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Infra sector one of thrust areas in budget

The Financial Express, New Delhi

March 16, 2012


The infrastructure sector was one of the thrust areas in the Budget, as Finance Minister Pranab Mukherjee announced a slew of proposals, including allowing financial institutions to raise about Rs 60,000 crore from tax-free bonds and envisaging a greater private participation.

Mukherjee said investment in the sector during the 12th Five-Year Plan (2012-17) will go up to Rs 50 lakh crore, about half of which is expected from the private sector.

"Lack of adequate infrastructure is a major constraint on our growth. The strategy we have followed so far is to increase investment ... For the year 2011-12, tax free bonds for Rs 30,000 crore were announced for financing infrastructure projects. I propose to double it to raise Rs 60,000 crore," Mukherjee said while tabling the Budget in Parliament today.

These include Rs 10,000 crore each for NHAI, IRFC, IIFCL and power sector, besides Rs 5,000 crore each for HUDCO, National Housing Bank, SIDBI and ports.

Analysts feel the government has given a much-needed push to the infrastructure sector.

"He (the Finance Minister) has stressed importance to flagship programmes and nodal organisations such as NHAI responsible for spread-heading the progress in the sector.

By allowing these organisations to raise Rs 60,000 crore through tax-free bonds, he has also showcased government's commitment to provide required financial support to these organisations," Vishwas Udgirkar, Senior Director, Deloitte in India, said.

Increase in investment in the sector has been envisaged through a combination of public investment and public private partnerships (PPP).

To attract private investment, more sectors like irrigation, oil and gas storage facilities and telecommunication have been made eligible for viability gap funding under the scheme 'Support to PPP in Infrastructure'.

"The finance minister reiterated need for significant investment in various infrastructure sectors. Government's dependence on private sector for augmenting the investment through PPP route was also restated.

"To this effect FM widened the ambit of VGF scheme by including new infrastructure areas. He also provided more avenues of raising funds with measures like relaxing ECB guidelines, reductions in WHT, proposal to remove cascading effect of DDT," Udgirkar said.

Also, the government has approved guidelines for establishing joint venture companies by defence public sector undertakings in PPP mode.

To encourage PPP in road construction projects, he announced allowing external commercial borrowings (ECB) for capital expenditure on the maintenance and operations of toll systems for highways.

The allocation to the highways sector has also been enhanced by 14 per cent to Rs 25,360 crore in 2012-13 and the government has set a target of covering a length of 8,800 km roads under NHDP next fiscal.

The government also allowed ECB to part finance debt of existing power projects and to address the immediate financing concerns of the civil aviation sector.

"I propose to permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of USD 1 billion."

Also, a proposal to allow foreign airlines to pick up to 49 per cent in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the government.

In view of shortage of housing for low income groups in major cities, the government also proposed allowing ECB for low cost affordable housing projects and Set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans.

It also enhanced provisions under Rural Housing Fund from Rs 3,000 crore to Rs 4,000 crore and extended the scheme of interest subvention of 1 per cent on housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh for another year.

On Infrastructure Debt Fund to tap overseas market for long tenor pension and insurance funds, Mukherjee said, "I am happy to inform the House that the first Infrastructure Debt Fund with an initial size of Rs 8,000 crore, has been launched earlier this month."

To remove ambiguity in the policy and regulatory domain and to encourage investment, the government also announced approving a harmonised master list of infrastructure sector.

Unfolding several tax incentives and reliefs to the sector, Mukherjee said interest income received by non-residents from a notified infra debt fund would be taxable at reduced 5 per cent on gross amount of interest in comparison to 20 per cent.

"In order to augment long-term low cost funds from abroad for the infrastructure sector, it is proposed to provide tax incentives for funding certain infrastructure sectors from borrowings made abroad," he said.

The government proposed amendment in section 115A of the Income Tax Act to provide that any interest paid by a specified company to a non-resident in respect of borrowing made in foreign currency from overseas between July 1, 2012 and July 1, 2015, under an agreement, including rate of the interest payable, approved by the central government, shall be taxable at the rate of 5 per cent.

The companies include those engaged in construction of houses, dams, ships, ports etc besides aircraft operation and manufacture or production of fertilisers. The government said a mechanism has been devised to make payment to certain foreign companies in India in Indian currency for import of crude oil. In order to encourage new investment by the assessees engaged in the business of power generation or distribution, it is proposed to amend relevant section to initial depreciation at the rate of 20 per cent of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

To address fuel supply constraints affecting power generation, the government advised Coal India to sign fuel supply agreements, with power plants that have entered into longterm Power Purchase Agreements with DISCOMs and would get commissioned on or before March 31, 2015.