Budget 2020: Infrastructure is crucial to govt’s ‘Economic Development for All’ goal

The Budget included several announcements across various verticals of infrastructure projects to expedite necessary holistic development including economic turnaround.
Union Budget 2020 India: On 1 February 2020, the Hon’ble Finance Minister, Mrs Nirmala Sitharaman presented the Budget 2020 (Budget) with one of the three key themes being “economic development for all”, for which infrastructure development is a crucial driver. The Budget included several announcements across various verticals of infrastructure projects to expedite necessary holistic development including economic turnaround. The measures are in continuance with the vision of aspirational India and the Prime Minister’s announcement of Rs 100 lakh crore investment in the infrastructure in next 5 years and the National Infrastructure Pipeline of Rs 103 lakh crores. The following are the key takeaways of the Budget 2020 vis-à-vis infrastructure projects:
Key takeaways for infrastructure projects:
The Government has been focusing on cleaner fuel and the IX and X round of city gas distribution bidding had seen a great response including from foreign investors. The issue of pollution and lack of cleaner fuel has been a challenge for smaller cities as well. The announcement to further augment the national gas grid from the present 16200 km to 27000 km will further bolster investment in natural gas and city gas infrastructure providing much needed penetration in tier II and tier III cities as well.
(a) Electricity: The announcement of investment of around INR 22,000 crores in the power and renewable energy sector is a welcome step towards achieving the renewable target of 175 GW by 2022. 1 The fiscal health of Discoms has been a matter of concern and despite the previous schemes, there has not been much success. Further, the announcement of promoting smart meters and replacing conventional energy meters by prepaid smart meters in the next 3 years will check aggregate technical and commercial losses by allowing consumers to choose rate and supplier as per their specific requirement.
(b) Aviation: The announcement to develop 100 more airports under the UDAAN scheme will not only provide benefits to passengers and commercial aviation sector, it will also provide opportunities for development of smaller cities by addressing the connectivity issues. Further, the proposed launch of Krishi Udaan Scheme to assist farmers in transporting agricultural products will ensure rapid growth in air traffic by providing financial incentives to airlines operating from remote airports.
(c) Roads: Pursuant to the fast tag mechanism and envisaging greater commercialisation of highways, Government announced accelerated development of highways which includes: (i) monetisation of at least 12 lots of highway bundles of over 6000 km before 2024; and (ii) development of 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways.
(d) Railways: The announcement of redevelopment of 4 railway stations and operation of 150 passenger trains through PPP model is a favourable move towards optimisation of costs for Indian Railways.
(e) Logistics: The announcement to release National Logistic Policy for creation of a single window e-logistics market will contribute towards scaling up of logistics infrastructure and enhancing export competitiveness.
The emphasis of Budget 2020 on transport infrastructure, airports, inland waterway and logistics is a welcome move, inter alia, backed by the tax concessions to sovereign wealth funds for investment in Infrastructure sector. This will provide necessary flexibility for brownfield projects and other secondary transactions across various verticals of infrastructure projects. However, it is yet to be seen how the existing challenges associated with greenfield projects including funding requirements will be addressed by the Government given the some of the experiences with the PPP projects. The announcements in the Budget if backed by proper implementation and necessary policy measures will indeed help in “Economic Development for All” and achieving the INR 100 lakh crore investment in the infrastructure in next 5 years.
Affordable Housing:
In line with the government’s initiative “Housing for All” and Affordable Housing, it has been announced that the tax holiday is granted on the profits earned by developers on affordable projects approved by 31st March 2020. In order to ensure that more people will avail of this benefit, Sitharaman has proposed to extend the date of loan sanction for availing this additional deduction by one more year. The government also plans to extend the additional reduction of INR 1.5 lakhs for interest paid on home loans taken for the purchase of affordable housing by one year in order to boost the supply of affordable houses in the country. The interest deduction of up to INR 3.5 lakh for affordable housing priced below INR 45 lakh as against INR 2 lakh earlier for loans availed until March 31, 2021.
Concession to real estate transactions and tax rates for co-operatives:
While taxing income from capital gains, business profits and additional sources in favor of transactions in real estate, if the consideration value is more than 5 percent by less than the circle rate then the difference is counted as income both in the hands of the purchaser and seller. In order to reduce hardship in real estate transactions and provide relief to the sector, FM proposed to increase the limit of 5% to 10%. Co-operative societies perform a remarkably significant role in our economy in promoting access to credit, procurement of inputs and marketing of products. These cooperatives are currently taxed at a rate of 30% with surcharge and Cess. FM proposed to present an option to cooperative societies to be taxed at 22% plus 10% surcharge and 4% Cess with no exemption/deductions.
Union Budget 2020: Boost for Infrastructure Sector
The Union Budget 2020 has announced sops for the ailing infrastructure sector. This move by the government is expected to surge the investments in the sector, which is currently running short on cash.
The FinMin announced 100% exemption of tax on long-term capital gains, interest, and dividends on investments made by the Sovereign Wealth Funds (SWF) in the infrastructure sector.
Furthermore, the government reduced the tax on unlisted infrastructure investment trusts. It is now on par with the listed ones. These announcements are anticipated to benefit the roads sector significantly.
Tata Group, in association with GIC, and one other investor have agreed to invest Rs 8,000 crore in GMR Airports. This company is responsible for operating Delhi’s Indira Gandhi International Airport, which happens to be the busiest in India.
GIC entered into a deal in the roads sector with IRB Infrastructure Developers last year. The deal is worth Rs 4,400 crore. GIC and KKR, a private equity player have entered into a Rs 2,000 crore investment deal in Sterlite Power’s InVIT and IndiGrid.
The government’s decision to offer tax exemption on capital gains, interest, and dividends is expected to spur the investments into the infra sector massively. This exemption will help in restoring the confidence of investors and will benefit in the funding of TOT and BOT projects.
This exemption is applicable to those investments made on or before March 2024. This is a masterstroke in attracting investments for the upcoming projects from foreign sovereign wealth funds.
Another significant amendment in this year’s budget is that unlisted InvITs will be treated on par with listed ones. This will be effective from the next fiscal year. Listed InVITs are currently enjoying the pass-through tax status on the income earned by business trusts.
The move to rationalise the tax treatment is expected to attract private investments into the roads sectors and other infra projects.