payment. Now we're trying to restructure the capital so that the debt level comes down in the project. So sometime in the course of this calendar year we will be able to mention what exactly we're doing to make this project not such an overhang that it has been. Ultimately, what will help is people commuting on it, which has been disrupted by the pandemic.

When do you expect to close the divestment of L&T’s infrastructure development arm, IDPL? 

We are working on the divestment process to exit it. We are hoping against hope that we will be able to close the process. We will speak about it when it is done.

The Union Budget will boost the order pipeline for the infrastructure sector, but the pace of implementation and execution of the big-bang capital expenditure plan announced by the Finance Minister Nirmala Sitharaman on February 1 will be key to success, said R Shankar Raman, chief financial officer of Larsen & Toubro Limited (L&T).

Some ongoing issues in the infrastructure sector, like dispute resolution and pace of ordering, need to be addressed to help the industry accelerate growth, Raman told Moneycontrol’s Rachita Prasad.

Raman also spoke about the opportunities and risks and how L&T is preparing for 2022-23. Pushing project execution, managing people and closing the divestment of its non-core assets is on the top of the agenda for the engineering giant. Edited excerpts:

Key takeaways from Finance Minister Nirmala Sitharamans Budget speech

The Rs 7.5 lakh crore is generous. The good part of the allocation is that they've chosen sectors where there is likelihood of a multiplier effect in terms of job generation, distributed income, earning potential, etc.

They have focused on transportation sector, like on transit-oriented cargo terminals, logistics parks. These are all connected projects and they are linear; this will take employment generation to different corners of the country. The Finance Minister spoke about renewable energy, water and housing, which are important issues from the political point of view common man's needs as well as development as more of these centres are coming up. While no specific tax incentive exists today, (with) the inclusion of data centres and energy storage systems, financing these projects will become easier.

Except for the removal of the surcharge on long-term capital gains, which is good in a way, they've have kept the tax structure stable. This is a good strategy because one moving part in the entire investment and return on investment gets addressed if the tax regime is stable. That in a way adds to the attractiveness of the infrastructure sector from a capital attraction point of view.

The most telling thing about the viability of these investments doing well is the thrust on manufacturing. Today, one of our biggest constraints is logistics—moving goods to the market of a manufacturing unit. The thrust to defence, manufacturing, electronics, telecom equipment, solar modules, will improve the viability of these transport and logistics projects. If there is traffic movement of goods, it will justify the investments. Often investors look at these investments which are perceived as good, but the viability is so long-term that only pension funds and sovereign wealth funds are able to invest.

Also read: Budget 2022 | Government strikes a fine balance between growth and fiscal consolidation

India needs to invest $1.4 trillion by 2024-25 on infrastructure to achieve $5 trillion gross domestic product. The Budget spoke about capex, infrastructure, and even climate financing but did not give specifics. Where will the financing come from? 

The numbers are suggesting almost Rs 15 lakh crore for financing. The tax collection is expected to be robust. They are also talking about allocating almost Rs. 1 lakh crore to the states for them to participate because they now realize that some of these projects cannot get stuck at state boundaries, they need to flow to  the natural destinations. It's important to get states on their side and get projects on track. All this is going to possibly going to come from the Rs 15 lakh crore gross market borrowing that they mentioned, and also the sovereign green bonds. But clearly the financing has taken a backseat and they have put the end-use first. If the economy grows the way they are projecting it, if tax collection continues to be robust, if the market continues to be attractive, then funding would be available through market borrowing or FII remittances.

Also read: Budget 2022: FM focuses on speeding up cargo movement, improving logistics network

What are the risks to this plan? 

The biggest risk in this is implementation. In the past, too, we have always had decent announcements, but the ability to follow through and implement has been our biggest challenge. Secondly, with so much money mobilization, interest rates are at a risk. If interest rates rise, then they puncture the viability of the project. Finally, all these projects require steel, cement and other commodities, the supply of which are constrained as it is. With additional demand for all this due to the additional capex, there will be a need to manage the supply-side; otherwise inflation will spiral and to that extent, assets will become uncompetitive. These three items are risks to this plan—implementation that includes ability to find the money, interest rates and inflation. If they are able to manage this, this budget could be the much-needed dose for sustainable growth. Because of last year’s base effect, growth looks attractive. But when you talk about the next year on the basis of the current year's estimated growth, unless the implementation plan is solid, there could be issues in terms of handling the expectations.

As the largest infrastructure company in the country, what are the opportunities and challenges for the sector now? 

We had said after our financial result last week (that) the project pipeline looks good, the pipeline even without this budget announcement. That was based on what activity we saw around. The budget announcements give further emphasis on investment and growth through investment. It makes the pipeline more certain for a longer period of time than it was before the budget. But how much of that is going to be put into smaller programs, when will it be rolled out, timing of bids, conversion of bids to order—this needs to be seen. The biggest challenge is to complete the whole cycle from bidding to awarding quickly. If it happens as briskly as it did in 2020, then we could even see the benefit of all these investments within the budget period.

Also read: Budget 2022 opens coffers wide for road, rail investments

L&T is seen as a proxy of India’s infrastructure story as you have a presence across sectors. What are the growth drivers now and would you revisit plans after the budget? 

We have been pitching out tent in all the areas of infrastructure. We were not sure about the sizing of our defence business because we were not sure how much preference would be given to domestic manufacturing. There seems to be a little more definitive direction towards that. So now we will have to see how much we are able to deliver from our factories; it’s a good development.

We have been talking about energy storage as part of this energy transition, and electrolysers, etc. The budget gives attention to these segments on a national level so that will help in firming up the plans. The benefit out of this budget will be seen over a two-three year period if we are able to sustain. They continue to talk about projects like river interlinking, but that requires consensus with the states. These could take more time and have long-term prospects. But the rest of the areas that have been talked about are all workable. But if we are looking at a private-public partnership model for financing projects, we need to ensure these projects are more viable. The PPP projects in the past did not contain sufficient relief measures for dispute resolution, speed of clearances, right of way, etc.

The government announced National Monetisation Pipeline last year but the Union Budget did not specify the plans for it… 

I don’t know where the asset monetisation plan figures in this. The budget spoke about kilometres of expressways, but are we planning to finance it by divesting some developed assets? They have not made that clear.

But would L&T be looking at these assets if they came up for sale? 

No, we will not looking at it at all. We are watching this space because asset monetization would pump liquidity into the industry, and to that extent new programmes would get financing. We are interested in engineering, procurement and construction (EPC) projects and we are looking at it only from the point of availability of liquidity with our customers.

The other thing the budget did not touch talk much about was the thermal power sector. L&T’s power business has been a laggard due to the challenges in the sector, what do you make of this budget? 

The Economic Survey very clearly talks about fossil fuel; how it continues to be relevant and we can’t scrap it overnight to switch to renewables. The budget is very silent on this. Our belief is that the desulphurisation of existing power projects will continue, but we don’t expect any major EPC order for a new thermal capacity asset. But if India is going to grow at the pace at which it's predicted, I wouldn't be surprised if some thermal capacity addition comes about. While solar projects take only 18 months to come up, it requires a lot of land and then the cost of modules continue to be high. The government will have to revisit some conditions to give confidence to developers that power purchase agreements will be honoured.

Dispute resolution continues to be challenge for the industry with many projects stuck in arbitration. What more can be done? 

Of late, there is a movement to settle cases outside of court. But that works well only when the two parties are equals; the government is not really an equal party. The conciliation becomes difficult when the other party has a more powerful position at the table. The arbitration has some ticking timelines, but conciliation is open-ended. If a plan has been implemented we have to respect time; interest during the construction itself can make it unviable. Speed is money.

After the second quarter of FY2022, you sounded more confident of achieving you sales and order inflow targets for the year than how you did last week after the third quarter. Should we be worried that an industry bellwether like L&T is not as confident on execution and implementation? 

Things are improving with every quarter. We have hit a good season now in terms of weather conditions and festival season getting over. We get an uninterrupted run of about six months, till about June. This is possibly the best period for execution of projects and planning budgets. There is always the pressure to execute more projects faster because ultimately the order book has to be converted to sales, profits and cash. The turnover of people is very high, managing people movement is a challenge. But we were far more worried this time last year as compared to where we are right now.

Does that mean this is the best time for mobilization of people? No, we have seen better times but we are moving forward.

Also read: L&T Q3 results | Profit, new orders dip but order pipeline remains strong, says CFO

This fiscal is coming to an end, what will be the top priority for 2022-23 for L&T? 

The priority is to catch up with the commitment to clients because we have been pushed back on time due to the three waves of the pandemic. The second priority is to ensure that the non-core assets exit that we have been working on gets completed. The third priority, we catch up with our commitment to the plan; we have to make sure working capital stays disciplined and money management has to remain intact. And finally, we have to manage talent, some of the businesses in our portfolios like IT (information technology), IT-enabled services and financial services have a lot of attrition, so we have to manage that well. Of course inflation is always an important factor to manage.

L&T have identified the Hyderabad Metro project for divestment. You have been in talks with the government to reduce the stress on the projects due to Covid19 disruptions. What is the status of the plans for this project? 

Every month is two steps forward; we are definitely making headway. We refinanced the loan in December, that is giving us a saving of Rs 300 crore – 400 crore on interest payment. Now we're trying to restructure the capital so that the debt level comes down in the project. So sometime in the course of this calendar year we will be able to mention what exactly we're doing to make this project not such an overhang that it has been. Ultimately, what will help is people commuting on it, which has been disrupted by the pandemic.

When do you expect to close the divestment of L&T’s infrastructure development arm, IDPL? 

We are working on the divestment process to exit it. We are hoping against hope that we will be able to close the process. We will speak about it when it is done.

A businesswoman in the United States has confessed to stealing funds meant for the care of COVID-19 patients and is set to be sentenced in May. She could be imprisoned for up to 10 years.

Amina Abbas, 36, who owned a home health agency in Indiana state and now lives in Michigan, received $37,657 under a government to scheme to help health care providers treat COVID-19 patients, even though the facility did not operate during the pandemic.

The woman spent the money by issuing cheques to her relatives for personal use, according to the US Department of Justice.

“The charges against Abbas were the first criminal charges for the intentional misuse of funds distributed from the CARES Act Provider Relief Fund, money specially apportioned by the CARES Act to help health care providers who were financially impacted by the COVID-19 pandemic, to provide care to patients who were suffering from COVID-19, and compensate providers for the cost of that care,” the department said in a press note. “These funds were critical to providing relief to health care providers and maintaining access to medical care during the pandemic.”

Abbas had shut her home health agency in early 2020 after officials ordered it to reimburse over $1.6 million. The agency had allegedly submitted claims for patients who did not qualify for home health services, according to the US Department of Justice.

The US government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act seeks to provide emergency financial assistance to Americans reeling under the economic impact of the pandemic.

CARES Act includes a Provider Relief Fund, which is meant to help healthcare providers with coronavirus response.

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"Budget 2022-23 appears to be growth-oriented by an increase in the capital outlay of Rs 7.5 lakh crore, fiscal deficit capped at 6.4 per cent and efforts are being made to reduce compliance burdens and improve ease of doing business," IndiGo Whole-Time Director and CEO Ronojoy Dutta said in his Budget reaction.

"We expect the Budget would enable India to achieve a growth estimate of 9.2 per cent," he said. Welcoming the new incentives of issuing e-passports and the introduction of digital currency, Dutta said the government’s "relentless" focus on the national transportation infrastructure development with the PM Gati Shakti National Master Plan will strengthen the much-needed multimodal connectivity.

Also Read:- Key takeaways from Finance Minister Nirmala Sitharamans Budget speech

Also, besides facilitating the seamless movement of cargo, the plan will reduce logistics costs as well, he added. "Having said that, we were expecting tax concessions to the aviation industry in the forms of cut in ATF (aviation turbine fuel) excise duty and the allocation of concessional finance to airlines to help us come out of the pandemic," Dutta said.

Earlier, Finance Minister Nirmala Sitharaman in her Budget Speech on Tuesday said the PM Gati Shakti National Master Plan is a transformative approach for economic growth and sustainable development and is driven by seven engines including roads, railways, airports, ports, mass transport, waterways and logistics infrastructure.

All seven engines will pull forward the economy in unison, Sitharaman said while presenting the Budget for 2022-23. These engines are supported by the complementary roles of energy transmission, information technology communication, bulk water and sewerage and social infrastructure.