Union Budget 2011: Bonanza for infrastructure sector

India's development however has failed to meet its fast economic growth. Foreign investors often complain about the slow progress in shoring up infrastructure and have called for less bureaucracy.

Proposals in Budget 2011:

However, Pranab Mukherjee has planned an allocation of Rs 2.14 lakh crore towards developing the country's infrastructure in the next fiscal.

To enhance the flow of funds to the infrastructure sector, the FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector, is being raised by an additional limit of USD 20 billion taking the limit to USD 25 billion, raising the total limit available to FIIs for investment in corporate bonds to USD 40 billion. Since most companies in the sector are organised in the form of SPVs, FIIs would now be permitted to invest in unlisted bonds with a minimum lock-in period of three years.

To attract foreign funds for infrastructure financing, the FM has proposed to create special vehicles in the form of notified infrastructure debt funds. Interest payments on the borrowings of these funds will have a reduced withholding tax rate of 5% instead of the current rate of 20%, while full exemption of income of the fund from tax has been proposed.

In addition, Mukherjee also proposed tax free bonds of Rs 30,000 crore for the enhancement of infrastructure in railways, ports, housing, and highways.

India Infrastructure Finance Company Limited or IIFCL is expected to achieve a disbursement target of Rs 20,000 crore by March 31, 2011 and Rs 25,000 crore by March 31, 2012. The take-out financing scheme announced in the Budget 2009-10 has been implemented and seven projects have been sanctioned with a debt of Rs 1,500 crore. Another Rs 5,000 crore will be sanctioned during 2011-12.

As expected higher fund allocation across infrastructure development scheme Bharat Nirman has been proposed. Allocation to the tune of Rs 58,000 crore has been planned for the scheme, an increase of Rs 10,000 crore from the current year.

Mukherjee also revealed that the take-out financing scheme announced in the last budget has been implemented and seven projects had been sanctioned with a debt of Rs 1,500 crore. Another Rs 5,000 crore has been proposed to be sanctioned during 2011-12.

He also proposed infrastructure status for cold storage chains, which is expected to make both domestic and global retail chains happy. Also, capital investments in the fertiliser sector have been proposed to be given infratructure status. He further stressed on the endeavour to develop the public private partnership.

Full exemption from basic customs duty has been extended to bio-asphalt, an emerging green technology for the surfacing of roads, and specified machinery for its application in the construction of national highways. Tunnel-boring machines required for the construction of highways are also being included in this exemption.

The finance minister also proposed to raise the corpus of rural infrastructrure development fund from Rs 16,000 crore to Rs 18,000 crore.

Tax sops in infrastructure investment up to Rs 20,000 has been extended by a further one year.