Budget 2011: Engineering Budget 2011-12 saw an attempt to enhance foreign investment to fund infrastructure projects, increased allocation and assured assistance for speedy implementation to many of the important infrastructure centric sectors, which will provide a fillip to many project oriented companies in the engineering sector. Further, it also saw a parallel excise duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects. In addition there is a full excise exemption for air-conditioning equipment for cold storage

Budget Expectations

	The industry wants the government to intervene and impose import barrier for equipments, particularly power equipment for mega power projects to provide a level playing field to domestic equipment manufacturers. If implemented, this will be a big positive for the sector.
	Due to the government’s continued focus on infrastructure and asset creation, we expect higher allocation to flagship programs such as Bharat Nirman, APDRP, renewable energy resources, etc.
	There could be a policy in the offing for the launch of dedicated debt infrastructure funds. This initiative could help develop a huge amount of long-term corpus towards infrastructure development

Budget Measures

	Overall, Rs 2,140 bn has been allocated for infrastructure in FY12, an increase of around 23% YoY.
	The cumulative disbursement target for IIFCL to achieve at the end of FY11 is Rs 200 bn and Rs 250 bn by the end of FY12.
	Attracting foreign money for infrastructure development was high on the agenda. The limit for investment in corporate bonds issued by companies in infrastructure sector with residual maturity of 5 years is being raised by US$ 20bn to US$ 25bn. This raises the total limit available for investment in corporate bonds to US$ 40bn.
	Extension of tax incentives to attract foreign funds for financing of infrastructure
	Government also proposed to introduce special infrastructure debt funds to attract foreign financing infrastructure.
	Proposed issuance of Rs 300 bn tax-free bonds during FY12 to boost infrastructure development
	Ongoing metro projects in Delhi, Mumbai, Bengaluru, Kolkata and Chennai were assured financial assistance for speedy implementation.
	Capital investment in creation of modern storage capacity made eligible for viability gap funding of the finance ministry.
	Defense has been allocated Rs1,644 bn including Rs 692 bn for capital expenditure in FY12.
	The corpus of Rural Infrastructure Development Fund was raised from Rs 160 bn to Rs 180 bn
	The deduction of Rs 20,000 for investment in long-term infrastructure bonds, over and above the existing limit for individuals on tax savings, is proposed to be extended for one more year.
	Full central excise duty exemption for air-conditioning equipment and refrigeration equipment for cold storage or refrigerated vehicle for preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry and marine produce.
	Excise Duty Exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects.
	The benefits of exemption available on UMPP is being extended for development of facilities such as Ash disposal system including ash dyke, water intake including treatment and storage facilities and coal transportation both inside and also outside the power plant’s designated boundary except the township.
	Full exemption from basic Customs Duty to bio-asphalt and specified machinery for application in the construction of national highways
	Exemption of import duty for spares and capital goods required for ship repair units extended to import by ship owners.
	Rate of Minimum Alternative Tax proposed to be increased from 18 per cent to 18.5 per cent of book profits.
	Lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary

Budget Impact

	Infrastructure financing seemed high on agenda with a slew of measures being announced for infrastructure sector. Attempts have been made to enhance foreign flows into the infrastructure sector.
	Cold storage and refrigeration was in focus this year. Capital investment in storage was made eligible for viability gap funding. Air-conditioning and refrigeration equipment for cold storage were given full exemption of central excise duty.
	To keep the interest of domestic manufacturers of capital goods for mega and ultra mega power projects, the government announced a parallel excise exemption for the domestic suppliers. Earlier the domestic suppliers were lobbying for an import duty on foreign equipments for power projects complaining about an unfair advantage to the foreign players.
	Speedy execution of metro-projects were assured

Company Impact

	BHEL and L&T who were lobbying for an import duty on foreign equipment for power projects will benefit from the excise duty exemption provided for the equipments for mega and ultra mega power projects. This may help them bridge the anomaly and now make their pricing more competitive.
	Cold storage and refrigeration was a major focus area in this budget. The slew of measures announced towards enhancing the storage capabilities will certainly benefit the air-conditioning and refrigeration players: Voltas and Blue Star.
	The assurance for financial assistance towards speedy execution of large metro-rail projects will see the benefit accruing to many players as players like Reliance Industrial Infrastructure, Gammon, L&T amongst others and will be positive even for the air-conditioning majors Voltas and Blue Star who are vying for the air-conditioning part of these projects.
Budget Impact: Engineering Sector Analysis for 2010  Latest: Performance Of Engineering Stocks | Engineering Sector Report

Complete coverage – Budget 2011