'Govt package is too little'

Q&A: Subba Rao Amarthaluru

GMR Infrastructure, a Rs 2,365-crore infrastructure company with interests in airports, energy, highways and urban infrastructure, had posted a 6 per cent dip in its consolidated net profit for the quarter ended September 2008 on the back of forex losses and idle power projects.

While the government is trying to push investments in the infrastructure sector, which requires over $500 billion in the near future, the fiscal stimulus package announced by the government recently is disappointing, says Subba Rao Amarthaluru, chief financial officer, GMR Infrastructure. In an interview, he tells Raghuvir Badrinath that there is a tantalising opportunity for a bold plan of debt-driven investments backed by sovereign guarantees.

How do you view the package that the government recently announced?
To understand this, we have to put things in perspective. The eleventh Five-Year Plan (2007-2012) envisages building or modernising nearly 35 airports, adding 80,000 MW of power and building 20,000 km of roads across India. The recent government package is just enough to generate 2,000 MW of power.

What we have in front of us is a tantalising opportunity to create a world-class infrastructure in India as commodity prices are coming down. What is required the most at this juncture is a greater access to credit, which the government must ensure.

What does this package mean to infrastructure companies like you?
The move is in the right direction, but it is too little and disappointing. It’s like opening the tap, but there is no water flowing out. There is a crisis of confidence today and financial institutions are not comfortable lending in the current situation. There is a flux and the government must actively step in to ensure that there is credit flow to infrastructure projects.

What do you think the government should do to stimulate the infrastructure sector?
There are a lot of countries that are sitting on cash. The government should borrow anywhere around $100 billion from a clutch of countries like Japan and some in West Asia through a sovereign guarantee and channel it through the country's banking sector.

Under the sovereign guarantee, the Indian government can borrow at less than 2 per cent for a period of 25 years and let the banking mechanism lend to infrastructure developers like us at around 10 per cent. Today, we are borrowing at 13 per cent and the infusion of large capital into the economy will certainly perk up demand. If the infrastructure sector is made stable, all the capital goods sectors such as steel and cement industries will get a boost and, in turn, there will be demand boost in the economy, which is a much-needed element today.

What are the pressure points that still remain for infrastructure companies?
In addition to the credit crunch, another major issue that is of worry is the speed at which decisions should be taken. It takes a lot of time of for contracts to get awarded and coal linkages for power projects are still a problem after these many years.

Are you witnessing a slowdown in the number of projects that are coming up for bidding?
Well, not really. There are enough power projects that are in active consideration and the National Highway Authority of India is in the final stages of inviting bidding applications for around 60 projects. We are evaluating all opportunities actively.

Last quarter, the firm had posted a dip in net as you were saddled with two idle power projects?
Yes, they were idle, but during the past one month, both the power projects have started generating power.

While the 220-MW power project off the Mangalore coast has started generating again as a merchant power project, the gas-fired, 370-MW project off the coast of Andhra Pradesh too has started operations. As of now, we have three power projects generating a total of nearly 800 MW and we should be seeing an uptake from these.