Union Budget 2012 - Positives For The Power Sector

However, the Minister has not mentioned anything on raising the annual cap of USD 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 3 years for select sectors is another big positive for infrastructure 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 & using more warehouses, which will help towards curbing our annual wastage of food-grains 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 USD 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 channelize 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 in the coming days.

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 Rs. 30,000 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 Rs. 50,000 tax exemption for retail investors for investing in equity with a lock-in period for 3 years was a pleasant surprise in this Budget. It is not clear whether the Rs. 20,000 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.

This Budget also provides incentives towards encouraging skill development in the manufacturing sector which will also act as a contributor to infrastructure projects. This is one sector which is experiencing a severe shortage of skilled and semi-skilled manpower. Enhanced allocation on education and health will also act as facilitators.

Issues like FDI in multi-brand retail and greater FDI participation by foreign airlines were touched upon only to mention that those items are very much on government’s radar. Thus, we expect to hear developments on those fronts during the course of the year.

Hemant Kanoria,
Chairman and Managing Director, Srei Infrastructure Finance Limited.