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Several Positive Takeaways For Infra Sector

The decision to increase the Deposit Insurance Coverage from Rs 1 lakh to Rs 5 lakh per depositor will be a huge relief and will encourage further savings which can be channelised for funding infrastructure and industrial projects.

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The economy has been in dire need of fund infusion, especially in sectors like agriculture and NBFCs, and for infrastructure spend, so as to boost demand and put the nation back on the growth track. The FM has endeavoured to address this need in Budget FY 20-21 with a medium to long-term vision.

In order to put the economy on a higher growth trajectory, stepping up infrastructure investments is a must. For me, therefore, the biggest takeaway is the proposal to grant 100 per cent tax exemption to sovereign wealth funds (SWF) investing in Indian infrastructure projects. The other important announcement was the increase in the FPI limit for corporate bonds from 9 per cent to 15 per cent. This, coupled with the laying out of red carpet for the SWFs is very good news for Indian infrastructure projects as it will enable long-term funds, both equity and debt, to be invested in India. The global financial markets are flushed with funds. 

The decision on Dividend Distribution Tax, which has been on expected lines, is likely to make investments in India more profitable. 

On infrastructure, a notable announcement was to bring the power sector in line with manufacturing companies and provide a concessional tax rate of 15 per cent on new domestic generation companies. However, I hope the existing generation and distribution companies should also be included in due course. I welcome the announcement that the Centre would now prod all state governments to adopt smart metering. This can do wonders in improving the financial health of the discoms.

I also welcome the decision to set up a body for improving the modalities of setting commercial disputes. This is something which needs to be fast-tracked.

FM has done well in paying adequate attention to the needs of the New Economy and stepped up allocations for fostering the start-up ecosystem and incentivising skilling initiatives. Allowing tax benefits to start-ups by way of deduction of 100% of their profits and increasing the turnover limit and period of eligibility are in the right direction and will encourage both innovation and talent grooming. The decision to liberalise External Commercial Borrowing (ECB) and Foreign Direct Investment (FDI) norms for development of institutes of higher skills was also very reassuring. If India has to emerge as a global power, we need to quickly scale up the capacity of our higher education ecosystem.

On the personal income tax front, once we go through the fine-print, we can comprehend better as to the modalities and advantages of the new optional income tax rate system and how useful it would be in increasing consumption demand. On the real estate front, FM has extended by one year the date of approval of affordable housing projects for availing tax holiday on profit earned by developers and also the additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans. Given the huge inventory build-up in the real estate sector and the fact that this sector is a huge employment generator, I was expecting more incentives. 

On the resource mobilisation front, the decisions to offload a part of government’s stake in LIC and to sell off the entire government stake in IDBI Bank were noteworthy. It was reassuring to hear from the FM that the proceeds from such disinvestment will be mostly used for capital expenditure. 

The extension of the Partial Credit Guarantee Scheme for NBFCs will surely facilitate them and I am sure very soon we will hear good news for the sector which can address the liquidity availability in the medium to short term basis. 

The decision to increase the Deposit Insurance Coverage from Rs 1 lakh to Rs 5 lakh per depositor will be a huge relief and will encourage further savings which can be channelised for funding infrastructure and industrial projects.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Union Budget 2020-21 Union Budget 2020

Hemant Kanoria

The author is CMD, Srei Infrastructure Finance

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