Published Editorial

Budget 2014 – Bold reforms in infrastructure sector

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Samir Kanabar, Tax Partner – Infrastructure practice, EY

High expectations were roaring for attracting investment in infrastructure sector in the industry and we can say that they have been met by Modi Government. FM in his maiden budget has announced various policy reforms and has provided for infusing of a larger chunk of funds by highlighting the importance of infrastructure development to the economy. The new Government has endeavoured to achieve a positive and conducive environment for attracting investments in the infrastructure industry.

Extension of tax holiday for power sector up to March 2017 would not only provide certainty and stability to the power sector companies but will also scale up the investments in the sector.  Linking of coals to the power plants would help in reviving the dead investment in power plants of various companies.  Also, launch of Ultra Mega Solar Power Projects in the northern, western and southern states of the country would help in saving scarce resource and would result in increased usage of solar energy.

A major relief to the infrastructure sector has been provided by clarifying that excise duty exemption would also be available to sub-contractors for manufacture and supply of goods to main contractor who has won the bid for the project under International Competitive Bidding (ICB) norms.

With regard to construction  of roads, it has been clarified that road construction machinery imported duty free can be sold within 5 years of importation subject to payment of customs duty on depreciated value.  It is clarified that aircraft engines and parts thereof are exempted from Customs duty when imported for servicing repair or maintenance of aircrafts used for scheduled operations.

Government in the budget echoed the need of connectivity in waterways by making announcement on comprehensive policies on Indian controlled tonnage, setting up of 16 new port projects and infusion of funds for development of SEZs.  This would help in generating employment, boosting revenues and reduction in the logistic costs.

Infrastructure projects have longer gestation period which were earlier not coupled with longer tenure loans and thereby, resulted in financial crunch.  This problem has been resolved by the Government by encouraging banks to extend long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies.  Further, Infrastructure Investment Trusts a cash pooling mechanism have been encouraged by the Government by providing pass through status to resolve the financial disability in infrastructure sector.

While the amendments brought by the FM are well enough to provide growth to infrastructure industry, there are various other aspects which would need Government’s attention for accelerated growth of infrastructure industry such as deletion of MAT for infrastructure sector, revival of stalled infrastructure projects, single window clearances infra projects, etc.  However, one could see this as beginning of reforms and hope that the reforms will continue to fuel the sector.

(Shashidhar Upinkudru, Associate Director – Tax & Regulatory Services, EY)
The views expressed are purely personal)