Business model of political patronage is no longer going to work: Puneet Dalmia

Downcycle in the cement sector has Puneet Dalmia thinking strategically. Instead of getting protective of cash, the owner of Dalmia Cement is patiently acquiring companies at competitive pricing.

"Our partnership with KKR enabled us to have 'patient capital' and we did four acquisitions in the last four years when times were quite tough." The cement sector may continue to see consolidation and Dalmia wants to keep tab of the counter-cyclical investments.

"They have yielded better returns as buyers can build cheap or tend to acquire assets at a 'reasonable price.' I feel as things stand today, more M&A and consolidation might happen in the industry." As of now, almost 40 million tonne of cement capacity could potentially be sold, which could result in and M&A of $4-5 billion in the next 12-18 months. Much of this is triggered by a sluggish demand and phlegmatic construction and real estate market.

The macro health of the economy is what promoters are keenly watching. India is doing well relative to the world but the domestic sentiment still remains wobbly outside of the start-up space.

"I think the reform process will get definitive momentum this year with GST getting passed. Government will capitalise the banks to enhance productive lending instead of just evergreening stressed loans." There is expectation that the full-year impact of low oil prices will benefit the exchequer and boost the sentiment in favour of India. But where the challenges lie are in terms of long-term policy consistency.

The finance minister drove this promise at World Economic Forum in Davos as well when investors quizzed him about the instability in rules of doing business. Dalmia is optimistic that improved policy will spur sentiment and private investment will follow. "On the government side, the message is clear - use the strong balance-sheets to invest rapidly and kick start the investment cycle. Many PSUs including railways, NHAI, etc., have massive investment plans and those plans should start showing ground level results in the next 12-18 months."

Dalmia insists that numbers will eventually add up and the economy will grow. As a former entrepreneur, he asserts there is need in a changed attitude towards business, particularly in old-economy sectors like mining, manufacturing and others. "Businessmen in these sectors have to adjust to the fact that the business model of political patronage is no longer going to work... This is a painful adjustment for many people and causes pessimism."

There is another fundamental change underway in India and that is the rise of the states. There is a hunger to grow and attract investments. This is heartening because private sector gets improved business opportunties here. "I think the state governements have understood two things very clearly... One, to get re-elected, they have to deliver on a 'development agenda' and two, the governement cannot create jobs to fulfill the aspirations of their people. The jobs will be created by the private sector and this will require private investment and an investor friendly image for the state."

For the private sector, there remain some pain points with respect to growth in the short term but they are optimistic of things falling in line in the medium period. Dalmia is not betting on any big bang transformation. Instead, he is content to see incremental positive moves. "I have deep conviction that we are on the right track and many small small actions / policies will create the large structural framework to create many years of sustainable growth In India."