Budget 2022: India Inc to benefit from govt's massive capex push

Companies to bag for roads, railways and defense projects

The Union budget announcement to raise government capital expenditure by 35.4 per cent to Rs 7.5 trillion and increased orders for local defense companies will lead to additional orders for Indian companies including L&T, Thermax, Siemens, ABB, JSW Infrastructure, Bharat Forge and Tata group's defense and infrastructure companies.

Apart from participating in infrastructure projects such as new roads and highways, railways, Indian companies will also get orders in various other social welfare projects such as drinking water projects which was allocated Rs 60,000 crore and housing projects with an allocation of Rs 48,000 crore. CEOs said Indian companies can also participate in setting up additional 100 cargo terminals in the next three years, highway expansion by 25,000 kilometers, four multi-modal national parks; standardization of metro systems including civil structures and four pilot projects for setting up coal gasification. The special assistance to states for capital expenditure has been increased  which is expected to support the order inflows for local companies.

On defence orders, the finance minister said  68 per cent of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58 per cent in 2021-22.

India Inc leaders said increasing capital expenditure is a good move to revive private companies. "The increased capex outlay of Rs.7.50 lakh crore further demonstrates the intent of the government to create the necessary impetus for the economy,"  said Sunil Mathur, Managing Director and Chief Executive Officer of Siemens, a leading capital goods firm.  

Other CEOs said the  massive hike in public investment will be the booster dose to restart corporate investments. "'The infrastructure allocation with a focus on technology will generate employment and help transform tomorrow,” said Prashant Ruia, Director of Essar Capital.

“The budget presented by FM Nirmala Sitharaman builds on the excellent budget last year, continuing the trend toward more productive expenditure. The budget is consistent with our honorable PM Narendra Modi’s vision of making India Atmanirbhar: a digital superpower, a sustainability leader and a healthy nation. This statement of intent is clearly supported by a plan for the future, and backed by allocations—specifically in the areas of infrastructure, digital transition, planet resilience, education and health—to support Indian ambitions. Continuing down this path, it isn’t hard to imagine India becoming a digitally-forward, sustainable global superpower by the end of this decade,” said N Chandrasekaran, Chairman, Tata Sons.

CEOs said the higher spending on capex by the government will be beneficial for Corporate India as it tends to have a multiplier effect on the economy by crowding in private investments through its forward and backward linkages to several other sectors.  "This would help to streamline job creation and potentially kickstart a virtuous cycle of consumption-led growth," said Harsh Pati Singhania, Director of JK Organisation.

The government on Monday had said the stimulus measures announced so far during the year 2021-22 including liquidity enhancing and investment boosting measures such as the Production Linked Incentives scheme, credit guarantee schemes and export boosting initiatives helped to revive capital expenditure and showed an increasing trend over the first three quarters of 2021-22. “During April- November 2021, the capital expenditure has grown by 13.5 per cent (YoY), with focus in infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs,” the survey said.

The private sector capital expenditure, however, is not showing any signs of any pick up. CEOs said with the government giving more orders to private companies in the infrastructure sector, the companies will be able to increase their capex as well. Private sector companies usually start expanding capacity once their capacity utilisation of existing facilities increase to around 75 per cent. At present the average capacity utilisation is around 70 per cent thus restricting construction of new facilities.

Battery swap policy

On battery swap policy, the CEOs said the formulation of battery swapping standards and interoperability is a much-needed step in the right direction as there was a lot of confusion in the swapping companies, which has dampened EV (electric vehicles) adoption. “Seamless and widespread charging infrastructure is the need of the hour to accelerate the EV revolution in the country. The focus and thought towards the EV sector by the finance minister reflects the government's poise towards accelerating EV adoption, said Akash Gupta, Co-founder & CEO, Zypp Electric.

Sanjay Gupta, Vice President and India Managing Director, NXP Semiconductors said In order to promote cleaner mobility, the battery swapping policy and interoperability standards that the government plans to introduce, incorporates the concept of energy/battery as a service. "This will also help in developing the charging station ecosystem which is imperative for massification of EVs. The announcement will give impetus to the private sector to develop sustainable and innovative business models for battery and energy as a service," he said.