Budget 2021 is a very progressive budget, aimed at promoting long-term growth through a combination of investments across sectors, new means of financing, improved and simplified governance mechanisms, and maintaining stability in terms of tax rates and current regulations. The impact of these measures will be determined by the effectiveness of implementation and will be felt for a few years to come. In particular, the Budget has focused on many aspects relating to the infrastructure sector including new project pipeline, monetisation of existing assets and efficiency improvement through PPP, infrastructure financing and simplified governance. Some of these aspects are discussed in more detail in the following paragraphs:
There is a renewed investment focus across infrastructure sectors including railways, healthcare, water and waste, urban infrastructure, roads and highways, city gas, dedicated freight corridors and infrastructure for hydrogen energy production and fishing, ship recycling hubs. This is likely to result in a large demand for key inputs like iron, steel, cement and also other industrial products, apart from creation of jobs and the demand for engineering and other services to build out these projects.
The budget has also proposed raising funds through monetisation of road and transmission projects through InVITs and in this respect has also clarified the treatment of dividend for InVITs and allowed InVITs to borrow from overseas lenders which should facilitate fund raising. It is also proposed to set up a development finance institution to help in debt funding. Further, to ensure transparency around asset monetisation, it is proposed to publish the national monetisation pipeline, and this should bring more transparency into the process.
There is also a push towards targeted efficiency improvements and capital unlocking by operating under the PPP route for assets like 7 major ports, dedicated freight corridor assets, the next round of airport privatisation and allowing consumers to choose which discom they procure power from and reforming discoms through smart meters (which could also be prepaid) and other initiatives. There are also plans to have a regulator for transport of gas through the existing network on an open access basis and this will also improve gas supplies and the utilisation of the existing assets.
The infrastructure sector has seen many projects and their debt being stressed. The proposals relating to creation of an asset reconstruction and an asset management company, if well executed, could help alleviate the quantum of stressed debt in this sector.
There are also efforts to simplify the resolution of contractual disputes and strengthening of the NCLT process. The tax rates for personal and corporate taxes have remained unchanged and this lends to overall stability. There are clarifications on the dividend exemptions for REITs and InVITs and also simplification of the conditions for tax exemptions for pension and sovereign funds, which also make it easier for these funds to invest into infrastructure assets and earn yields on their investments. Lastly, there are some changes to indirect tax rates primarily to promote domestic manufacturing of solar panels and other components.
In summary, coming from one of the economy's worst COVID-19 affected years, this is a Budget that seeks to lay a strong foundation for strong, multi-year infrastructure growth which will revive industrial and labour demand and yield benefits for many years to come whilst reiterating that India is truly open for business.
(The author is Partner, Deal Advisory, Office Managing Partner- Mumbai, KPMG in India)