Budget 2020 did not meet the infrastructure sector’s expectations. While higher infrastructure spend was one of the top items on the budget wishlist, the allocations for the sector have not been meaningful. Separately, the lack of any big institutional reform for power distribution companies and no new meaningful measures to boost institutional funding also leaves the sector asking for more.
The allocation for the transport sector has been hiked by 9 percent to Rs 1.7 lakh crore versus Rs 1.56 lakh crore in FY20 BE. While there has been no change in allocation for the power sector, railways has seen a paltry growth of 3 percent. The renewable energy sector has fared better with a 47 percent jump in allocation.
The government has granted 100 percent tax exemption to the interest, dividend and capital gains income with respect of investments made in infrastructure and other notified sectors by the Sovereign Wealth Fund of foreign governments in the priority sector. The move can be a significant positive given the huge appetite for sovereign wealth funds to invest in capital-starved infrastructure companies in India.
The government has also decided to monetise at least twelve lots of highway bundles of over 6,000 km before 2024 to raise funds for NHAI. Sitharaman announced that accelerated development of highways will be undertaken and this will include the development of 2,500 km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways.
While no new programme for discom improvement was announced, the FM said that further measures to reform them would be taken. Separately, utilities running old thermal plants will be advised to scrap old plants. However, a concessional rate of 15 percent was allowed to new power generating companies in order to attract investment in the sector.
To support the logistics sector, the FM announced that a National Logistics Policy will be released soon. The policy is expected to clarify the roles of the union government, state governments, and key regulators and also create a single-window e-logistics market. It will also focus on the generation of employment, skills and making MSMEs competitive.
The Finance Minister also announced plans to develop 100 additional airports before 2024, five new smart cities via PPP model and setting up large solar-powered capacity on land available near railway tracks. In order to boost local manufacturing, Sitharaman announced a scheme to encourage manufacturing mobile phones and electronic equipment.
Sandeep Upadhyay, MD – Infrastructure, Centrum Capital Ltd said, “Tax concessions extended to sovereign and pension funds will go a long way in attracting long term financing solutions for the infrastructure sector.”
He adds that while the FM’s budget speech catered to the demands from the sovereign and pension funds itching to invest in the infrastructure sector, the concern is that their interest is largely revolving around buying operational assets with a marginal contribution towards new greenfield capacity addition.
“Hence the sector still needs some fresh dose of funding avenues for new projects which need to be urgently addressed,” he said.
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