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Government Incentives for Infrastructure Development

India is emerging to become a global leader in investing in world-class infrastructure projects, in view of concrete plans set out in the 2021 Budget. With unwavering growth in the Indian stock market witnessed by indexes touching unprecedented highs, the Indian infrastructure sector is filled with signs of optimism as the country reels out from the effects of the pandemic. Current trends suggest a boost in infrastructure spending that shall also facilitate infusion of overseas capita for investments in other sectors and an availability of credit for infrastructure projects.

The government’s National Infrastructure Plan for 2019 to 2025 has already supported more than 9000 projects having a total project cost surpassing USD 1949 billion.[1] The National Infrastructure Pipeline is a live database of infrastructure projects and provides attractive investment opportunities in projects worth more than INR 100 crores in sectors including Transport, Logistics, Energy, Water and Sanitation, Communication, Social and Commercial Infrastructure.[2]

 

Apart from this, opportunities are available through the government’s ‘India Investment Grid’ (IIG) for investing in stressed assets to allow the purchase of viable stressed assets which have the potential for being turned around.[3] IIG also facilitates Corporate Social Responsibility opportunities for businesses to invest in infrastructure building in the education, healthcare sectors and for poverty alleviation as part of their CSR spending.[4]

These investment opportunities are coupled with a bold move towards introducing National Bank for Financing Infrastructure and Development Act, 2021. The long-overdue initiative establishes a government-owned Development Finance Institution (DFI) for extending long-term affordable debt financing to infrastructure projects. The DFI is set to receive initial funding from the government and is projected to have a lending capability of a minimum of INR 5 trillion by 2024-25. The appointment of the veteran banker, Mr. K V Kamath as the chairperson of the newly set up INR 20,000 crore DFI- National Bank for Financing Infrastructure and Development, falls in alignment with the developmental and financial objectives of DFI.

The INR 40, 000 crore National Investment and Infrastructure Fund (NIIF) anchored by the Government of India in 2015 is also gaining momentum through its funds namely, Master Fund, Fund of Funds and Strategic Opportunities Fund each with a designated purpose.

 

Impetus has been given to the domestic manufacturing ecosystem through the Atmanirbhar Bharat initiative, especially to Micro, Small and Medium Enterprises (MSMEs) aiming to facilitate local manufacturing. As a further boost to the initiative, the government intends to achieve a turnover of US$ 25 billion including export of US$ 5 billion in aerospace and defense goods and services by 2025[5]. An increase in the capital expenditure will augment the procurement of weapons, aircraft, warships, and other military hardware. Posing as a lucrative market for defense companies, India gives orders worth US$ 100 billion a year for defense procurement.[6] Therefore, the Finance Ministry has permitted Foreign Direct Investment (FDI) in the defense for sector up to 74 percent under the automatic route leading to access of modern technology, strategic partnerships between foreign manufactures and defense equipment manufacturers in India. It also promotes active utilization of the Technology of Funds scheme that supports MSMEs in catering to the requirements of technological development in the defense sector.  

 

With a capital infusion of INR 1,000 crores to Solar Energy Corporation of India, there is a likely surge in large-scale solar installations, grid-connected projects, solar plants, and solar parks along with a phased manufacturing plan for solar cells, solar panels, and domestic production of solar inverters and solar lanterns.

 

The Government of India has also earmarked areas including highways, railways, power grids, and airports to monetize public infrastructure for financing new public projects. Statutory authorities have already begun setting up infrastructure investment trusts (InvIT) which will hold the public infrastructure assets for national as well as international institutional investors. Another avenue under consideration for obtaining public investment into infrastructure projects is issuance of tax-efficient zero-coupon bonds by infrastructure debt funds.

 

Major tenders worth more than INR 20 billion are expected to be issued in the coming financial year for public-private partnership in the management and operations of ports.

 

The logistics sector serves national trade, international trade, MSMEs, and start-ups. The launch of INR 100 crore Gati Shakti National Master Plan for Multi-Modal Connectivity has heralded new possibilities. This digital platform will incorporate the infrastructure schemes of various Ministries and State Governments like Bharatmala, Sagarmala, inland waterways, dry/land ports, UDAN etc; Economic Zones like textile clusters, pharmaceutical clusters, defense corridors, electronic parks, industrial corridors, fishing clusters, Agri zones will be covered to improve connectivity and make Indian businesses more competitive[7]. The National Logistics Policy is expected to promote seamless movement of goods through a focus on digitization, process re-engineering, multi-modal transport, EXIM trade, etc.[8] It is designed to streamline rules and address supply-side constraints, leading to lower logistics costs, the boost of trade, enhancement of Logistics Performance Index and greater competitiveness for Indian products worldwide.

 

In the power sector, apart from an INR 3 trillion outlay planned over the coming five years for revamping the power distribution scheme by providing distribution companies with financial assistance for developing a smart-metering infrastructure, the government is also in the advanced stages of launching a National Hydrogen Mission which may provide an opportunity for corporations in the power sector to engage in the export of green hydrogen and green ammonia while also meeting the domestic demand.

 

These dynamic initiatives clubbed with the use of India’s IT capabilities by creating monitoring mechanisms such as a dashboard to track the progress of publicly monetized infrastructure projects have created attractive opportunities for infrastructure companies to mobilize their assets into the establishment of new development projects.

 

Fox Mandal’s Infrastructure, Project Finance, and Energy Teams deliver unmatched expert services in wide-ranging areas of public infrastructure, inclusive of but not limited to ; transaction assistance for infrastructure projects, services of review, compliance, submitting tender documents, structuring and reviewing concession agreements, incorporation of Special Purpose Vehicles (SPVs), procuring relevant licenses and approvals, regulatory clearance facilitation, dispute resolution, strategy planning, and infrastructure contract bidding management.

 

As a commendation for the services rendered by Fox Mandal, the Firm featured in 2021 Legal 500 Rankings for its Projects & Energy Practice vertical.  

 

References: 

[1] https://indiainvestmentgrid.gov.in/national-infrastructure-pipeline

[2] https://indiainvestmentgrid.gov.in/opportunities/nip-projects/transport and https://indiainvestmentgrid.gov.in/national-infrastructure-pipeline

[3] https://indiainvestmentgrid.gov.in/opportunities/stressed-assets/transport?subSector=112%2C37%2C110%2C108%2C109%2C107%2C106%2C111%2C113

[4] https://indiainvestmentgrid.gov.in/opportunities/csr-projects?sector=29%2C10&subSector=97%2C99%2C157%2C94%2C100%2C93%2C102%2C105%2C96%2C95%2C103%2C104%2C98%2C112%2C37%2C110%2C108%2C109%2C107%2C106%2C111%2C113

[5] https://www.investindia.gov.in/sector/defence-manufacturing

[6] https://www.business-standard.com/article/economy-policy/higher-fdi-in-defence-sector-to-attract-mncs-give-make-in-india-a-boost-120051900698_1.html

[7] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1763638

[8] https://www.thehindubusinessline.com/opinion/logistics-and-supply-chain-trends-for-2021/article36366467.ece

 

Image Credits: 

Photo by David Rodrigo on Unsplash

These dynamic initiatives clubbed with the use of India’s IT capabilities by creating monitoring mechanisms such as a dashboard to track the progress of publicly monetized infrastructure projects have created attractive opportunities for infrastructure companies to mobilize their assets into the establishment of new development projects.

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2021 Budget Impact on the Real Estate Sector

The Real Estate Sector has received an undeniable boost with the recommendations of the Union Budget of 2021. Projects like ‘Housing for All’ and ‘Pradhan Mantri Awas Yojana’ (PMAY) have always received emphasis under the Modi regime. Through the changes proposed to be implemented by the Union Budget of 2021, it is clear that measures like the granting of tax holidays for affordable housing and tax exemptions in the interest of migrant workers with regard to rental housing projects point towards the priority that the housing and Real Estate Sector enjoy in the current Union Government’s policy and execution scheme.  

Considering the unavoidable and unforeseeable fiscal deficit that struck the economy with the onset of the pandemic in 2020; the Finance Ministry had to tread judiciously with limited room for any big announcements under the Union Budget of 2021.  

 

The main standpoint with regard to the Real Estate sector that was observed was the policy of the government to promote and facilitate ‘Housing for All’ which entailed prioritizing and increasing access to and affordability of housing.  

The Budget of 2021 allotted Rs. 54,581 crores to the Ministry of Housing and Urban Affairs. 

  
Here is what the Real Estate gained in the Union Budget of 2021 

 

Increase in safe harbour limit for primary sale of residential units 

  • The safe harbour limit for the primary sale of residential units has been increased from 10% to 20% in order to increase the incentivisation of Real Estate developers and home buyers. 

Incentivising Affordable Housing 

  • In an instance of taking up a loan to purchase a house; the government had already allowed, in its 2019 Budget; a deduction of interest rate that amounted to a monetary sum of around Rs. 1.5 lakh to increase affordability and purchasing power. 
  •  This deduction in interest rates for housing loans is proposed to be extended further for another year- till March 31, 2022 in the current Budget policy. This would mean that the deduction of Rs. 1.5 lakh will continue to be available for loans that are taken up in order to purchase houses at affordable rates till March 31, 2022.  
  • To further advance the procurement and supply of affordable housing, the current Budget also proposed a year-long tax holiday for affordable housing projects till March 31, 2022.  
  • With an unprecedented rise in the number of migrants all across the country due to the pandemic; Nirmala Sitharaman has also advanced the action of allowing for a tax exemption for notified “Affordable Rental Housing Projects” in order to facilitate and encourage the supply of Affordable Renting Housing to these migrant workers.  

REITs 

  • Further, the Budget has also encouraged debt financing of InVITs and REITs by Foreign Portfolio Investors by according relevant amendments to legislations. These amendments would facilitate ease of financing to InVITs and REITs, consequently promoting greater funds for the real estate and infrastructure sectors.  
  • The Finance Ministry also went a step further and suggested the provision of advance tax liability to arise only after the payment or declaration of dividend. This move is aimed to eliminate the uncertainty that arose with an estimation of dividend income by shareholders for paying tax in advance. Further, the Finance Ministry has also proposed that tax on dividend income may be deducted at the more beneficial treaty rate, for Foreign Portfolio Investors.   

Infrastructure Development 

  • The Budget has also allotted revenue towards the development of infrastructure around the country. 702 kms of conventional metro is already operational, added to another 1,016 kms of metros and RRTS that is under construction in 27 cities across the country. 
  • Metro rail systems and access will now be provided at affordable and decreased prices, to increase access through the development of two new technologies- ‘MetroNeo’ and ‘MetroLite’ in Tier-2 cities and certain areas of Tier-1 cities. This is expected to increase efficiency and safety. 

Construction workers 
 

  • With an increase in the importance accorded towards the unorganised labour sector, the Finance Ministry has further proposed to initiate and introduce a portal to collect information on construction-workers, buildings and gigs, particularly for migrant labourers. This will promote insurance, housing, health and food policies for these migrant workers. 

 

Analysis  

 

A close analysis of the afore-mentioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

However, the current Budget policies revolving around the real estate sector have failed to accord with the additional demand levels that were anticipated by the stakeholders of the industry in order to sustain the growing demand for housing. To facilitate growth, efficient execution and time-bound implementation are crucial. Persistent focus and attention according to the policy of ‘Minimum Government, Maximum Governance’ would promote the ease of doing business. The proposed level of expenditure on infrastructure by the Government on metro lines, roads, warehousing, ports, etc. is a move that is expected to give a boost to the economic GDP and hence, is commendable.  

Conclusion 

 

While the various measures proposed to be implemented in the real estate sector through the current Budget will positively impact an economy that is still grappling with the hit delivered by the COVID 19 pandemic, these changes and proposals also act as a mark of the industry’s transition from mere existence to actual growth. 

References 

1 Budget Speech | Union Budget. (indiabudget.gov.in) 

2 Budget 2021: Analysis. (freepressjournal.in) 

 

Photo by Fabian Blank on Unsplash

close analysis of the aforementioned changes proposed by the Union Budget undeniably brings out the Government’s intention to assist, promote and facilitate development and growth in the real estate sector.  The focus laid by the Government on Affordable Housing and its policies will undeniably cause growth in this sector. Additionally, the infrastructure initiatives in the Budget are also extremely beneficial and will provide a huge boost to the sector, allowing its growth and subsequent development.  

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