Tax Concessions extended to Sovereign and Pension funds in Budget 2020

01 Feb 2020 Editorial Team

Tax Concessions extended to Sovereign and Pension funds will go a long way in attracting Long term financing solutions for infrastructure Sector, says Sandeep Upadhyay, Managing Director, Infrastructure, Centrum Capital. He shared more on the Budget 2020 Outcome for infrastructure finance.

While the initial part of the FM's speech did not have any mention to the aspirational US$ 5 trillion target, she certainly did not miss out on staking claim that India continues to be a Vibrant economy with strong macroeconomics fundamentals and that an honest attempt to cleanse the Banking system through IBC besides emphasising on the reduced Debt to GDP ratio between 2014-19 in comparison to to 2009-14 . While some of these parameters have been recently critised with the spotlight shifting on the increased fiscal deficit. The premise that the Corporate tax cut would enable the growth and shall more than offset the drag on the fiscal deficit, one has to still wait and watch to asses its impact, which I guess will only show up on a medium to long term. The Fiscal deficit has been revised to 3.8 per cent from 3.3 per cent in FY 20 and projected as 3.5 per cent in FY 21. This is certainly a departure from the kind of financial discipline exhibited during the NDA-I regime and this shall continue to be widely debated.

The detailed budget speech, one of the most comprehensive ones in recent past did have some significant positives for sectors like Infrastructure, Power, Banking and NBFC, Agriculture reiterating her focus on Affordable housing, Education and Healthcare sector. The continued pursuit to simplify the tax regime and coming up with much needed anticipated abolishment of DDT after extending radical tax cuts to the Corporate regime just few months back demonstrates the strong resolve of the government to counter the market perception that the Economy is in a fragile state with the Capex cycle choking up facing criticism on the rising unemployment rate.

The announcement of the ambitious National Infrastructure Pipeline and the optimism embedded in the GDP projections for FY21 set out in the national economic survey released yesterday clearly demonstrated government’s intent to unleash the Capital expenditure cycle. However one needs action on ground with a pragmatic approach. Given the challenges surrounding the current financial ecosystem characterising prolonged resistance to fund greenfield infrastructure projects by the Bank and domestic FIs, some of the key positive take aways for me from the FM’s speech today include confirming allocation of Rs 22,000 disbursed to entities like IIFCL and NIIF to fund their equity base to finance the National Infrastructure Pipeline. It is worth noting that this base of could be further leveraged atleast two to three times if not more by likes of NIIF and IIFCL for further investment and lending into Infrastructure sector. The other very positive move was about the liberal tax concession extended to Sovereign and pension funds investing into infrastructure sector. This would have major positive impact on launching InVITs with a renewed vigour for both public and private sector players including the likes of NHAI which has been contemplating monetising over 6000 km of highways before 2024 as per FM's speech. Large takers for these projects being planned to be monetised on Toll Operate Transfer (TOT) basis shall be backed by the Pension and Sovereign Funds and hence a strategic move to attract the much needed long term financing for the Infrastructure sector. I am certainly looking forward to some potential changes in design and approach towards rolling out new projects with robust plan for execution which is perhaps the genesis of creating Project Preparation Unit, which was also briefly covered in the FM’s speech.

While the FM’s budget speech caters to the demands from the Sovereign and Pension funds rearing to invest in the Infrastructure sector however the concern is that their interest is largely revolving around buying operational assets with marginal contribution towards new green field capacity addition. Hence the sector still needs some fresh dose of funding avenues for new projects which needs to to be urgently addressed. The extension of tax concession for Power Generation Companies, expansion plan for the National Gas Grid and investments in newly planned smart cities, economic corridor and data centres are the other key highlights which one would closely like to follow in the fine prints.

Tax Concessions extended to Sovereign and Pension funds will go a long way in attracting Long term financing solutions for infrastructure Sector, says Sandeep Upadhyay, Managing Director, Infrastructure, Centrum Capital. He shared more on the Budget 2020 Outcome for infrastructure finance. While the initial part of the FM's speech did not have any mention to the aspirational US$ 5 trillion target, she certainly did not miss out on staking claim that India continues to be a Vibrant economy with strong macroeconomics fundamentals and that an honest attempt to cleanse the Banking system through IBC besides emphasising on the reduced Debt to GDP ratio between 2014-19 in comparison to to 2009-14 . While some of these parameters have been recently critised with the spotlight shifting on the increased fiscal deficit. The premise that the Corporate tax cut would enable the growth and shall more than offset the drag on the fiscal deficit, one has to still wait and watch to asses its impact, which I guess will only show up on a medium to long term. The Fiscal deficit has been revised to 3.8 per cent from 3.3 per cent in FY 20 and projected as 3.5 per cent in FY 21. This is certainly a departure from the kind of financial discipline exhibited during the NDA-I regime and this shall continue to be widely debated. The detailed budget speech, one of the most comprehensive ones in recent past did have some significant positives for sectors like Infrastructure, Power, Banking and NBFC, Agriculture reiterating her focus on Affordable housing, Education and Healthcare sector. The continued pursuit to simplify the tax regime and coming up with much needed anticipated abolishment of DDT after extending radical tax cuts to the Corporate regime just few months back demonstrates the strong resolve of the government to counter the market perception that the Economy is in a fragile state with the Capex cycle choking up facing criticism on the rising unemployment rate. The announcement of the ambitious National Infrastructure Pipeline and the optimism embedded in the GDP projections for FY21 set out in the national economic survey released yesterday clearly demonstrated government’s intent to unleash the Capital expenditure cycle. However one needs action on ground with a pragmatic approach. Given the challenges surrounding the current financial ecosystem characterising prolonged resistance to fund greenfield infrastructure projects by the Bank and domestic FIs, some of the key positive take aways for me from the FM’s speech today include confirming allocation of Rs 22,000 disbursed to entities like IIFCL and NIIF to fund their equity base to finance the National Infrastructure Pipeline. It is worth noting that this base of could be further leveraged atleast two to three times if not more by likes of NIIF and IIFCL for further investment and lending into Infrastructure sector. The other very positive move was about the liberal tax concession extended to Sovereign and pension funds investing into infrastructure sector. This would have major positive impact on launching InVITs with a renewed vigour for both public and private sector players including the likes of NHAI which has been contemplating monetising over 6000 km of highways before 2024 as per FM's speech. Large takers for these projects being planned to be monetised on Toll Operate Transfer (TOT) basis shall be backed by the Pension and Sovereign Funds and hence a strategic move to attract the much needed long term financing for the Infrastructure sector. I am certainly looking forward to some potential changes in design and approach towards rolling out new projects with robust plan for execution which is perhaps the genesis of creating Project Preparation Unit, which was also briefly covered in the FM’s speech. While the FM’s budget speech caters to the demands from the Sovereign and Pension funds rearing to invest in the Infrastructure sector however the concern is that their interest is largely revolving around buying operational assets with marginal contribution towards new green field capacity addition. Hence the sector still needs some fresh dose of funding avenues for new projects which needs to to be urgently addressed. The extension of tax concession for Power Generation Companies, expansion plan for the National Gas Grid and investments in newly planned smart cities, economic corridor and data centres are the other key highlights which one would closely like to follow in the fine prints.