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Front Page | July 2014

Infra Push: Rs 1.25 Lakh Crore

The Government of India has a daunting challenge ahead. On one hand, there is a need to revive economic growth, and on the other, as the Prime Minister has stated, the pattern of growth has to be sustainable and in harmony with nature. While the Union Budget 2014 has signaled that socio-environmental concerns, including adequate sanitation facilities, vibrant rivers and clean energy are high on its agenda, this is a chance for the Government to show that high growth and environmental sustainability can not only co-exist, but be mutually reinforcing.  

Economy
 

 
     
  • Fiscal target a steep one: The Budget has set the fiscal deficit target at 4.1 per cent of GDP for fiscal 2015, down from 4.6 per cent the previous fiscal. The government is betting on a sharp increase in revenues in a slow growth year, especially in indirect taxes and disinvestment proceeds - Rs 584 billion to be raised in the nine months remaining this fiscal - while showing little progress on subsidy reduction.
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  • Growth estimate realistic: Analysts believe the real GDP growth estimate of 5.4-5.9 per cent for this fiscal is realistic. Notwithstanding the measures to revitalise the economy and lower inflation - given the poor monsoon (over 40 per cent deficit till early July) and its adverse rub-off on industry and services - we lower our GDP growth estimate to 5.5 per cent for fiscal 2015 from 6 per cent estimated earlier.
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  • Steps to control inflation and create jobs welcome: Measures announced in the budget to raise agriculture output and productivity, improving irrigation and expanding the food processing industry will help lower persistently high food inflation in the medium term. The budget also placed a thrust on education and skill development, along with the expansion of labour-intensive sectors such as textiles, tourism, food processing, construction (mainly roads) and small and medium entreprises.
 

Industry
 

 
     
  • Infrastructure a key focus area: The Budget has announced a slew of measures to boost infrastructure investments, which will provide opportunities for infrastructure and construction companies. Innovative funding structures have also been unveiled to improve availability of funds. While the Budget provisions are positive, addressing on-the-ground issues like clearances and land acquisition will be equally important for investments to take-off in the sector.
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  • Tax-breaks to push consumption growth: The income tax breaks under section 80C, increase in the exemption limit to Rs 0.25 million, and increased subvention on home loan interest is expected to support volume growth for consumer sectors like FMCG, consumer durables, two-wheelers as well as housing.
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  • Measures to improve investment climate: Increase in foreign direct investment limits for defence and insurance sectors, clarity on retrospective taxation and liberalisation of investment-linked deductions are aimed at improving the investment climate.
 

Capital market
 

 
     
  • Negative implication for debt mutual funds: Tax advantage of debt funds over fixed deposits eliminated. This may reduce the attractiveness of income funds, and in particular FMPs, and result in outflows from these categories to other alternatives such as fixed deposits and money market funds.
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  • Initiatives to deepen bond markets and revive securitisation markets missing: Growth in securitisation market, a critical element of the Indian debt markets has been impacted due to the issue of distribution tax on pass-through certificates (PTCs). Addressing this issue in the budget would have provided greater clarity to the investors, which could have helped in the revival of securitisation market volumes in 2014-15.
 

Shaky fiscal arithmetic
 Among others, the budget envisages the quality of expenditure to improve with an increase in capital spend, which is critical for a sustainable recovery in growth; subsidy rollovers lower than last fiscal; and Goods and Services Tax (GST) getting rolled out by the end of this fiscal. However, tax revenue projections outlined in the Budget are too optimistic and no action plan for reducing subsidies was laid out (there is, in fact, a high possibility of an overshoot from budgeted levels if oil prices rise due to the ongoing strife in Iraq). And on GST, one cannot forget that earlier timelines for its rollout have not been adhered to and progress cannot be taken for granted given the need for consensus among states on this issue. Analysts believe the fiscal deficit is likely to print higher at 4.5 per cent of GDP rather than the budgeted 4.1 per cent in fiscal 2015, unless the government cuts back on expenditure.

 

Divestment is key
 

 
     
  • The budget assumes nominal GDP growth at 13.4 per cent, up from 12.3 per cent in the last two years. Growth in gross tax revenues has been budgeted at 17.7 per cent (direct taxes at 15.7 per cent and indirect taxes at 20.2 per cent). This implies a tax buoyancy (percentage increase in tax revenue for every 1 per cent increase in GDP) of 1.3 - which is higher than the last 10 years' average of 1.0 and too optimistic given muted GDP growth expectations (5.4-5.9 per cent), no increase in tax rates and cuts in excise and customs duties.
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  • In particular, growth in corporation tax is budgeted to rise to 14.6 per cent, up from an average 9.6 per cent in the last three years. A kick to corporate tax collection is likely to come from an introduction of long term capital gains tax on debt-oriented mutual fund schemes, and through higher collections on account of dividend distribution tax (DDT). However, the expectations on customs and excise duties are aggressive as these are budgeted to grow at over 15 per cent, up from less than 6 per cent growth last fiscal.
 

Overall sectoral impact
 For corporate India, four focus areas were clearly visible in the Union Budget 2014-15.
 

 
     
  • Infra push: The thrust on infrastructure development was unmistakable. Overall spending on infrastructure is budgeted to rise 24 per cent over last fiscal to Rs 2.1 trillion. Projects such as creation of 100 smart cities, and greater allocation to roads, irrigation and water projects will boost infrastructure investments. To strengthen the public-private partnership (PPP) framework, a new entity '3P India' will be set up. Innovative funding mechanisms like infra bonds for banks and Infrastructure Investment Trusts will channelise funds for infrastructure.
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  • Creating conducive investment climate: Measures such as clarity on retrospective taxation, liberalisation of FDI in insurance and defence and extension of tax holiday for power sector are aimed at improving the investment climate and kick-starting the capex cycle.
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  • Promoting SME/MSME growth: To boost the small and medium enterprises, the Budget proposes setting up of a Rs 100 billion venture capital fund to encourage entrepreneurship and a district level idea incubation programme, lowering of limit for investment allowance to Rs 250 million and putting in place a legal framework for easy exit for SMEs.
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  • Boosting purchasing power and consumption: The relief offered to individual taxpayers through a hike in standard tax deduction, increase in investment limit under section 80C, and increased subvention on home loan interest is clearly intended to stoke consumption and, therefore, economic growth. At the same time, the changes in customs and excise duties will also make some consumer products such as soaps, low-end footwear and colour televisions, and personal computers cheaper, providing a fillip to demand for these items.
 

Finance
  The announcement to set up an infrastructure investment trust to securitise projects and long term infra funds that will not be subject to regulatory needs of SLR and CRR have brought cheers to private infrastructure developers. These coupled with an allocation of Rs 12,000 crore for National Housing Bank (NHB) and proposed infusion of Rs 2.4 lakh crore in PSU banks, the infrastructure sector will get the much-needed momentum. This move is positive for sectors such as roads, power and housing as PSU banks were going slow on funding projects. Meanwhile, not so good news for debt mutual fund investors, as they will now have to hold on to their investments for three years instead of one year, to be able to qualify for nil long term capital gains tax. However, the Finance Minister has hiked rate of tax from 10 per cent to 20 per cent for long-term gains. Banks will now gain at expense of mutual funds from the elimination of this arbitrage opportunity.

 

Proposed bonds for infrastructure sector will help banks to manage the asset-liability mismatch. Moreover, minimum regulatory pre-emption on such bonds will reduce their cost (by up to 120 bps). Capital support provided to PSBs is lower than the average of Rs 147 billion infused annually over the past four years. Providing autonomy to PSBs and encouraging consolidation is expected to improve their efficiency and help raise capital. Reduced attractiveness of debt mutual funds (total assets of Rs 7.4 trillion) may help banks attract a part of this money. Differentiated banks serving niche interests would benefit customers and also provide impetus to financial inclusion. Increased exemption for interest on home loans and enhanced limit for tax-saving investments, and changes in tax slabs will boost the housing finance market. Increase in FDI limit in insurance is a positive for the sector.

 

Key budget proposals:
 

 
     
  • Banks permitted to raise long-term funds for infrastructure lending with minimal regulatory restrictions such as CRR, SLR and priority sector lending.
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  • The capital support to public sector banks (PSBs) maintained at Rs 112 billion Proposal to provide greater autonomy to PSBs as well as to look at consolidation of these banks.
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  • Debt mutual funds' tax rate increased from 10 to 20 per cent; holding period for long term capital gains increased
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  • from 12 months to 36 months.
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  • FDI limit in insurance to be increased from 26 per cent to 49 per cent with full control and management by Indians.
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  • RBI to create a framework for licensing small banks and other differentiated banks.
 

Sminu Jindal, MD, Jindal SAW
 Introducing new currency notes with braille and setting up 15 new braille presses is a positive step. This will assist the differently-abled to identify notes, be self-dependent and enable them to enjoy equal opportunities to lead an empowered life with dignity.

 

Firoze B. Andhyarujina, Senior Counsel, Supreme Court of India
 The Budget encompasses reforms to upgrade diverse sectors of the economy by undertaking development programmes. It has signaled growth as a top priority of the Government thereby improving the investment climate for domestic and foreign investors. However, certain provisions in the Finance Bill have overturned the judgments of the Supreme Court and High Court leading to confusion and chaos.

 

Dinesh Thakkar, Chairman & Managing Director, Angel Broking
 The Budget highlighted the new Government's rational approach to policies for taxation, government spending and growth. Infrastructure, real estate & finance sectors were among the biggest winners, with measures to improve funding availability to infrastructure & low-cost housing and providing a boost to REITs and bank infra lending.

 

Nishith Desai, Founder, Nishith Desai Associates
 The country is in need for less government interference and more governance. India needs to learn best practices from the US and UK for designing an unambiguous taxation structure. It is vital that draftsmen be involved in designing legislative bills henceforth.

 

Banking
 

                  
Announcement Impact
Banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending. By exempting banks from regulatory requirements of CRR, SLR and Priority Sector Lending, vis-a-vis infrastructure lending, current regulatory burden in the form of lower blended yield by about 150-200 bp will be eliminated. The move is a positive for all banks. IDFC could be one of the biggest beneficiaries as it was expected that CRR and SLR requirement will affect its profitability once it converts into a bank.
The composite cap in the insurance sector is to be increased to 49 per cent from 26 per cent earlier with full Indian management and control through the FIPB route. Increase in cap to 49 per cent will enable insurance firms to get capital from overseas players and this will lead to value unlocking. Positive for companies like Max India, HDFC, Exide, Elpro, Reliance Capital and ICICI Bank.
Allocation for National Housing Bank increased to Rs 8,000 crore to support rural housing and Rs 4,000 crore for urban housing. Positive for housing finance companies like Repco Home Finance and Can Fin Home.
Tax on long term capital gains increased from 10 per cent to 20 per cent for Debt Mutual Funds and eligibility for LTCG indexation benefit increased to 3 year tenure. This will reduce tax arbitrage as compared to bank FDs thereby affecting mutual fund industry including companies like Reliance Capital.
Interest on loan in respect of self occupied house property raised from Rs 1.5 lakh to Rs 2 lakh. Positive for all the banks
 

Logistics
  Allocation of funds for road-development via NHAI is a step towards decongesting hinterland connectivity, especially as road is the most significant mode of cargo transport in India. Multimodal thrust on river transport through Jal Marg Vikas, new airports through PPP, setting up new ports & decongesting existing ports, and a proposed ship building policy are steps in the right direction. Metro rail in newer cities will facilitate public transportation; however the funds currently proposed would need to be significantly enhanced to make a significant impact. Thrust on augmenting warehousing capacity by allocating additional funds would lead to reduction of wastage, especially for perishables. While taking a medium term view, adequate thrust has been provided to improve the transportation and logistics sector in a comprehensive manner.

 

Key Budget proposals:
 

 
     
  • Shipping: A policy for encouraging the growth of Indian controlled tonnage will be formulated to ensure increase in employment of the Indian seafarers. Moreover, a comprehensive policy will also be announced to promote Indian shipbuilding industry in the current financial year.
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  • Warehousing: Warehouse Development and Regulatory Authority (WDRA) has begun a transformation plan to invigorate the warehousing sector and significantly improve post-harvest lending to farmers against negotiable warehouse receipts. ?Railways: The Railway Budget has laid stress on resource mobilization through PSU surplus, FDI and PPP.
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  • Airports: Schemes to develop new airports in Tier I and Tier II cities will be launched for implementation through Airports Authority of India or PPP mode.
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  • Ports: The Government plans to announce 16 new port projects in FY15 and has allocated Rs 11,635 crore for development of existing ports and harbours. It will also focus on developing special economic zones (SEZ) in Kandla port and JNPT.
 

Mahendra Agarwal, Founder & CEO, Gati Ltd
 The proposed investment of Rs 5,000 crore in warehousing, a clear focus on implementing GST by the end of this fiscal will provide the much needed impetus to the logistics industry.

 

Rohit Inamdar, SR-VP, Co-Head, Corp ratings, ICRA Ltd
 Fund allocations towards infrastructure projects like highways, rural roads, ports, gas grid , Jal Marg Vikas and Urban infrastructure will also boost capital expenditure.

 

Ajay Sehgal, Director Finance & Accounts- Schenker India Private Ltd
 Investments in roads all over India will help the Freight forwarding & Logistics Industry in faster movement of cargo and efficient national distribution services. The investment in new ports will ease congestion at existing ports and opening new airports in Tier II & III cities will gives us an opportunity to extend our network to those cities.

 

Manufacturing
  The Finance Minister emphasised on the need to revive growth in the manufacturing sector. While allocating Rs 10,000 crore for start-up MSMEs, the Government has shown its commitment for financing this sector as it accounts for a big chunk of industrial output and employment. This has led to the government announcing the set up of a committee to look into financing of SMEs, with a deadline of three months to submit its report.

 

Meanwhile, with an investment allowance of 15 per cent to companies on investment of over Rs 25 crore in the manufacturing sector, the Finance Minister has provided a much-needed boost to the sector. Here, even foreign institutional investors will get tax-breaks to entice them to move back from Mauritius. Their incomes will be treated as capital gains - which is 15 per cent for short-term gains and zero tax for long-term gains.

 

The Government on its decision to ensure speedy resolution of pending issues on iron ore mining and the introduction of an amended MMDR Act, 1957 to facilitate the resolution. This will help provide much needed clarity around mining policies. Increase in the import duty of stainless steel from 5 per cent to 7.5 per cent will give the domestic industry much needed protection and boost. Besides, the Government's intent to set up a high-level Committee to interact with the industry to bring about changes in tax laws if required expresses the Government's desire to collaborate with the industry and work towards creating a collaborative environment that benefits all.

 

Key budget proposals:
 

 
     
  • Customs duty of 2.5 per cent (up from nil) levied on coking coal and metallurgical coke.
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  • However, countervailing duty on coking coal has been reduced to 2 per cent from 6 per cent.
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  • Customs duty on melting scrap of iron and steel halved to 2.5 per cent.
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  • Customs duty on imported flat-rolled stainless steel products increased to 7.5 per cent from 5 per cent.
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  • Export duty on bauxite doubled to 20 per cent.
 

TV Narendran, Managing Director of Tata Steel (India and South East Asia)
 We applaud the Government's decision to revive growth particularly in the manufacturing and infrastructure sectors. We welcome the Government's resolution to end the speculations and debate around the Goods & Services Tax and approve the legislative scheme which would enable introduction of GST within the course of the year.

 

However, we are disappointed with the expected increase in the rate of royalties for minerals. It would lead to an additional cost burden on an already capital intensive industry.

 

Vipin Sondhi, Managing Director & CEO, JCB India Ltd
 Given that this Government has been in office for less than 2 months, no big bang reforms were anticipated. The Union Government, recognising the need for revival of investment cycle had already extended the excise duty cut on capital goods for another 6 months in June, 2014 itself. The Budget's focus on infrastructure sector, encouraging banks to lend long term funds to infrastructure sector, extending the benefit of investment allowance to Small and Medium Enterprises and emphasis on manufacturing growth should help revive the capital goods sector. While PPP in relation to many new projects has been announced, a roadmap for execution of existing held up projects could have helped turn things quickly.

 

Tushar Mehendale, Managing Director, ElectroMech Material Handling Systems
 The thrust on setting up newer industrial clusters is a step in the right direction. The Government has also promised to review all the retrospective tax imposition cases. This coupled with overall increase in investments in highways and tax holidays for power plants will definitely contribute in kick-starting the capex cycle in various industries.

 

Anand Sundaresan, Vice Chairman & Managing Director, Schwing Stetter
 We had expected that the retrospective amendment issued during the last Budget will be rolled back, whereas again a committee has been appointed to look into this. We hope that this committee will put an end to this problem quickly to boost investor sentiments. There are many other issues which we expected will be brought out in this Budget. We have to look at the fine print. Then we will have more clarity on these issues.

 

Kamal Bali, Managing Director, Volvo India
 The planned changes in the MMDR Act will help encourage investment & promote sustainable mining practices. However, what is a disappointment is the lack of correction in the inverted excise duty structure in the commercial vehicle sector. The mismatch between the input and the output rates of excise duty has led to huge accumulations of credit in the system, which has had a crippling effect on the cash flows of manufacturers. In the twin contexts of the need to bring state-of-the-art automotive technology into India and the much needed socioeconomic imperative of providing impetus to manufacturing in India, this inverted duty structure is becoming a big deterrent.

 

Capital Goods
 

         
Announcement Impact
The government has increased the composite cap of foreign investment in the defense sector from 26 per cent to 49 per cent. This would be applicable for companies with full Indian management and control. Positive for the sector as it will accelerate investments in the defence sector. Defence equipment manufacturing companies like Bharat Forge, Astra Microwave Products, Pipavav Defence etc. will be beneficiaries.
Allocation of Rs1,000 crore for development of rail connectivity in the North East region. Positive for companies involved in manufacturing signals, locomotives and also contractors. KEC international, BHEL, ABB etc would stand to benefit.
 

Power
  The Budget has attempted to address the short term challenges for the Power sector, and at the same time laid a roadmap for more comprehensive measures over the medium to long term as well. Assurance to ensure availability of adequate coal for projects that would come up or have already come up by 31 March 2015 is a positive move. Investors were given assurance that mining issues shall be resolved even if it means revisiting the law, which is an important statement of intent. Rationalisation of coal linkages would ensure more coal availability as also substantial reduction in the logistics costs for the country (KPMG has estimated such savings to be about Rs 5,000 crore p.a. few years back). 10 year tax holiday under 80 IA extended till 31 March 2017 that will provide long term clarity for investment decisions as against the practice of yearly extension. Given the long term energy needs of the country, clear focus on Renewable Energy, especially solar was heartening to note. Ultra Mega Sola Projects, focus on washed & crushed coal, looking at Ultra-modern supercritical technology based coal projects were very positive measures announced in the Budget 2014. Renewed interest in Coal Based Methane projects is encouraging, however, that needs to be followed with clear implementation policy in this direction.

 

Key budget proposals:
 

 
     
  • The Government would launch Deen Dayal Upadhyaya Gram Jyoti Yojana for feeder separation to augment power supply to the rural areas and for strengthening sub-transmission and distribution systems
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  • The Government proposes to take up Ultra Mega Solar Power Projects in Rajasthan, Gujarat, Tamil Nadu, and Ladakh in Jammu and Kashmir
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  • The Government will launch a scheme for solar power driven agricultural pump sets and water pumping stations for energising one lakh pumps
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  • The Government will start preparatory work for a new scheme ôUltra-Modern Super Critical Coal Based Thermal Power Technologyö to promote cleaner and more efficient thermal power and has allocated funds to this end
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  • Implementation of the Green Energy Corridor Project will be accelerated to facilitate evacuation of renewable energy across the country
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  • The existing impasse in the coal sector will be resolved and adequate quantity of coal will be provided to power plants which are already commissioned or would be commissioned by March 2015, to unlock dead investments. An exercise to rationalise coal linkages which will optimise transport of coal and reduce cost of power will be rolled out.
 

Vineet Mittal, Founder President, Solar Power Developers Association (SPDA)
 To start with the proposed UMPPs in Rajasthan, Gujarat, Tamil Nadu and Ladakh in J&K with a budget of Rs 500 crore is very encouraging. If the Government ensures issues of evacuation, land and availability of the water is taken care of - there will be a lot of players willing to enter this segment.

 

Tulsi Tanti, CMD Suzlon
 The Budget proposal to increase clean energy cess from Rs 50 per ton to Rs100 per ton for financing and promoting will indeed be a major boost for wind energy in particular. The Clean Energy Fund will now be doubled annually from Rs 4000 crore.

 

G Sathiamoorthy, Country Manager and Managing Director, Black & Veatch Consulting Pvt Ltd
 What would make this Budget a landmark for the power sector is the proposal to extend a tax holiday for 10 years to power generation and T&D firms who start operations before FY2017.

 

KVB Reddy, Executive Director, Essar Power
 Coal linkage rationalisation and provision of coal for standing projects and easier mining laws is key for reviving the sector, but steps on the ground are more important.

 

Girish Kadam, VP, Co-head, Corporate Ratings, ICRA
 Duty measures announced for wind and compressed bio-gas projects are also a positive which will help to reduce the capital cost and hence tariffs. In addition, focus on facilitation of evacuation of renewable energy through faster implementation of Green Energy Corridor Projects is expected to further encourage capacity addition.
 

 

Power
 

         
Announcement Impact
Additional benefits announced for the Power sector including an extension of the 10-year tax holiday. This will be a positive for companies whose power projects are near completion. Companies like CESC, Reliance Power, Jaiprakash Power and Adani Power will be beneficiaries.
Reduction in basic customs duty from 10 per cent to 5 per cent on forged steel rings used in the manufacture of bearings of wind operated electricity generators. It will reduce the cost of setting up wind power projects. This could be beneficial for Suzlon Energy.
 

Real estate
  The Budget proposes low-cost housing for young citizens with Rs 4,000 crore; allocation of Rs 4,000 crore for affordable housing via National Housing Bank and housing for all by 2022, which will create a favourable environment that will boost affordable housing in the country. Meanwhile, plans to build 100 new cities, CSR status for slum redevelopment programmes, pass-through status to REITs, are major announcements by the Finance Minister that will strongly help in the revival of the real estate sector. In addition, survival of SEZs and creation of industrial smart cities are other welcome announcements.

 

Exemption for interest on housing loans has increased from Rs 1.5 lakh to Rs 2 lakh. This will give a boost to demand in the real estate sector which is suffering from low demand for the last 4-5 months.

 

The Finance Minister's move to propose changes in the FDI for real estate, reduction in the built up area and putting a cap of $ 10 million to $ 5 million is a welcome move for the sector. The reduction in the built up area from 50,000 sq. mtr to 20,000 sq. mtr will provide an impetus to affordable housing as this will enable developers focused on affordable housing an access to FDI.

 

In addition with the Rs 7,060 crore for 100 smart cities kept aside by the Finance Minister, this will definitely excite the stakeholders including urban planners, city administrators and industry to come together and create sustainable models for new cities. Since the smart city concept, on the whole, is a nascent development, it will be prudent for the stakeholders to take insights from the planners of the few smart city initiatives like GIFT, DMIC and Naya Raipur.

 

Key budget proposals:
 

 
     
  • Allocation of Rs 12,000 crore to the NHB
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  • Allocation of Rs 7,000 crore for development of 100 smart cities
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  • Easing of FDI regulations for of residential projects: Reduction in minimum project size to 20,000 sq mtr from 50,000 sq mtr
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  • 'Pass through' status for Real estate investment trusts (REITs). Dividend distribution tax to be payable at SPV level (exempt at trust and individual unit-holder level).
 

Hariprakash Pandey, Vice President - Finance & Investor Relations, HDIL
 Plan to incentivise development of low cost housing, raising of income tax exemption limit, deduction of interest on self occupied properties, allocation of Rs 8,000 crore for NHB programme for development of rural houses, will create a favourable environment that will boost affordable housing in the country.

 

Anuj Puri, Chairman & Country Head, JLL India
 The real estate sector's expectations have definitely not been met completely in this Budget. However, given the economic situation prevailing in the country, this is not really surprising as the government needs to balance myriad issues while addressing growth. We are satisfied as the real estate sector is once again headed in the right direction.

 

Jackbastian Nazareth, Group CEO, Puravankara Projects Ltd
 In the Union Budget for 2014-15, the Indian Government has proposed a tax pass-through for real estate investment trusts. We had been talking about a high possibility of this coming through.

 

Other positive developments from the Budget include lowering of built-up area for FDI norms and tax relief for homeowners with mortgages, while hike in the custom duty on flat steel products to 7.5 per cent from 5 per cent will add on further to the ever increasing construction cost. We think that the Union Budget provides some clarity on REIT listing in India.

 

Anil Kothuri, President & Head, Retail Finance, Edelweiss
 There are several announcements that should provide a fillip to the creation of new housing, especially in semi urban and rural India. These include the development of satellite cities, incentives for Real Estate Investment Trusts (REITs), an increase in allocation for rural housing to the National Housing Bank and an increase in the tax exemption for interest paid on home loans.

 

Navin M Raheja, Chairman, NAREDCO & ASSOCHAM
 Allocation of funds to the National Housing Bank will also help to boost the real estate sector in the country for low cost housing. Development of 100 smart cities and industrial smart cities will provide potential to new developments and investments in the country giving a complete new trajectory to the sector as well as reduce burden on over-congested cities due to impending excessive urbanisation.

 

Real Estate
 

         
Announcement Impact
Incentives for Real Estate Investment Trusts (REITs). Complete pass through for the purpose of taxation. This would bring investment in rental properties. Therefore companies like DLF, Prestige Estate and Nesco, which have a substantial rental properties portfolio, can encash these properties and pay their piled up debt.
Additional allocation for National Housing Bank of Rs 4,000 crore for low cost housing (total allocation now stands at Rs 12,000 crore). Extended additional tax incentive on home loans shall be provided to encourage people, especially the young, to own houses. This would be beneficial for companies like Poddar Developers and Puravankara Projects among others, which operate in the low cost housing segment.
 

Roads
  The ailing road sector was in dire need of a real push and the Finance Minister, while impressing his boss, kept the promise. With an allocation of Rs 37,800 crore for National Highways and State Highways, that includes Rs 3,000 crore for the North Eastern region, the Finance Minister has won the confidence of private infrastructure developers. NHAI will target 8,000 km of road projects in FY15. Analysts believe that most of this will come through the EPC model. In addition, the need for a push for rural infrastructure was on the cards when PM Narendra Modi took over the reins of the country. This was fulfilled by the Finance Minister while giving impetus to the sector. To start with, an allocation of Rs 14,389 crore towards PMGSY will solve the connectivity issue in rural areas. This was the pet project of the earlier NDA regime, which was under-performing on several fronts. This amount will help small-time contractors focus on rural road projects rather than eye for State or National Highway projects.

 

Key budget proposals:
 

 
     
  • Rs 37,800 crore for National and State Highways
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  • Rs 3,000 crore for North Eastern region
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  • Rs 14,389 crore for rural roads development.
     
Infrastructure
   

            
Announcement Impact
Rs 14,389cr has been provided for the PMGSY. National Building Construction Corporation would be a beneficiary since it draws construction orders from the government.
InvITs have been proposed for infrastructure projects. This is a positive for BOT players as they can encash their operating portfolios for further investment in other project or to reduce their debt.
An investment of Rs 37,880 crore in national highways and state roads has been proposed. A target of national highway construction of 8,500 km has been announced (vs 4,000 km in the 2013-14 budget). Positive for companies which are into engineering procurement and construction Positive for companies which are into engineering procurement and construction IL&FS Transportation Networks & Ashoka Buildcon would be beneficiaries.

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