India is on the verge of witnessing a sustained growth in infrastructure buildup. With a slew of announcements in housing, road, port and airport development, we are seemingly on a path of sustained recovery in infrastructure construction in the country. As infrastructure plays a vital role in the Indian economy, many experts believe that in order to go to a double digit growth path in the future, investments in the infrastructure sector should be increased. Given Rs 1,735 bn earmarked for the infrastructure development in FY 2011, we believe this a step in the right direction.
Income of the companies engaged in infrastructure development was exempt from tax under section 80-IA for 10 consecutive years which is about to expire in March 2010. Although non-extension of this tax holiday for another term proved to be a dampener, we are excited about the road map laid down for the sector as a whole from an economic standpoint.
Budget Measures
Government earmarks Rs 1,735 bn for infrastructure development
Road development expenditure allocation increased to Rs 198 bn
Target to build 20 km of highway each day
IIFCL to double refinancing to banks lending to infrastructure companies
Approximately Rs 661 bn allocated for rural development
Interest rate subsidy for affordable housing extended till FY 2011
Developers allowed to complete housing projects in 5 years (extended by a year) to avail tax breaks
Additional tax relief of Rs 20,000 for investing in infrastructure bonds over and above the total investible limit of Rs 1 lac pa
Allocation towards development of urban infrastructure stands at Rs 35 bn
Budget Impact
Increase in refinancing from IIFCL will encourage banks to lend to infrastructure companies boosting overall growth in the sector
Increased allocation towards road infrastructure development will better the existing transportation mechanism
Extension of interest rate subsidy will boost the demand for affordable housing
Providing additional tax relief for investment in infrastructure bonds will further encourage retail participation in the sector
Company Impact
Extension of interest rate subsidy to benefit companies like Parsvnath and HDIL as they cater to low income housing group
IRB Infra and IVRCL Infra to be directly benefitted as a result of increasing thrust on road infrastructure development
India is on the verge of witnessing a sustained growth in infrastructure buildup. With a slew of announcements in housing, road, port and airport development, we are seemingly on a path of sustained recovery in infrastructure construction in the country. As infrastructure plays a vital role in the Indian economy, many experts believe that in order to go to a double digit growth path in the future, investments in the infrastructure sector should be increased. Given Rs 1,735 bn earmarked for the infrastructure development in FY 2011, we believe this a step in the right direction.