Budget 2023: As government's capex comes in, pvt sector capex will start with lag of a quarter: Baba Kalyani

"In defence sector, we are beginning to see a big improvement in the procurement cycle. Many of the companies that are engaged in defence will benefit from this. Second, the whole concept of atmanirbharta (self reliance) in defence is coming to play. In the last defence expo in Ahmadabad, there was no foreign company. There were only Indian companies," says Baba Kalyani, CMD, Bharat Forge.

There has been a hike in the capital expenditure to Rs 10 lakh crores, railways spending to Rs 2.4 lakh crore, However, the defence outlay seems to be lower than what many experts have been anticipating?
Baba Kalyani: The defence expenditure has gone up by about 13.5-14%. So it is not too bad. Most times, the defence budgets have been under-spent. The problem does not lie so much with the budgetary allocation for defence expenditure. If I am right, I think the honourable finance minister has said many times that if more money is needed for defence, she is quite happy to provide it. It is in the whole procurement cycle.

We are beginning to see a big improvement in that procurement cycle. So, many of the companies that are engaged in defence will benefit from this. Second, the whole concept of atma nirbharta (self reliance) in defence is coming to play. In the last defence expo in Ahmedabad that took place a few months ago, there was no foreign company. There were only Indian companies.

The government is talking about being atmanirbhar and also wants to make India a defence exports hub. What we have seen in the stock market is a massive re-rating in defence stocks. On ground what is the execution like? The orders that are being won and the turnaround time. Has the bureaucracy improved or has the market run ahead of itself?
I think things are improving. If you expect the defence procurement procedure to change overnight, I do not think that is going to happen. It is a complex procedure. But changes are happening.

Second, in terms of exports, we are more successful in the export market with defence products and platforms. Our own company has got huge orders for exports, which we are now executing. So from that perspective, things look quite good to me.

The government, in every Budget in the last few years, has done its bit to increase capital expenditure. The big question is the recent reforms that we have all been hearing about coupled with today's Union Budget speech. Is it good enough to get your peers in India Inc to step on the gas when it comes to capex?
First of all, the way we see in India Inc, we are already doing capex. It is just that we are doing capex with our own money rather than going to the banks and borrowing like it used to happen in the old days. I do not think any one of us has stopped capex. As a matter of fact, with this Budget and the government is going to do huge capex in infrastructure which will boost growth prospects.

It is quite clear that demand for commercial vehicles will go up, demand for construction equipment will go up. The demand for a lot of secondary and tertiary industries which are connected with this will go up and you have to increase capacities. You have to incur capex. There is no escape from incurring capex. The difference is that this time around, many industries are very cautious in terms of incurring capex through borrowings, they would rather do it with their own money and most of us have a lot of money on our balance sheets and that is the difference.

So we are incurring capex. The capex cycle is on, it is going to accelerate and as you see, the government's capital expenditure is coming. After a lag of a quarter or so, you will see private sector capex also coming in. If you want to build green energy complexes, electrolysers, you want to build pump storage as we just talked about, all this is huge capex.

It does not happen without capex and the private sector is supposed to do it. We are all going to move in that direction and just talk about green energy. We are the first steel company in India. We are a small steel company that has become green, we make green steel.

The other business of yours that I want to talk about was the auto space and some announcements that have been made today which could give a fillip to the EV industry, concessions for lithium ion batteries. However, for imports, the customs duty could be high. I want to get a sense from you, what is this Budget going to mean for EVs?
EV is a directional change that is going to happen in the automotive industry, that is very clear. That is a mega trend all over the world and India cannot escape that. The question is what is the timing of this? My own feel on EV is that by 2025-26, almost 100% of the two-wheelers and three-wheelers will become electric. So that is going to be one industry that will change in the next let us say three-four years to electric.

Now that is what is going to create the kind of ecosystem because we make 30 million two-wheelers and three-wheelers per year. Now when we make that many electric vehicles, there will be an ecosystem of electronic components, the sub-systems that go into EVs, etc. The whole industry will develop, a new industry will develop to scale and size and therefore be cost comparative.

The government is putting in policies to make the industry cost competitive. Once that ecosystem develops, then it will get translated in a much larger way to four-wheelers and commercial vehicles, etc. The direction is set.

As far as the automotive industry is concerned, if you look at our four-wheelers business today, we are at about four million or little more than four million. We tout ourselves as being the fifth largest manufacturer of automobiles but we are far away from where we need to be by 2047. We did this exercise six months ago with automotive components and automobile manufacturers, as part of the DPIIT programme..