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Budget To Boost Infrastructure Companies

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Finance Minister Arun Jaitley's maiden budget promises better business opportunities for infrastructure companies, especially the ones in manufacturing and construction sectors. The FM allocated funds for improving infrastructure --- roads, ports, airports, railways and industrial infrastructure --- besides ensuring adequate flow of funds and financing of projects.

The country is in no mood to suffer because of lack of infrastructure and apathetic governance, he said. “The task before me today is very challenging because we need to revive growth, particularly in manufacturing and infrastructure to raise adequate resources for our developmental needs," Jaitley said.

Anuj Puri, chairman and country head, JLL India says the infrastructure and manufacturing sectors have been given paramount importance in this budget, since these are job creating verticals.

The budget has allocated Rs 37,880 crore to NHAI for the construction of highways, and an additional Rs 3,000 crore to boost road connectivity in the North-East regions. For the current year, it has targeted the completion of 8,500 kilometres of national highways, which are a known real estate catalyst and will have long-reaching implications on the markets of the cities they connect, Puri says.

Ahmedabad and Lucknow have been singled out as special beneficiaries of this budget with the allocation of Rs 100 crore towards the deployment of metro rail systems in these cities. The increased connectivity will raise the scope of real estate development there and also have an impact of property valuations over the mid to long term.

The development of 16 new ports has been proposed at an outlay of Rs 11,000 crore. Additionally, an allocation of Rs 11,600 crore has been made for the development of outer harbour port projects. The combined effect of these provisions will be that there will be an increase in demand for commercial office space from the manufacturing sector in India’s major port cities.

Richard Rekhy, CEO, KPMG in India says the FM has provided some good measures by incentivising the manufacturing and infrastructure sector. Banks will now be encouraged to extend long-term loans for infrastructure projects without any regulatory pre-emptions such as CRR, SLR and priority sector lending norms. This additional enforcement of banks to support the creation of infrastructure will result in faster infrastructure creation and the consequent benefits to the real estate sector.

Debasish Mishra, Senior Director, Deloitte in India says In the power distribution segment announcement of Rs 500 crore for “Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation is a good move to improve power supply quality in the rural areas. “But the allocation seems to be too little to make any real impact.”

“To finance Clean Environment initiatives, Clean Energy Cess increased from Rs 50 per tonne to Rs 100 per tonne of coal. This along with earlier increase in railway freight (6.5 per cent) – is going to have adverse impact on power consumer tariffs to an extent of 14-15 paise a unit.”

Extension of 80IA benefit, (10 year tax holiday) to generation, distribution and transmission of power by till March 2017 is a big positive as it gives the investors certainty. Also as banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending is also positive for power sector.

FM promised coal supply to all existing and power project coming up by March 2015. This is a huge positive for many generation projects stuck because of lack or inadequate coal supply. However, it is not clear how this is going to be achieved, Debasish Mishra adds.

The budget has laid focus on Natural gas and related infrastructure. However, apart from talking about production enhancement from marginal/declining fields using modern technology, no direction has been provided for indigenous exploration activities. Reduced reliance on imports and vulnerability due to external conditions can only be achieved by domestic exploration activities, says Nabin Ballodia, Partner – Tax (Oil  & Gas), KPMG.

After operating in standalone silos for a long time, the need to adopt an integrated approach towards industrial development and urbanization has finally been acknowledged, Arindam Guha, Senior Director, Deloitte in India.

“The Budget therefore, talks of “development of industrial corridors, with smart cities linked to transport connectivity” being the cornerstone of India’s strategy to drive manufacturing growth and urbanization. This is in line with the experience in other countries like China, Korea, Japan where high speed transport networks connect manufacturing hubs with urban centers,” he adds.

Additionally, the Rs 4000 crore low-cost housing schemes and FDI norms for the affordable housing sector and the creation of 100 smart cities across India, investing Rs 7060 crore will have positive implications for construction, manufacturing and commodities companies.