Southern players find the Budget a mixed bag, but take heart in big-ticket investments proposed for 12th Plan

The infrastructure industry down south has taken the Budget in realistic terms. While the service tax and excise duty increases are bound to put pressure on the sector, industry players feel measures like allowing external commercial borrowing (ECB) for low-cost housing, irrigation and dam projects as well as the doubling of infrastructure debt funds limit to R60,000 crore would boost growth.

South Indian companies have a major presence in the infrastructure space, building airports, ports, highways and power projects across the country.

Anand Sundaresan, managing director, Schwing Stetter, and CII chairman, Chennai Zone, says more than the Budget, ?the infrastructure industry and construction equipment manufacturers are looking at the big chunk coming out of the $1-trillion investment in infrastructure proposed in the 12th Five-Year Plan. Half of this investment has to come through PPP (public-private partnership) projects as against 30% envisaged in the Eleventh Plan. We have not achieved the PPP target of the Eleventh Plan, therefore, if the government wants to attract the private investors for the PPP projects, the necessary reforms and policy changes should be brought in immediately.?

The infrastructure industry in the south broadly has taken a view that the Budget proposals throw up a mixed bag with many positive measures and disappointments. Amidst the backdrop of rising inflation, tight liquidity, high interest rates, industrial slowdown, delayed reforms and a negative market sentiment, the Budget at best can be described as ?realistic? and to a large extent ?growth-oriented?.

The industry feels that though there were some positive indicators of a renewed thrust on infrastructure development, the same was lacking about implementation. Many projects had been identified and were waiting for bureaucratic clearance or land acquisition. Clear policies and reforms should be made for a faster implementation of these infrastructure projects.

Says R Sarabeswar, chairman & CEO, Consolidated Construction Consortium Limited, ?In spite of the remarkable Budget speech, in action, expectations are not likely to be met. Of course, ECB in low-cost housing and in certain areas may ease fund raising for infrastructure projects. But increases in service tax and excise duty will fuel the inflationary trend. It is disappointing that there is no clear guidance on GST and DTC (goods & services tax and direct taxes code).?

According to GRK Reddy, chairman & managing director of Marg Group, ?the cascading effect of DDT (dividend distribution tax) has been eliminated. This will benefit infrastructure companies that typically operate with an SPV (special purpose vehicle) model.?

As for the realty sector, Reddy feels that interventions such as an increase in income tax exemption on principal and interest on housing loans would have boosted demand. The increase in service tax by 2% on top of the prevailing high interest rates will further negatively impact the demand for real estate projects. ?The only silver lining is the extension of 1% interest rate subvention on loans up to R15 lakh for housing projects up to R25 lakh by one more year, apart from allowing ECBs for affordable housing. However, these would have had more impact if a broader price bracket was covered?, says Reddy.

Sundaresan says, ?the announcement of the Delhi-Bombay freight corridor with a Japanese investment of $4.5 billion is a good boost for the infrastructure industry. The implementation of 8,800km of National Highways will be an advantage to the industry. Many sops have been given for the development of power sector.?

Pointing out that the Budget lacks in reforms intent, KS Sudarshan, chief operating officer, Ozonegroup, however, says the inclusion of affordable housing under other industries for reduction of withholding tax for interest payment is a good policy move.