Infrastructure Sector

Infrastructure: Positive
 
Budget Proposals
 
* Allocation of Rs 214000 crore for infrastructure in 2011-12
* Issuance of Infrastructure bonds of Rs 30000 crore by government undertakings
* Increased FII limit for investment in corporate bonds issued by infrastructure companies
* Special Vehicles in the form of notified infrastructure debt funds
* Rural Infrastructure Development Fund raised to Rs 18000 crore from Rs 16000 crore
 
Budget Impact

Infrastructure is critical for the development of any country. It has been a major focus area of the UPA government ever since it came to power and in this budget too the government has kept its focus on infrastructure development intact. This is clearly visible from the fact that it has increased the allocation for the infrastructure sector to Rs 214000 crore in budget 2011-12 which is 48.50 per cent of the total planned allocation and an increase of 23.30 per cent over 2010-11. This clearly shows the thrust that the government is placing on infrastructure development. But while the government is focusing on the infrastructure sector, availability of long term financing has always been an issue in this area.
 
To enhance the flow of funds to the infrastructure sector the government has taken a few steps. The first among that is the hike in the limit of investments that can be made by FIIs in corporate bonds issued by infrastructure companies. This has been revised upwards by an additional USD 20 billion taking the limit up to USD 25 billion. This means the total limit that is now available to FIIs for investing in corporate bonds stands at USD 40 billion. Companies like GVK Power & Infrastructure and GMR Infrastructure will now be in a much better position to raise money.
 
Further, since most of the infrastructure companies are organised in the form of special Purpose vehicles, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. Here the advantage is, the FIIs will be allowed to trade amongst themselves during the lock-in period. This will bring a good chunk of money from the FIIs into the sector as earlier trading in unlisted bonds was not possible, thereby preventing any exit option. The new trading options provided now will bring in more FIIs who would want to invest in corporate unlisted bonds.
 
To attract more foreign funds for financing infrastructure, the government has proposed to create special vehicles in the form of notified infrastructure debt funds. The interest payment on the borrowings of these funds will be subject to a reduced withholding tax rate of 5 per cent instead of the current rate of 20 per cent. This flow of funds will further enhance as the government has proposed to allow tax free bonds of Rs 30,000 crore to be issued by various Government undertakings in the year 2011-12. The likes of IDFC and IFCI are expected to be major beneficiaries of these moves.
 
The tax benefit under Section 80IA of an additional investment permitted to the tune of Rs 20,000 in Infrastructure Bonds has been extended by one year. While there will be benefit from the reduction in surcharge to 5 per cent from 7.50 per cent, it would get nullified by increase in Minimum alternate tax to 18.50 per cent from 18 per cent.
 
The Government has witnessed good success in the public private partnerships (PPP) Model. Going ahead also it has plans to come up with a comprehensive policy that can be used by the Centre and the State Governments in further developing PPP. So overall it has been a positive budget for the infrastructure sector. All segments like roads, railways, ports and power have been provided with basic necessity which is long term funding. So with more viable projects and importantly more funding options the budget seems to be a good one for the infrastructure sector.