Infrastructure/Construction: Budget 2013-14 Analysis
Infrastructure sector got a moderate push in the Union Budget 2013-14.
The finance minister acknowledging the need for new and innovative instruments to mobilise the $1 trillion of infrastructure investment has reiterated the commitment of government of India by encouraging Infrastructure Development Funds, cutting down tax rate to 5 per cent on interest paid to non-resident investor on investment made through designated bank account in rupee denominated long-term infrastructure bonds.
The road sector which under achieved with a project award of just 879 km compared to a budget target of 8,800 km for 2012-13 got a regulator to address contract management issues and thus speed up road development along with promise of award of 3,000 km of road project in H1FY14.
The rate of tax on interest paid to non-resident investor reduced from 20 per cent to 5 per cent for the investment made through a designated bank account in rupee denominated long-term infrastructure bonds.
More institutions, strictly based on need and capacity to raise money in the market, will be allowed to issue tax-free bonds in 2013-14 up to a total sum of Rs 50,000 crore.
India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long-term funds.
Infrastructure Debt Funds (IDF) will be encouraged. These funds will raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects.
Corpus of Rural Infrastructure Development Fund (RIDF) operated by NABARD is increased to Rs 20,000 crore for 2013-14.
Will award 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh in the first six months of 2013-14.
Extension of the sunset date under section 80IA for the power sector was extended by one more year up to March 31, 2014. Currently only undertaking that begins to generate power, starts transmission & distribution etc by 31/03/2013 are eligible for tax holiday u/s 80IA.
These amendments will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.
To seek the assistance of the World Bank and the Asian Development Bank to build roads in the North Eastern States and connect them to Myanmar.
Re introduces ‘generation-based incentive’ for wind energy projects and provides R 800 crore to the Ministry of Non Renewable Energy for this purpose.
In order to provide low cost finance, Government of India will provide low interest bearing funds from the National Clean Energy Fund (NCEF) to IREDA so as it can lend to viable renewable energy projects. The scheme will have a life span of five years.
Removal of the cascading effect of Dividend Distribution Tax (DDT). Section 115-O will be suitably amended so as Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.
Surcharge on dividend distribution tax or tax on distributed income increased from 5 per cent to 10 per cent.
Surcharge increased from 5 per cent to 10 per cent on domestic companies whose taxable income exceeds Rs 10 crore. In case of foreign companies the surcharge is increased from 2 per cent to 5 per cent, if the taxable income exceeds Rs 10 crore.
NABARD got Rs 5,000 crore to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. This window will also finance, through the State Governments, construction of godowns by panchayats to enable farmers to store their produce.
Budget outlay for Rural Roads (Roads and Bridges) for 2013-2014 is fixed at Rs 21,700 crore and of which Rs 1,743.90 has been earmarked for North Eastern Region and Sikkim.
Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity. In addition, a new outer harbour will be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of Rs 7,500 crore. When completed, this will add 42 million tonnes of capacity.
Stocks to watch
IRB Infrastructure, C&C constructions, IVRCL, Larsen & Toubro, Gammon Infrastructure, Adani Ports, Sadbhav Engineering, IL&FS Transportation Infrastructure.
Setting up of a regulator for road sector will address the contractual issues and pave way for developers to exit project after developing it. Similarly the announcement to award 3000 km in the first 6 months of 2013-14 is a boost for the industry deprived of viable order.
If the award of road project in EPC mode it will be a boom for construction service providers and if it’s on PPP model the benefits of it largely on the viability of the projects.
The budget reflected the commitment of the government to press ahead with some of the previously announced measures such as credit enhancement from India Infrastructure Finance Company and the encouragement for setting up of infrastructure debt funds.
Both IDFs and Infra bonds though have the potential to meet the huge long-term fund to the tune of $ 1 trillion required by infrastructure sector in 12th plan period, required by the sector, the flow of funds largely depends on confidence of the investor on the sector.
For this the Government has to address the road blocks and remove the execution risks, but with no concrete measures apart from regulator for road and PPP policy for coal mining nothing concrete is announced and this a disappointment for the industry.
Overall give budget announcement of regulator for road sector, enhancement of fund outlays for JNNURM, rural roads, and other key infra programs turns the impact of the budget on the sector positive.