Organizations should be permitted to resume operations at power project sites

The L&T Board has approved to raise Rs 9000 crore via various instruments for ensuring smooth operations.

- Shailendra Roy, CEO & MD - L&T Power and Member of the Board-L&T

Please brief us on the extent of impact of the pandemic on the manufacturing sectors?

The infrastructure and manufacturing sectors have been hit hard by the lockdown like many other sectors. All our ongoing projects are stalled, with our customers and vendors also bearing the brunt of the lockdown. Very few sectors , only essential ones, are operational.               

The industry has shifted from office to home in the given situation. Trends like 'work from home' are likely to reduce demand for office buildings, especially from IT/ITES sector. Though complex technology software is difficult to operate over present networks, basic engineering sector has picked up pace with the use of VPN. However, 'work from home' doesn't suit every industry - like manufacturing, construction, logistics, etc. They have to be out executing their work and completing projects with their teams at respective sites. No work means no revenue in this field.           

How do you assess the impact on the power sector?

The impact of the present situation may see the Central and State governments' spends on infra projects getting reduced in the near term. Airports (Greenfield / Brownfield) will be impacted as the aviation industry has taken a major hit, up to 40% as estimates suggest. One concern is the reduced power demand, from the industrial and commercial segments, due to the large-scale shutdown. A report suggests that further extension of the lockdown could result in additional reduction of demand by 15 to 20 billion units of electricity, leading to net revenue loss of Rs 25,000 to Rs 30,000 crore for the discoms, thus further increasing the liquidity crunch. This will be in addition to the Rs 90,000 crore dues pending by the discoms to the generating companies pre-lockdown. Power sector, which comes under essential activity, is thus facing issues both on demand and liquidity sides.        

To what extent this has impacted your business performance?

L&T's operations are spread across the complete infrastructure spectrum, in addition to IT and Finance businesses. For EPC companies like us, the projects that are stalled due to the lockdown have kept the machinery idle. Fixed costs including those of plant & machinery, employee wages, employee accommodation, labour salary, labour rations, electricity bill, etc, shall also be a concern not just for us, but for many companies across the industry. Considering that majority of the labourers have gone back home and due to the impending kharif season, it will take more time to recover after the lockdown ends. For us, it would result into loss of sales, hampering profitability owing to time and cost overruns. It could also lead to slowdown in new orders owing to postponement of tenders.           

What has been the impact on the supply chain, especially on MSMEs?

The total value chain has been impaired in the present situation. It seems that the impact on supply chain and logistics will affect production and project execution for some time. Unavailability of adequate workers after the lockdown may result in delays and may not give the required push needed to kick-start the business. Impact on MSMEs will be greater, as they would not have access to the kind of deep pockets that large corporates have. Even larger companies may defer payments to vendors to maintain liquidity. Productivity loss during work from home will be difficult to overcome. Even after lockdown is over, offices will work with limited employees, thus delaying the normalization of productivity.            

Enlighten us on the steps initiated to overcome and sustain growth?

L&T is the biggest infrastructure company in the country, with operations spread across India and abroad. As a responsible corporate citizen, the company has formed teams in each business vertical to look into clients' and vendors' issues and requirements. We are making all attempts to provide maximum support to our vendors through making payments to the extent possible in the given scenario.    

The management swung into action and identified an outlay for safe upkeep of contract labourers across geographies. This is in addition to the donation made towards the Prime Minister's fund. Prudent working capital management is the need of the hour and suitable steps are being taken to maintain working capital at optimum levels. The L&T Board has approved to raise Rs 9000 crore via various instruments for ensuring smooth operations. Other decisions for optimization of expenditure shall also be explored. Though 'work from home' is not feasible for all aspects of an EPC organization, especially construction, L&T has made huge efforts in providing IT infrastructure at the quickest possible time to employees during this lockdown to enable them to work from home.           

What are the policies & reforms expected from government that may lead to a smooth recovery? 

The government has been proactive in dealing with the situation and has rightly announced a slew of measures. RBI has also recently announced to increase liquidity in the economy. Further impetus is expected from the government with more reforms. RBI may decrease the repo rate further and also relax NPA rules till the end of FY21 to provide industries time to return borrowed money and for banks to recover the loans given.          

This is the right time to revisit GST rates of some critical items. To provide a thrust to construction industry, GST rate on cement may be reduced from 28% to 12%. Other than increase in construction activity, it will ensure mass employment. Another aspect to consider here is taxation on sub-contractors. Micro or small sub-contractors engaged in construction activity providing services to main contractors should be exempt from GST. It will not only improve liquidity but also eliminate compliance hassles at the sub-contractors' end. This step will in any case be revenue neutral as the main contractor will be paying tax on its end-customer billing.              

The present situation may see job-loss in many companies across various sectors. Towards this, fiscal incentives should be introduced under the Income Tax Act, 1961 for entities who maintain employment levels as were before the start of Covid-19 with certain tolerance.            

The government has granted extension to file TDS return and deposit of TDS by the deductor. The relief granted to the deductor is to the prejudice of the deductee as the latter is unable to file refund claim of the deducted amount until the return is filed by the deductor. Since, the deductors are mainly government entities, such extension needs to be withdrawn as they do not require such relief being sovereign in nature.               

I am sure the currency exchange rates will be managed to be kept within reasonable limits through RBI intervention. The government will also be at a better position to publish Covid-19 risk profiles of various countries for engaging with suppliers. This will help as guidance to source imported items judiciously.            

How do you look at the importance of digitalization of the processes? What needs to be done?

Some definite steps considering the short term as well as long term can be taken now. Many organizations have taken small steps towards digitalization already. Now is the time to take the giant leap, led by our government. Contactless customs clearance and clearance of goods from ports / airports should be started. ePASS for facilitating movement of people and vehicles across the country may be issued to remove uncertainty of movement and it is an easy system to implement. Tracking of vehicles (all transport vehicles) through GPS tracker by default should be made compulsory. The use of blockchain technology should be popularised among organizations including GST authorities, customs, port authorities, DGFT, etc, so that single truth exists with complete reliability of data with savings in time and cost.

What are your suggestions specific to power sector?

Organizations should be permitted to resume operations at power project sites  / offices by taking necessary precautions as per MHA guidelines. The government should issue advisory / instruct all Power Utilities to:   

Clear outstanding payments to all its contractors / sub-contractors who have been employed at various sites To share the labour wage incurred by the contractors at various sites during the lockdown

Provide necessary time extensions to the contractors / sub-contractors engaged in projects under Force Majeure without getting into legal tussles              

What needs to be done with regard to the upliftment of the labour force?

The central and state governments should facilitate labour availability through guidelines for induction of manpower in a safe and secure manner at construction sites. Organizations will do their best for the country in these trying times, but each one has a limited capability and resources. Appropriate support from all stakeholders - customers, vendors, sub-contractors, policy makers - is required at this juncture. At all sites, our organization has supported its workers through safe and hygienic environment with food and wages for all. Awareness sessions on Covid-19 have been conducted in labour colonies, explaining labourers the importance of social distancing. Health check-up of labourers at regular intervals is also undertaken.      

Welfare norms for contract labour, especially with regards to health protection may be declared. Clear norms to resume safe and productive working at offices, manufacturing units and project sites should be timely published to guide organizations, especially smaller ones.  

What about the upgrade of existing labour codes?

India has already begun the process of consolidating its 44 labour laws into a more manageable set of four new labour codes. In 2020, the government is hopeful that India would be able to implement all four codes on wages, industrial relations, social security and occupational safety, health and working conditions. These are expected to improve ease of doing business and safeguard interest of workers. We expect the government to expedite the process and ensure implementation at an early date. The codes would be helpful in striking a balance between workers' and employees' rights.

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