The infrastructure sector is a key driver for the Indian economy and the most tangible evidence of the nation’s progress. Investment in this sector has a cascading impact on all sectors such as banking and financial sector, logistics, power sector. Infrastructure sector also aids in employment generation and socio-economic development of the country. Owing to its importance, one ought to look into the infrastructure bottlenecks and address recommendations for the same.
As per Global Infrastructure Outlook, India requires around USD 4.5 trillion worth of investments till 2040 to develop infrastructure. However, the current trend demonstrates that India can meet around USD 3.9 trillion out of USD 4.5 trillion. This adverse gap is mainly due to the collapse of public-private partnership, and issues related to land and forest clearances. In view of this, the sector looks forward to a higher allocation in the forthcoming budget.
Of late, a number of infrastructure companies are under stress due to financial hardships. An alarming number of power generation companies have been referred to National Company Law Tribunal (NCLT). The budget should come up with some rehabilitation scheme for the sick power industry.
Given the need to urgently upgrade infrastructure, the government should reduce import duty on capital goods required for major infrastructure projects like metro/port/airport etc. Additionally, it is recommended that temporary imports of capital goods required for the said infrastructure projects which are to be subsequently re-exported be granted exemption from levy of customs duty.
The government should also consider introducing direct tax incentives such as reducing the Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT).
Further, deepening of bond markets by introducing long-term tax-free bonds shall enhance support to long-term infrastructure financing given the twin challenges faced by commercial banks i.e. asset-liability management and increasing share of stressed assets.
Since the infrastructure sector is capital intensive in nature, the same results in its heavy dependence on borrowings. It is thereby recommended to increase the upper cap on interest deduction. Likewise, there upsurges a need for a greater moratorium on loan repayment.
Of late, private players and institutions dedicated for infrastructure financing are reluctant to come forward and invest in this sector due to issues such as lengthy dispute resolution, stuck claims, delays, cost-overruns, etc. In order to boost investment in infrastructure sector, the budget may provide for incentives such as extension of tax holidays for infrastructure projects, reduction in taxation, etc.
It is noteworthy to mention that rapid urbanisation has created increased demand for civic facilities and transport infrastructure. The government has emphasized on roadways, railways, airports and ports infrastructure development. Metros are rapidly being accepted across the country as a solution to the problem of urban transportation.
Accordingly, it is recommended that benefit vide Central Board of Direct Taxation (CBDT)’s clarification of considering expenditure incurred on development and maintenance of infrastructure projects like roads/highways on a build-operate-transfer (B-O-T) (amortised over the period of the concession) be extended to metro rail systems.
There is a dire need to give impetus to the infrastructure sector in view of its capital-intensive nature and long gestation period for infrastructure projects. Hence, augmented budgetary allocation, tax incentives, strong reinforcement of investment in the sector and key policies would ensure time-bound creation of world-class infrastructure and propel India’s overall development.