Finance Minister Pranab Mukherjee on Monday announced a big push to the infrastructure sector, giving a major share of the Centre's Plan outlay to energy and transport sectors.
The Finance Minister also announced the introduction of infrastructure debt funds by floating special purpose vehicles (SPVs) to attract foreign funds.
In the budget, the government has proposed to spend Rs.2.72 lakh crore on the transport and the energy sectors out of Rs.5.92 lakh crore earmarked in the Central Plan for 2011-12. The allocation accounts for 45.95 per cent of the Plan outlay. This marks an increase of 9.68 per cent over the budget estimates of the previous year.
However, since the full outlay of Rs.2.48 lakh crore could not be spent last year, the increase in outlay in 2011-12 was 21.43 per cent compared to the revised estimates for 2010-11.
“Infrastructure is critical for our development,'' Mr. Mukherjee said while tabling the budget. The major initiatives include creation of an infrastructure debt fund and raising the limit of foreign institutional investors (FII) in corporate bonds.
He also announced issuance of tax-free bonds worth Rs.30,000 crore and extending income-tax exemption on tax-saving infrastructure bonds up to a maximum of Rs.20,000 for one more year. The budget proposes to take the FII limit for investment in corporate infrastructure bonds to $25 billion and also permits foreign portfolio investment in SEBI-registered mutual funds. With the new FII limit, the Finance Minister said they would be eligible to invest up to $40 billion in corporate bonds, including a total of $25 billion in the infrastructure sector. Besides, Mr. Mukherjee said, since most infrastructure companies were organised in the form of SPVs, FIIs would also be permitted to invest in unlisted bonds with a minimum lock in period of three years. On introducing special infrastructure debt funds to attract foreign financing in the sector, he said, “the government proposes to create special vehicles in the form of notified infrastructure debt funds and subject interest payment on the borrowings of these funds to a reduced withholding tax rate of 5 per cent instead of the current rate of 20 per cent.''
The government further proposes to exempt the income of the fund from tax. To promote savings and raise funds for infrastructure, an additional deduction of Rs.20,000 for investment in long-term infrastructure bonds as notified by the government in 2010-11 will be extended for one more year. The Indian Railways Finance Corporation (IRFC) and the National Highways Authority of India Ltd. (NHAI) will issue tax-free bonds of Rs.10,000 crore each, while tax-free bonds worth Rs.5,000 crore each will be issued by HUDCO and the port sector, respectively.
India Infrastructure Finance Company Ltd. (IIFCL), set up to provide long-term financial assistance to projects in the sector, is expected to disburse a cumulative of Rs.20,000 crore by March 31, 2011, and Rs.25,000 crore by March 31, 2012.