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Increased public sector spending and incentivising private sector to take up new projects

June 2019
Shubham Jain, Senior Vice President & Group Head-Corporate Ratings, ICRA, comments on pre-Budget expectations in the infrastructure, construction and real estate sectors. 

  • Increased public sector spending and incentivising private sector to take up new projects; increase in budgetary allocation for key implementing agencies like NHAI a necessity.
  • Measures to attract private sector investments by easing regulatory environment, speedier resolution of issues and incentives in the form tax holiday, etc.
  • Measures to further improve availability of long-term funds to the sector including allocation towards National Investment and Infrastructure Fund (NIIF).
  • Select infrastructure companies/finance companies to be allowed to raise long-term funds in the form of infrastructure and tax-free bonds.

Infrastructure/construction

The infrastructure sector expects continued thrust from the government towards revival of the investment cycle in the form of a further increase in budgetary allocations with focus on roads, railways and urban infrastructure. Dedicated allocations for specified large infrastructure projects announced such as Bullet trains, Bharatmala, Sagarmala, smart cities, inland waterways development etc can also be made to expedite these projects. Further, the budgetary allocation towards the NHAI can be increased, keeping in view the increased capital outlay on national highway development. To revive private sector interest in taking up new projects, measures towards resolution of bottlenecks and further improving the regulatory environment are expected. Further, some incentives like the extension of tax holiday for infrastructure projects can be provided. The infrastructure sector is also looking at further steps to improve long-term funding availability for the sector. In this regard, higher allocation towards the National Investment and Infrastructure Fund (NIIF) is expected. Some reputed public sector enterprises can also be allowed to raise long-term funds by way of Infrastructure Bonds or tax-free bonds.

Real estate

The Interim Budget for FY2020 included certain announcements to support the demand for real estate - such as extension of capital gains rollover benefit for purchase of a second house and removal of income tax on notional rent on second self-occupied house. In the upcoming Budget for FY2020, the sector will be expecting further tweaks to the income tax rules, which can incentivise home buying, including expanding the interest and principal-deduction available for home loans for first-time buyers or affordable housing. Increase in the budgetary allocation for the Government's flagship schemes for expanding home ownership such as Pradhan Mantri Awas Yojana will support the implementation of ambitious targets. Grant of infrastructure status to the overall industry will enable better access to debt-funding at affordable costs. Measures taken to ease the availability of capital for the NBFCs will have a positive impact on the real estate sector, which is dependent on financing from the NBFCs to a large extent. Other steps to facilitate faster regulatory approvals through single window clearance and release of government-owned land for affordable housing are also likely to support industry prospects.