Davos WEF 2022 | Infra Projects Stuck In Vicious Cycle Of Pending Payments, Says HCC's Ajit Gulabchand
Ajit Gulabchand calls for factoring in rate hikes into the cost of construction.
India's infrastructure sector could get caught in a vicious cycle of payment delays, as costs and interest rates rise after the pandemic, according to Ajit Gulabchand.
The chairman and managing director of HCC Ltd. said India's infrastructure push
Citing the example of HCC, he said the government agencies owe the construction firm Rs 13,000 crore. It has won arbitral awards for half that sum while other claims are being adjudicated.
HCC, which is restructuring its borrowings, would be debt-free even if half the dues were cleared, he said. The government, he said, says it will pay the amounts that are not disputed but never pays without creating a dispute.
“They [the authorities] need to understand how construction works. It is a continuous cash flow cycle," Gulabchand, chairman and managing director at HCC Ltd., told BQ Prime's Menaka Doshi on the sidelines of World Economic Forum at Davos on Monday.
There is a certain feeling among the bureaucracy that this is all contractors' money, that you can pay any time you like. This is not true. Only 3-4% profit is the contractors. The rest of it is the bankers, the subcontractors, the workers…Ajit Gulabchand, Chairman & Managing Director, HCC
This approach will hurt projects already delayed due to pandemic-led disruptions and will impact even new ones if input cost escalations, including the cost of finance, are not appropriately provided for.
According to the Ministry of Statistics and Programme Implementation, which monitors infrastructure projects of Rs 150 crore and above, out of 1,579 projects, 425 projects reported cost overruns, of over Rs 4.83 lakh and as many as 664 projects were delayed.
Gulabchand said cost escalation is not factored into government projects the way it should be. For instance, often the right weightages are not given to certain inputs or there isn't enough provision for sharp raw material escalations as being witnessed now.
Poor original design is often responsible for the delay in projects, he said. According to him, pandemic-led delays should also be compensated to the contractor.
Often bureaucrats ignore commercial realities that contractors work within or are hesitant to allow genuine escalations for fear of scrutiny, he said.
“We have got to improve the way we work and take our decisions. Number two, pandemic has caused a problem which we have not addressed. Companies were literally left to themselves. The owner of the facility has to bear the cost…”Ajit Gulabchand, chairman and managing director, HCC India Ltd.
Watch the full interview below: