Budget 2020: FM ticks all the right boxes for infrastructure push, but implementation is key

The announcement of development of 100 more airports, which is in line with the NIP’s vision of India entering the top two aviation markets by 2025, is likely to give a boost to the aviation sector and go a long way in fulfilling the UDAAN scheme of the government. Though announced in Budget 2019 and recognised by NIP, reforms for maintenance, repair and overhaul (MRO) industry found no place in the budget. We hope that MRO finds its own space in the next year’s budget allocation.

The proposal to introduce a National Logistics Policy which would create a single-window e-logistics market is likely to bring efficiencies and reduce the bureaucratic hurdles.

For augmenting the solar power sector, the government has proposed the inclusion of farmers by providing solar pumps and solar power generation capacity on barren land. In order to make railways cost effective and green, it is proposed to consider generation of solar power on land owned by railways alongside railway tracks.

The government has proposed replacement of conventional meters by smart meters in the coming three years which would help reduce power distribution losses. The government also seems to have acknowledged the industry’s needs and indicated that measures to bring relief to power distribution companies (DISCOMs) would be proposed.

On the tax front, an extension of a beneficial corporate tax rate of 15 percent (earlier provided for new ‘manufacturing’ companies only) to new companies engaged in the generation of electricity is a welcome move. Further, abolition of DDT is also likely to mitigate inefficiencies in case of multiple SPV structures, which are peculiar to the infrastructure sector.

Infrastructure creation has had its own share of hurdles. A key issue affecting the sector is the liquidity crunch. The government has indicated that infrastructure finance companies such as IIFCL and NIIF would leverage the equity support granted to them in order to create financing pipeline for the infrastructure sector. Further, the proposed tax exemption on investment income earned by a foreign sovereign wealth fund from new investment (whether debt or equity) in infrastructure companies viz roads, ports and airports is likely to open their coffers and thus is a clear boost to foreign investment and greater fund generation.

The proposed setting up of project preparation facility to boost infrastructure projects by harnessing the talent pool -- young engineers, management graduates and economists -- is also an indication of the inclusive mindset of the human capital in the government’s infrastructure agenda.

One of the themes of Budget 2020 was caring society. The government has proposed phasing out of the thermal power plants having carbon emission higher than prescribed norms. This bold step appears to be an effort to contribute to the global goal of reducing carbon footprint and encouraging green economy. However, the government would have to walk a tightrope to balance the power requirement and attaining carbon efficiency.

Budget 2020 seeks to tick the right boxes by continuing to recognise infrastructure spend as a tool to revive the investment cycle and foster growth by increasing public spending in capital formation. Having said that, the success of infrastructure would depend on the implementation and monitoring the projects put to use.