The government is clearly of the view that development of infrastructure is one of the key parameters for any economy to be the best in the world. The infrastructure sector was named as the fifth support pillar of the budget theme ‘Transform India’ and accordingly provided much needed impetus with an allocation of more than Rs 2,21,000 crore. Union Budget

16-17 once again brought infrastructure sector to the forefront of development through policy measures and substantial government spending.

The finance minister has announced major steps to re-vitalise Public-Private Partnerships (PPPs) which, as per the Kelkar Committee, are an important policy instrument to speed up the process of economic growth. Some of the important announcements

include the enactment of a Public Utility (Resolution of Disputes) Bill, framing of Guidelines for Re-negotiation of PPP Concession Agreements, and a new credit rating system for infrastructure projects. These measures will boost the revival of stalled projects and help bring the train back on track.

The Kelkar Committee report had reviewed PPPs in the infrastructure sector and suggested revival of the defunct proposal to establish 3PI to support such projects. However, no announcement was made in the budget. The government should strongly consider the need to revisit the same as it has the potential to accelerate the growth of the infrastructure sector.

As regards development of roads, the committee had recommended an increased concession period for the Build-Operate-Transfer (BOT) model, relaxation in exit norms, disposal of pending cases between developers and NHAI and shift to electronic tolling, among other things. Considering the recommendations, the government has given permission to concessionaires to divest 100% equity after two years in all BOT projects. This would release funds for further infrastructure investment. Providing some relief and grants for non-BOT projects would also help improve the situation. Investment in the road sector is slated to be more than R97,000 crore this year.

For promoting the aviation sector, the government is planning to develop the existing unserved and underserved airports. This will improve regional connectivity. Foreign Direct Investment (FDI) norms were also eased for certain sections of the sector. Recently, the government had raised investment limit to 100% from the present cap of 74% in certain civil aviation sectors thereby allowing foreign general aviation charter operators and ground handling companies to set up base in India. There is a need to promote PPPs in this sector as per the recommendations of the Kelkar Committee. However, the budget has not addressed the issue of private participation. The government had earlier issued a draft National Civil Aviation Policy 2015 which deals with a number of issues. Hopefully, the finalisation of the policy will help transform the aviation sector.

The railways is set to get a complete makeover in the coming years due to a huge inflow of foreign investment, especially from Japan. The investment made by the government in 2015-16 is close to double the average of the previous five years and it is estimated to be worth R1.21 lakh crore in 2016-17. The budget has announced significant changes for the infrastructure sector so far as deductions under the

Income Tax Act, 1961 are concerned. Profit linked deductions under section 80IA of the Act are being replaced by investment linked deductions. Further, for the power sector, while profit linked incentives are being phased out, there is no corresponding investment linked deduction—in fact, for assets in the renewable sector, the depreciation rate has been reduced. However, this is in keeping with the government’s plan of phasing out incentives and replacing the same with a reduced overall corporate tax rate.

Another major announcement came in the form of granting exemption to Special Purpose Vehicle (SPV) from Dividend Distribution Tax (DDT) while distributing dividend to Infrastructure Investment Trusts (InvIT). This would help make these structures more tax viable and hence popular.

Overall, the budget takes another step towards sustainable infrastructure development. With infrastructure being termed by the Finance Minister as the one of the nine pillars for transforming India and several initiatives being taken to reform the sector, the confidence of investors in the Indian market is likely to get a boost.

*Rs 97,000 crore for roads including PMGSY to boost connectivity
*NHAI, PFC, REC, Ireda, Nabard and Inland Water Authority to raise Rs 31,300 crore via bonds
*Dispute resolution mechanism for infra, PPP contracts
*New credit rating system for PPP concession agreements

MV Act to be amended to enable entrepreneurs to operate buses on various routes

Hemal Zobalia is Partner & Pooja Balachandar is Senior Manager with Deloitte Haskins & Sells LLP