Budget 2016: A leap towards systemic reforms in infrastructure

29 February, 2016

The Union budget 2016, on the face of it, appears lacklustre for various infrastructure sectors in general and there’s nothing much to talk about the power sector as well. There is the usual talk about power for all, increasing the pace of road constructions, more ports and airports, among others.

A deeper look, however, shows the government’s keenness to address some of the sticky points that have been holding back construction of roads, utilization of the unused airports and ports, and energy security for India. Commitment to maintain the fiscal deficit at 3.5% also augurs well for a possible reduction in the policy rates by the Reserve Bank of India.

Reviving the investor confidence

The government is doing its bit to revive the private sector confidence in infrastructure. There is a commitment to introduce the Public Utility (Resolution of Disputes) Bill. Similarly, the guidelines for renegotiation of public-private-partnership (PPP) concession agreements will be issued. To address the borrowing costs and align it to credit risk involved, a new credit rating system for infrastructure projects will be introduced. With an objective credit rating system, one can hope that the distressed banking sector may not have to see similar distress at least for future projects.

Entrepreneurship and job creation

As promised by the Prime Minister earlier this year to promote start-ups in India, 100% deduction of profits for three out of five years for start-ups set up between April 2016 and March 2019 was announced. However, applicability of minimum alternate tax in such cases remains a dampener. The Stand Up India scheme will be funded to facilitate at least two projects per bank branch. This will benefit at least 250,000 entrepreneurs as a part of the large social scheme to promote entrepreneurship across a large section of the society.

One of the important parts of the budget, particularly for the solar sector, is the allocation of Rs1,804 crore for skill development under which 1,500 multi-skill training institutes are proposed to be set up in partnership with the industry and academia. The solar sector itself can provide employments to millions of people with its widespread requirements of construction, operation and maintenance.

Streamlining the tax structure

Macro level fiscal discipline is clear in other commitments that the government has made by following the overall deficit targets.

The government is delivering on its commitment to reduce corporate tax rates on a continuing basis and it is a great beginning by committing the deadlines when the tax benefits will move away. One of the specific items that will impact investments in wind and solar sectors is that the accelerated depreciation benefit will potentially be a maximum of 40% from 1 April 2017. It is not that the industry really needs accelerated depreciation benefits given that the tariffs are already below Rs5 per kWh, but a well-defined taxation path is always welcome in business decisions.

The implementation of general anti-avoidance rule by 1 April 2017 has been long under discussion and its deferment will provide enough time for its rationalization and hopefully, the final implementation will be in line with the international norms and expectations of the industry.

Moving towards energy security

The government has stood by its commitment to provide power to all through an environmentally sensitive path. There is a commitment for 100% village electrification by 2018. However, the cost of base power will go up as clean energy cess, now renamed to clean environment cess, levied on coal, lignite and peat is being increased from Rs200 per tonne to Rs400. Hopefully, this cess will find its way to the rightful use of creating cleaner energy.

Another important focus area that the government has identified is the nuclear energy. The government is drawing up a plan for 15-20 years to augment investment in nuclear power with a commitment of Rs3,000 crore per annum.

The government has also incentivised gas discovery and exploration by providing calibrated marketing freedom. This will help in wider availability of gas as an energy source for industry.

The shortcomings

The government should have introduced a clear and a time-bound plan for the implementation of the good and services tax. The government should create a single tax window for the movement of goods, since this would be essential towards freeing up red tape and letting businesses to choose a more flexible model catering to the market. Finally, what will matter most is the execution of this intent.

Sanjeev Aggarwal is managing director and chief executive officer, Amplus solar.


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Budget 2016: A leap towards systemic reforms in infrastructure

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