Hemant Kanoria, CMD, Srei Infrastructure Finance
The Finance minister has presented a Budget aimed at sprucing up the country’s infrastructure and readying it for higher growth. Besides enhancing sectoral allocations, the doubling of the amount of tax free bonds to be raised for infrastructure in FY13 will go a long way in capacity augmentation in roads, power, railways, housing, ports, etc. Expanding the scope of viability gap funding and including various segments of agricultural infrastructure, telecom and also including oil- and gas-related infrastructure is also welcomed.
The minister has rightly identified the criticality of external commercial borrowings (ECB) in infrastructure financing and to that end has rightly allowed ECB financing to play a larger role in sectors like roads, power, railways, housing, mining, etc. However, the minister has not mentioned anything on raising the annual cap of $ 30 billion that now applies for ECB in India. We hope that cap will be raised in due course. In addition, customs duty reduction on a number of items and equipment pertaining to sectors like road, power, mining, shipping, aviation, cold chain, agriculture, etc, will go a long way in benefiting India’s infrastructure. Reducing the withholding tax rate on ECB from 20% to 5% for three years for select sectors is another big positive for the sector. The sunset clause for power sector stands extended for another year and the sector has also been allowed enhanced depreciation on select items. In rural infrastructure, it is interesting to note that apart from raising sectoral allocations, incentives have been provided towards encouraging creating and using more warehouses, which will help towards curbing annual wastage of foodgrains to a large extent.
The power sector seems to have received extra attention vis-à-vis other sectors, and this is welcomed keeping in mind that this sector is going through a tough phase.
With $ 1 trillion investment envisaged for infrastructure in the 12th Five Year Plan and 50% of it to come from private sector, this Budget was expected to create an enabling environment for raising long term debt and equity from both domestic and overseas markets. While the issue of tapping overseas resources was addressed to some extent, there was no initiative to channelise the domestic long term funds into infrastructure. Also prior announcement on extension of tax incentives, depreciation benefits, etc, for different sectors help private sector to plan their investments. We hope the government will address these issues soon.
It is encouraging to note that the finance minister is committed towards FRBM Act and is working towards returning to the path of fiscal consolidation. A fiscal deficit target of 5.1% of GDP for FY13 is quite achievable, especially if the government can deliver on its goal of extending targeted subsidies to recipients through the Aadhar project. A disinvestment target of R30,000 crore is very much achievable. Although no deadlines for Direct Tax Code (DTC) and unified Goods & Services Tax (GST) were announced, it was evident from the budget speech that government is pretty much on course. The incremental increase in income tax slabs and bringing the entire service sector (except 17 items) under service tax net are steps in that direction. This will boost tax compliance and raise government’s revenues. With services accounting for 59% of GDP, it is only logical to bring more services under tax net.
The Rajiv Gandhi Equity Scheme allowing R50,000 tax exemption for retail investors for investing in equity with a lock-in period for three years was a pleasant surprise in this Budget. It is not clear whether the R20,000 investment in tax-saving infrastructure bonds per annum per individual which was continued for the last two years will continue this year or not, finance minister was silent on that front. We hope that scheme continues too.