Against a challenging global and domestic economic backdrop, I truly believe that the finance minister has struck a fine balance between fiscal consolidation and galvanising public investment.
Against a challenging global and domestic economic backdrop, I truly believe that the finance minister has struck a fine balance between fiscal consolidation and galvanising public investment. The infrastructure sector is crucial to propel India’s holistic development and deserves intense focus from the government for initiating policies that will ensure time-bound creation of world-class infrastructure.
As per the Economic Survey, there has been a negative growth in real gross fixed capital formation during H1 FY17 due to a fall in private investments by more than 7%. An allocation of R3.96 lakh crore to the sector, and according ‘infrastructure’ status to affordable housing will provide a much needed stimulus to jump-start and invigorate investments in infrastructure.
Power and renewable energy
Several measures announced in the Union Budget, such as the proposed merger of all PSU oil companies to create a $100 billion behemoth, duty reduction in LNG and creation of additional strategic reserves, will ensure adequate availability of energy to fuel the growing manufacturing sector in India.
Further, increasing the carry-forward of MAT credit limit to 15 years is a step which will spur investments in high gestation projects by reducing net tax outgo through increased redemption of tax payouts made during previous years.
Concessional withholding tax rate of 5% on interest payments under rupee-denominated masala bonds, which was earlier allowed till June 2017, has now been extended by three more years till June 2020. This is an extremely positive move to counter capital outflows, in the wake of rising interest rates in the US and other western economies. This will benefit Indian companies who are looking to raise funds abroad, especially renewable energy players, who require large investments to actualise the target of 175 GW of installed capacity by 2022, and make good on the commitments made at Paris COP-21 of reducing carbon footprint by 35% from 2005 levels.
One big welcome change was discontinuing the 92 year-old practice of a separate Railway Budget this time and merging with the Union Budget. The heightened focus on safety, cleanliness and investments in rail infrastructure gets the much needed boost with a budgetary allocation of R1.3 lakh crore, a special rail safety corpus of R1 lakh crore and waiver of service charge on online booking. Indian Railways is likely to align with the government’s focus on urban infrastructure growth with the soon to be announced new metro rail policy and commissioning 3,500 km of railway lines this year as against 2,800 km last year.
Roads and highways
To achieve the ambitious target of building 40 km of highways per day, FM has increased the allocation towards road development from R57,000 crore to R64,000 crore. This will be supplemented with earmarked funds towards road safety engineering and decongestion of overloaded infrastructure. Moreover, the targeted construction of 133 km of rural roads per day under Pradhan Mantri Gram Sadak Yojana (PMGSY) is a crucial step as more than 90% of the country’s road network comprises of district and rural roads.
The increased focus on improving ease of doing business and the positive impact of Make in India campaign have resulted in India becoming the sixth largest manufacturing hub in the world. The government has clearly articulated its focus on stimulating core sector growth through planned outlays in agriculture, infrastructure (power, roads, railways, airports, ports including coastal roads), affordable housing (being given infrastructure status) and digitisation which is bound to steam up India’s manufacturing sector and increase its contribution to GDP from 16%, at present, to 25% by 2025. Significant steps taken to abolish the FIPB and rationalise custom/excise duties also need to be commended as these signal the government’s intention to develop a business-friendly manufacturing ecosystem.
Promoting domestic and foreign investment has introduced long-term sustainability and global best practices in the infrastructure sector in India. Important government initiatives to ensure ease of financing, increase transparency, and various legal and regulatory reforms will further empower infrastructure players attract more investments in this crucial sector.
The author is MD & CEO, Yes Bank and Chairman, Yes Institute.
Views are personal