West Asia turmoil: L&T backs government to back capex, flags need for deficit headroom

Mumbai: Amid concerns over a surge in import bill because of commodity price hardening in the wake of the Middle East conflict, Larsen & Toubro is hoping that the government continues with its capital expenditure even if it means a widening of fiscal deficit.

The engineering, procurement and construction major feels the government should borrow more if needed to continue with capital expenditure, a senior official has said.

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"The import bill will go up because of oil and gas prices. The government will have to balance it. They will maybe temporarily raise the deficit, may be they will borrow more," its Deputy Managing Director Subramanian Sarma told reporters over the weekend.

"Overall, if you look at it, our fiscal situation is pretty good... we have some headroom so that we don't compromise on the capital for the infrastructure," Sarma added.

He also noted India has been able to curtail the fiscal deficit after the impact of the Covid pandemic.

Spends on infrastructure are necessary to achieve Viksit Bharat 2047 goals, Sarma said.

Even the US, which, alongside Israel, started the conflict by attacking Iran, leading to subsequent retaliations and the hardening of commodity prices, is aware of the challenges and implementing strategies to not let oil prices skyrocket.

The ongoing crisis will lead to rethink on the dependence on oil and gas for our energy needs, and bring to the fore troubles caused by the Strait of Hormuz, Sarma said, adding that this may lead to faster adoption of non-fossil energy sources like green hydrogen and renewable energy.

L&T expects thermal power to continue being the mainstay of the energy needs, and is trying to capitalise on other opportunities that will be presented through the transition to newer energy sources, Sarma said.

Its green hydrogen production is doing well and the company has upped the capacity to 4 MW from the earlier 0.5 MW, Sarma said, adding that at present, its manufacturing capacity is 250 MW per annum. About 95 MW of capacity will be used at an upcoming facility in Panipat being built for Indian Oil Corporation in Panipat, he said.

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At Gujarat's Kandla, where it is establishing a green hydrogen plant, the first of the six phases will be built at an investment of USD 1.5-2 billion, he said.

On the nuclear power front, the company is in discussions with technology providers for tie-ups, and feels that pressurised heavy water reactors will be built by the government while the small and modular reactors will be done by the private sector.

L&T will be ready by the tenders for all the nuclear energy projects start coming, Sarma said, noting that the changes brought about by the passage SHAKTI Bill will help the sector.

As part of the diversification efforts, it is also looking at moving into newer geographies, including Indonesia and Australia, and is also in talks with oil companies in Africa, he said.