Budget 2012-13: FM doubles tax free infra bonds to Rs 60,000cr

Finance Minister Pranab Mukherjee today announced a slew of measures aimed at benefiting the infrastructure space in the country.

Aimed at increasing investment into the sector, the FM said the amount of tax free infra bonds will be doubled to Rs 60,000 crore. The amount of tax free bonds is set at Rs 10,000 crore for both IRFC and NHAI. Mukherjee has also allowed foreign institutional investors to invest in long term infra bonds. This move will benefit companies like L&T, GMR, IRB and IDFC to name a few. Power companies were allowed to take external commercial borrowings (ECB) for the rupee-debt on their books and allowed additional depreciation of 20%. For roadways, Mukherjee announced that 8,800 km of road projects will be awarded in FY13. He also announced full exemption on imported equipments for road construction projects. This will positively impact Sadbhav Eng and other road companies On the taxation front, the FM announced a one year extension on the sun-set for infra projects under Section 80 IA. He also announced an across the board tax concession for the power sector. For the fertilizer space, he enhanced the capital expenditure deduction limit to 150% and exempted them from customs duty on equipment for fertilizer plants. Thermal power plants have also been blessed with a full customs duty exemption on imported coal for two years. Expectations from Budget 2012-2013 The past year was not a pretty one for our economy, and needless to say the infrastructure space was hit hard. Problems such as fuel shortage, elevated prices of imported coal and poor financial position of SEBs weighed down the sector, making it one of the most underperforming sectors of 2011. Adding fuel to the fire were constraints banks imposed on lending towards the sector. Going into Budget 2012, the topmost priority was to increase inflow of investments. This means allowing banks to raise tax free paper for funding infra projects similar to those given to NBFC infra companies. There was also a hope that the FM will provide a greater thrust towards increasing the flow of retail savings into infra debt by enhancing the exemption limit in infra bonds for retail investors from Rs.20,000 to Rs.50,000 or higher. Infra companies were also expecting the government to make positive announcements regarding other demands, such as higher gas allocation to the power sector, increasing the import duty on power equipments and waving the duty on imported coal. So as to promote rural development, hopes were that the government considers the annuity model instead of market-driven public-private partnership projects, which usually fail. Allocation wise, the money given to NHAI, Indian Railways and DFC was to see flat to rising trend, with much more emphasis on proper utilization of the funds. In terms of corporate tax, hopes were that the sun-set clause on tax incentives for infra projects be extended by one more year, and that the difference between MAT and income tax be reduced. The biggest wish was that this Budget gives investors all over the world a reason to trust this country and invest capital here.