Budget 2013-14: did the FM play safe?
Revival of investment in the industrial sector is always a key challenge; however, the Union Budget 2013-24 has added drum beats of hope. Although the expert view is that the budget wouldn’t throw major surprises largely because of the difficult fiscal situation and compulsions of the coming elections in 2014.
Boost for DMIC projectsThe $100-billion Delhi-Mumbai Industrial Corridor (DMIC) project got huge thrust as the finance minister announced fresh impetus in the union budget. He announced that the government has planned for seven new cities on DMIC. The work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra is expected to start during 2013-14.
The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai-Bengaluru Industrial Corridor. The corridor will be developed in collaboration with the governments of Tamil Nadu, Andhra Pradesh and Karnataka.
DMIC has also started preparatory work on the Bengaluru-Mumbai Industrial Corridor.
Manufacturing sector gets boostIn an order to attract new investment and quicken the implementation of projects, the finance minister proposed to introduce an investment allowance for new high-value investments. A company investing Rs.100 crore or more in plant and machinery during April 2013 to March 2015 will be entitled to deduct an investment allowance of 15 per cent of the investment. This will be in addition to the current rates of depreciation. He expects there will be enormous spillover benefits to small and medium enterprise. Revival of investment in the industrial sector, especially manufacturing, is a key challenge. According to Sunil Khanna, President and MD, Emerson Network Power in India, “Setting up of a Cabinet Committee on Investment (CCI) to monitor investment proposals and ongoing projects, remove bottlenecks, review stalled projects and improve public-private partnership is welcoming. The proposal to introduce 15 per cent investment allowance for high-value investments in plant and machinery, and new incentives for renewable energy projects will help the industry keep pace with rapidly changing technology. Overall, it’s a relatively measured budget focussing on fiscal consolidation.”
Almost echoing this statement, Pradeep Nair, MD, India and SAARC Autodesk said, “The exemption of 15 per cent in investments of more than Rs.100 crore to set up plant and machinery should provide a huge leg up to the manufacturing sector.”
Infrastructure gets boost with Rs.50,000 crore tax-free bonds The finance minister has announced positive initiatives such as development of new industrial corridors, smart cities, bigger role for private firms in coal, regulatory body for highways sector, and support for innovative financing for infrastructure projects.
The government has proposed a number of measures for augmenting availability of long-term funds at competitive rates. These include encouragement for creation of infrastructure debt funds (IDFs), fixation of limit for fund raising through tax-free bonds at Rs.50,000 crore and credit-enhancement mechanism through IIFCL.
Naina Lal Kidwai, President, FICCI said, “The government’s focus to promote infrastructure debt funds further, offer credit enhancement via IIFCL-ADB partnership to infrastructure companies that wish to tap the bond market and allowing notified institutions to raise tax-free bonds up to Rs.50,000 crore will help spur investments in this sector.” New ports to come upThe government has announced two new major ports, one at Sagar in West Bengal and one in Andhra Pradesh to further augment the national capacity by 100 million tonnes, and a plan for developing outer harbour at Tuticorin Port which would enhance capacity by around 40 million tonnes. Rajiv Agarwal, Managing Director, Essar Ports said, “The budget has a high focus on social sector, while nothing new has been done specifically to spur infrastructure spending. The mentioned schemes of take out financing and credit enhancement through IIFCL etc have already been in place.”
Rs.5,000 crore to augment warehousingAn allocation of Rs.5,000 crore has been announced to NABARD for financing of warehousing and cold storage facilities. When the demand for adequate warehousing and efficient is rapidly increasing, such investment is expected to attract private participation. The industry has welcomed this initiative.
Drinking water and sanitation gets priorityInadequacy in terms of providing clean drinking water is a major concern. In budget 2013-14, the finance minister announced an allocation of Rs.15,260 crore for drinking water and sanitation. Among these, Rs.1,400 crore will be provided for setting up water purification plants to cover arsenic and fluoride affected rural areas.
Marzin R Shroff, CEO – Direct Sales and Senior Vice President – Marketing, Eureka Forbes, said, “The increase in allocation for clean drinking water and sanitation of Rs.15,260 crore further reiterates the urgency of addressing the basic need of people. Most parts of rural as well as urban India have been facing severe health problems due to water contamination and unavailability of safe drinking water. The proposal of allocating Rs.1,400 crore for arsenic and fluoride affected rural areas is an encouraging move to address the core issues directly. We are also happy to see that the excise and sales tax duties have remained intact in this budget if not reduced.”
Huge disappointment across real estate sectorThe real estate sector in India is largely disappointed with budget announcement. Except for some minor sops, the budget has failed to satisfy majority of the reality players. Mentioning it’s very tepid budget in terms of reforms for real estate industry, Nayan Shah, President (Operations), Neptune Group said, “None of the long pending demands of the industry have been addressed. Moreover, the inclusion of TDS is detrimental for the industry in longer run.”
According to Kekoo Colah, CEO, Shapoorji Pallonji Real Estate, “Given the state of the economy and the compulsion of boosting overall economic growth, we were expecting measures which would bring incentives to the real estate sector and the end buyer, by way of easier financing norms or benefits of tax deductions. This has only come for loans taken up to Rs.25 lakhs which would, to some extent, boost demand in smaller cities and distant suburbs of the metros where the ticket sizes are smaller compared to the major metros.”
Sushil Mantri, CMD, Mantri Developers said, “As far as real estate sector is concerned, the proposals are insignificant with hardly any plan to provide an impetus for the growth of this sector. The government’s move on extending an additional deduction of Rs.1 lakh for a home loan up to Rs.25 lakh will benefit the end users. But that may not necessarily fuel demand for housing over all, except the budget homes segment.”
Rohan Siroya, Director, Legend Siroya Realtors pointed out, “The budget not granting industry status to the sector comes as a major disappointment as the move would have helped raise funds at low rate of interest from financial institutions.”
Mixed reactions from power playersThe Union Budget 2013-14 has evoked mixed reactions in the power sector with large players slamming the import duty hikes, but those in the renewable energy space welcomed the proposal to incentivise wind energy projects.
Criticising the finance minister’s decision, Gautam Adani, Chairman, Adani Group said, “The upward revision of import duty, from 1 per cent to over 4 per cent on steam coal imports will adversely impact the industry as it will lead to increase in cost of power generation.”However, Anil Sardana, Managing Director, Tata Power, said, “Announcement to equalise the custom and CVD for steam and bituminous coal used in thermal power generation at 2 per cent each as this provides clarity to otherwise claims that got raised by customs department.”
On renewable energy front, reintroduction of generation-based incentive (GBI) for wind energy projects is a major incentive announcement. According to Hemant Kanoria, Chairman, DPSC Ltd, “The GBI reintroduction will help the sector in terms of motivation for installing additional capacity and reducing power deficit of country.”
“Re-introduction of GBI will not only boost the wind power market in India but will also encourage more investments from both domestic and foreign IPPs which will benefit the economy,” Kailash Tarachandani, CEO, Kenersys India adds.
• Drinking water and sanitation will receive Rs.15,260 crore. Rs.1,400 crore is being provided for setting up water purification plants to cover arsenic and fluoride affected rural areas • The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will receive Rs. 14,873 crore as against RE of Rs. 7,383 crore in the current year • The government will encourage Infrastructure Debt Fund (IDF) and allow some institutions to raise tax-free bonds upto Rs. 50,000 crore which is 100 per cent more than the current year • India Infrastructure Finance Corporation (IIFC), in partnership with ADB will help infrastructure companies to access bond market to tap long term funds • First home loan from a bank or housing finance corporation up to Rs. 25 lakh entitled to additional deduction of interest up to Rs. 1 lakh • On oil and gas exploration policy, the budget proposes to move from the present profit sharing mechanism to revenue sharing. Natural gas pricing policy will be reviewed • On coal, the budget proposes adoption of a policy of pooled pricing • Rs. 9,000 crore earmarked as the first instalment of balance of CST compensations to different states and UTs.
Imposition of 1 per cent TDS on property worth more than Rs.50 lakh will not only control speculation, but also will bring about improved reporting and accountability in high-value housing transactions. – Sanjay Bulchandani, Director, Aashima Mall
The finance minister has rolled out a well-balanced, realistic budget. He has taken steps which will help him deliver on his promise to contain the fiscal deficit to 4.8 per cent for 2013-14, though the maths is still to be seen. Emphasis on infrastructure sector viz credit enhancement by IIFCL, PMGSY and award of 3,000-km road projects, building of new ports at Sagar and one in Tamil Nadu, focus on a Chennai-Bengaluru and Mumbai-Bengaluru industrial corridor and introduction of investment allowance should help revive the investment cycle in the country which would definitely add to growth. The key, however, lies in expediting the execution of infrastructure projects and we hope that Cabinet Committee on Investment (CCI) would help achieve this objective. – Vipin Sondhi, Managing Director & CEO, JCB India
Initiatives toward strengthening financial sector and the decision to extend tax holiday will positively impact capacity additions. We are thankful for the finance minister’s announcement to equalise the custom and CVD for steam and bituminous coal used in thermal power generation at 2 per cent each as this provides clarity to otherwise claims that got raised by customs department. – Anil Sardana, Managing Director, Tata Power
Generally the budget was as expected. There are no big surprises. The positive points which directly affect our industry are, giving a push for the three freight corridor projects, Delhi-Mumbai, Chennai-Bengaluru and Bengaluru-Mumbai freight corridors, where the government has committed top up investments, if necessary. Fifteen per cent exemption on investment on plant and machinery to boost investment in industry is a good move. I would have been personally happy, if the excise duty were to be reduced a little bit, to boost the capital equipment industry.- Anand Sundaresan, Managing Director, Schwing Stetter
The union budget seems realistic, credible and is a sincere attempt toward achieving fiscal consolidation with heavy emphasis on infrastructure sector. Containing the fiscal deficit at 5.2 per cent is commendable, this coupled with a projection of 4.8 per cent deficit for FY 13-14 seems achievable. There is an honest attempt to bridge the gap to the extent feasible for which the finance minister and his team deserve compliments.- Gautam Adani, Chairman, Adani Group