The Union budget for FY2022-23 is with a vision and focus on building the future of India. The budget that has come after the pandemic crisis, in the Azadi ka amrutha varsh recognises the needs to spend on building Infrastructure. Unlike our past budgets, the FM has delivered a budget that was not full of freebies or voter-pleasing schemes. It is a “nation-building budget” focused on building core infrastructure that is critical for economic growth of the country in the long run.
“In 2022-23, the national highway network will be increased by 25,000 km,” the FM revealed. No doubt that this will boost the economy since infrastructure spending reflects a growth in all denominations of the society from casual labourers to top officials. It also reflects growth in all field such as building material, IT, capital equipment and to automobiles.
But the recent trends are very apprehensive in the Infrastructure business. Unhealthy competition in the business brought the bid rates down to 30% below the estimated price. A few positive steps from the MoRTH, as Pandemic Stimulation packs is boomeranged to this trend. It will be having a huge impact in the Infrastructure business and markets. The removal of Earnest Money Deposit (EMD) on pandemic period to help the industry is one of the major reasons. This resulted in a situation in which everyone started quoting for the tender without any plans but a “will cross that bridge when we come to it” mind-set. Without proper bank limits and facilities, infrastructure companies started trying their luck.
Moreover, the diluted the qualification criteria such as similar single work experience being reduced from 40% of the estimated works to just 20%. This means that a company who successfully completed a project of Rs 200 crore is eligible to bid for Rs 1000 crore similar project, which makes for a very dangerous situation. Very climactically, adding to the alarm, with a joint venture, a company that has completed a Rs 80 crore similar project becomes eligible for a 1000 crore road project. The Methodology and approach to execute a Rs 200 crore work and Rs 1000 crore work is totally different. We should remember that for foreign funded projects such as World Bank and ADB projects, 80% of the single similar work is the prequalification criteria.
Also reduction in threshold capacity and bid capacity for qualification has also resulted in this unhealthy competition. However, this did help a few companies with sudden growth in the business and also helped in more participation in tenders along with lesser Performance guarantee and waiver of EMD. But now, after 2 years of implementing these relaxations, its bad aspects are starting to come out. As mentioned earlier, with 20-30 participants for bidding in every project, it takes lot of time for scrutiny. In addition, impractical rates were quoted by the companies, because of the panic situation. Moreover, due to dilution of pre-qualification (PQ), quality is getting effected in projects. The chances of foreclosure or premature termination of projects are more. Lastly, the probability of accidents are increased due to lack of capability.
After getting the Letter of Award (LOA) of the project, companies wandering for the bank facilities has become common. It results in an increase of banking frauds and manipulation of accounts. It is a reasonable fear that Infrastructure companies are just banking the projects for their survival and cash flow without looking at profitability. In the long term, this scenario invariably affects the industry and ultimately the economy very badly. Otherwise, the situations may create more IL&FS in the Indian economy while the industry is still trying to recover from the shocks given by the IL&FS corporate scam.
Restoring the strict PQ norms for the bidding by the government departments and PSUs is also equally important to build the future of India with better flexible payment terms and faster, fairer dispute resolution. This is very important to avoid unfair clauses and demand in the construction and development agreements.
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