India's infrastructure sector will receive a multi-year boost from budget, Fitch says

Photo: The Hindu

COIMBATORE, Jul 14, 2014: The infrastructure sector is set to receive a multi-year boost from the budget, Fitch Ratings has said.

"By carrying forward the previous administration's efforts to clear the country's infrastructure backlog, the new government has made it a policy focus to drive forward a new long-term capital investment cycle," it said.

"This means that fiscal and regulatory policy changes should be supportive of corporates in the infrastructure, construction, and real estate industries," the agency said. While Fitch expects them to have only a minimal impact in the short-term, they would have a positive effect on infrastructure over the medium to long-term.

Significant new urban development objectives and thousands of new kilometres of highways and gas pipelines were included in the budget, in addition to over Rs 60,000 crore in direct infrastructure investments, special economic zones, port and subway projects.

Stating that the direct project announcements and objectives were significant, Fitch said the measures to ease funding were particularly noteworthy and would be critical for driving the new investment cycle.

Banks would be allowed to raise long-term funds for infrastructure lending with minimum regulatory requirements. They are also being encouraged to extend loans to the infrastructure sector, with tenures of 25 years—far above the current norm of 10 years.

Further, REITs (real estate investment trusts) have been proposed and urban construction would be opened up to foreign capital. Tax incentives for investments in manufacturing— including an allowance of 15% for investments over Rs. 25 crore— would also support growth in the sector, Fitch stated.

Power and utilities also received supportive policy measures in the budget. Fitch views the government's plans to rationalise and improve coal supplies for power plants as particularly critical for improving productivity. "The extension of tax benefits for power generation companies for a further three years will also be supportive to their bottom line," the agency said.

The new infrastructure drive over the long- term would be positive for the steel, cement and capital goods industries, which would benefit from rising demand, it said.

Though the 0.5% increase in duty on coke is marginally negative for steel producers, the agency believes that the broader impacts from higher rates of growth will be sufficient to offset the rising operating costs.

Courtesy: The Times of India