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    Budget 2017-18 - Bridges Urban Rural Infra divides

    By Jeet Singh
    Arun Jaitley Budget 2017
    Defying the adverse impact of demonetization, the finance minister, Arun Jaitely, in his Budgetary proposals allocated substantial funds for infrastructure; especially for the road and highway sector; real estate, infra status to affordable housing and also injected huge infra push to railways. The multi-prong initiatives will spur demand in steel, cement, logistics segments, which in turn will revive demand with potentials of multiplier impact on income and job generation thereby adding to the GDP growth. In fact, the Budget proposals have rekindled hopes of sustainable and inclusive economic recovery while strictly adhering to fiscal rectitude, besides there is a crystal clear attempt to broaden the base of economy by making it more transparent, efficient, and dynamic.

    Infrastructure
    In a major push, the government has allocated Rs.3.96 lakh crore for infrastructure of which Rs.64, 900 crore will go to roads and Rs.55,000 crore for rail sector and the remaining funds have been allocated for waterways, civil aviation, and allied sectors. Apart from proposing an effective multi-modal logistics and transport system, there is also a specific program for development of multi-modal logistic parks together with multi-modal facilities. In addition to improving roads in northeast, NHIDCL has been mandated to expand ambit to other hilly areas in the Himalayan belt as well as in the Andaman and Nicobar islands, where it is undertaking a sea link project in the strategically important archipelago, which is being developed as a maritime hub. The two-km, Rs.1,000 crore sea link across the Bay of Bengal is a part of over Rs.4,000-crore projects undertaken in the Andamans. The Budget also proposed that a dispute resolution mechanism will be put in place to address issues in the infrastructure space. The government has decided that the required mechanism would be institutionalized as part of the Arbitration and Conciliation Act, 1996 and an amendment bill would shortly be introduced in this regard. The multiple moves will improve connectivity, push growth by creating demand for core sector output, and create jobs across urban and rural hinterland.
    • Total allocation for infrastructure is Rs.3.96 lakh crore.
    • Highway and rail sector get Rs.64, 9000 crore and Rs.55,000 crore respectively.
    • Transport sector as a whole secured Rs.2,41,387 crore.
    Road and Highways In its unfailing quest to expand the road and highway network across the country, the allocation has been increased by 12% over 2016-17 to Rs.64,900 crore. Apart from this, there is a provision under which NHAI will raise nearly Rs.59,300 crore through borrowings and this would enable NHAI to undertake projects worth over Rs.1.5 lakh crore during 2017-18. As there is also tax exemption on ‘masala' bonds through which Indian companies can generate funds from global markets in rupees at cheaper rates and this will again help NHAI to fund more projects. Moreover, 2,000 km of coastal roads have been identified for construction and development to facilitate better connectivity with ports and remote villages, besides, the government investment, substantial private investment will also flow in to the highway sector.
    • Highway sector get an increase of 12% to Rs.64,900 crore.
    • NHAI will raise nearly Rs.59,300 crore.
    • NHAI to undertake projects worth over Rs.1.5 lakh crore.
    • NHAI will also build 2,000 km of coastal roads.
    Metro and Rail
    In a massive rail infra push, the FM announced the highest ever allocation of Rs.1.31 lakh crore for capex and development expenditure in 2017-18 against Rs.1.21 lakh crore last year for the Indian Railways. The Budget sets an ambitious target of commissioning 3,500km of new rail lines against 2,800km in 2016-17. It also gives a push to long pending accounting reforms as the FM announced that accrual-based financial statements would be rolled out by March 2019. Making rail travel more comfortable and maintaining cleanliness, the railways plans to spend Rs.2,100 crore on enhancing passenger amenities. Redevelopment of at least 25 stations into world-class structures during 2017-18, making 500 stations disable-friendly through lifts and escalators, a new ‘coach mitra facility', and a single-window interface to register all coach-related complaints. The railways finally got clearance to set up a Railway Safety Fund worth Rs one lakh crore.

    In the case of metro rail, the government will bring in a new Metro Rail Policy with focus on innovative models of implementation and financing, standardization and indigenization for both hardware and software. In fact, metro rail service is emerging as an important mode of urban transportation and that policy would open up new job opportunities for youth. Similarly, a new Metro rail law will be enacted by rationalizing the existing laws to facilitate greater private participation and investment in construction related activities and operation. On this score, the urban development ministry has circulated a cabinet proposal to introduce a new Metro rail bill for inter-ministerial consultation. In the Budget proposals, allocations for all metro projects have been increased by about 15% from Rs.15,700 crore last year to Rs.18,000 crore.
    • Railway got highest ever allocation of Rs.1.31 lakh crore.
    • An ambitious target of commissioning 3,500km new lines.
    • Railways plans to spend Rs.2,100 crore to make traveling more comfortable.
    • Redevelopment of at least 25 stations into world-class structures.
    • Railway Safety Fund worth Rs one lakh crore on anvil
    • Metro rail gets Rs.18,000 crore funds
    Real Estate Sector
    In a major boost to the real estate sector, the FM has proposed infrastructure status to affordable housing and low-cost housing. Other steps included the commitment of building one crore rural homes in two years to help provide housing for all by 2022. This will help realtors and affordable home developers to access cheaper institutional funds and tax exemptions to improve margins, along with increased supply. The Budget also offers tax incentives for affordable housing based on carpet area and not built-up space, which will help buyers get bigger-sized homes. In yet another momentum, the National Housing Bank has been allocated Rs.20,000 crore to refinance home loans while Pradhan Mantri Awas Yojana got Rs.23,000 crore. The new credit-linked subsidy scheme for middle income groups with Rs.1,000 crore is on anvil and the allocation is expected to enable access to cheaper capital. Given the government's thrust, flow of institutional funding to affordable housing is likely to go up manifolds.

    Moreover, the Budget has lowered the holding period for gains to qualify as long-term in case of immovable property to two years from three years currently. It will significantly reduce the tax burden of people selling properties after two years and promote investment in the real estate sector. The government also changed the base year to which acquisition cost of an immovable asset is indexed to the new base year is now 2001, against the earlier year of 1981. This will again enable people to improve the acquisition cost of their immovable assets, thereby reducing their overall capital gains. In addition, there is a proposal to make a number of changes in the capital gain taxation provisions in respect of land and building.
    • NHB to refinance Rs.20,000 crore loans
    • PMYA to get Rs.23,000 crore
    • Developers to get tax relief on unsold stock
    • Holding for capital gains tax cut
    • Plans for more instruments to invest capital gains without tax payment
    Aviation
    In order to meet the severe cash crunch in Airport Authority of India (AAI), non-metros and small towns will soon have glitzy malls, hotels and convention centres on the sprawling land parcels of AAI lying vacant for years. In this connection, the FM cleared the way to amend the AAI Act to enable effective monetization of land assets. The resources raised will be utilized to give face lift to airports in tier 2 cities. The FM also allowed private sector participation in operating and maintaining airports in small towns, similar to their metro counterparts. The government estimates that developing airports across India over the next 15 years will require an investment of Rs.2-3 lakh crore. AAI has a huge land bank of 55,687 acres across the country. The current AAI Act allows using this land only for aviation-related activities and with cities expanding AAI airports are now in the middle of most cities. Head of aviation and partner at KPMG, Amber Dubey said that many AAI airports, especially at state capitals, have significant commercial value. The revenue generated can be utilised for airport upgradation, development of new regional airports, and for reducing aeronautical charges. The government has waived the service tax on airlines offering cheap tickets with the help of viability gap funding to help operator and people at smaller airports that are not commercially attractive. The provision in this year's Budget is an attempt to make viable the Ude Desh Ke Aam Nagrik (UDAN) more viable.
    • An amended AAI Act to enable monetization of land assets in tier 2 cities.
    • Government targets investment worth Rs.2-3 lakh crore in Aviation Sector.
    Power
    Indeed, the government's rural thrust is very clear from an increase in allocation for village electrification from Rs.8,500 crore last fiscal to Rs.10,635 crore. There is undiluted focus on rural electrification with a clear time-bound plan to electrify the last village of India. The finance minister has announced an increased allocation of Rs.4,814 crore to improve local transmission and separate electricity supply to farms and agriculture. In an attempt to boost clean energy generation, mainly in the hydropower sector, government is in the process of providing concessions for under-construction hydel projects. This includes the clubbing of these projects under the ‘renewable energy' category, alongside solar and wind projects, which entitle them for lower tax rates. There will be a major thrust on hydro sector by different ways to bring cost of electricity down from this renewable energy source, Power Minister Piyush Goyal said.
    • Rural electrification gets Rs.10,635 crore.
    • The Deendayal Upadhyaya Gram Jyoti Yojana gets Rs.4,814 crore.
    • Proposal to give green energy status to hydro power generation.
    • Plans two more strategic crude oil reserves costing Rs.20,000 crore
    Oil
    The government will build two more strategic crude oil reserves -at Chandikhole in Odisha and Bikaner in Rajasthan to help country's strategic reserve capacity to 15 million metric tons, enough to maintain oil supplies for 90 days in case there is a disruption. The facility will cost Rs.10,000 crore each. India already has three reserves with a combined capacity of 5 million tons at Visakhapatanam, Mangalore and Padur. These were built for Rs.4,000 crore and nearly half of their capacity already filled with crude. -at Chandikhole in Odisha and Bikaner in Rajasthan to help country's strategic reserve capacity to 15 million metric tons, enough to maintain oil supplies for 90 days in case there is a disruption.

    Rural Infrastructure
    Allocation under MNREGA has been increased to 48,000 crore from the current amount worth Rs.38,500 crore and that space technology be used for monitoring MNREGA implementation and also Rs.27,000 crore will be invested under PMGSY. For improving rural income, Rs.5,000 crore micro irrigation infrastructure fund will significantly strengthen the state and that dairy processing infrastructure development fund would be set up to help cattle industry and farmers even more. The provision of credit facility will benefit farmers in millions as they will now easily be able to meet loan requirement. The FM has given further impetus to small and medium enterprises (SMEs) with the lower tax rate of 25%. This tax saving will give them additional liquidity for growing business. As SMEs integrate into the formal sector, the banking sector is bound to increase its support.

    Moreover, SME growth also addresses employment generation, which will have a positive outcome for the entire rural economy. With an eye on reviving consumption in the hinterland, the FM has rolled out several sops for low-income and rural consumers. A reduction in the tax liability of those with an income below Rs.5 lakh will also help to boost non-urban demand. Various ancillary industries and sectors supporting agriculture will also benefit considerably.
    • MNREGA gets Rs.48,000 crore
    • PMGSY secures Rs.27,000 crore.
    • Micro irrigation and dairy infra get Rs.5,000 crore.
    • Farm credit has been increased to Rs.10 lakh crore.
    • Rural infra gets Rs.1.87 lakh crore
    Lax FDI Norms on Anvil
    The Foreign Investment Promotion Board (FIPB) is on its way out as the FM said that lax FDI regime is on the cards and sectors where a nod from the administrative ministry needed, the government would ensure that there's no duplication of work and system similar to a non-bank finance company could be created. As the government began allowing more FDI through the automatic route, the FIPB became less relevant. As of now, over 90% of FDI don't need to come to FIPB, whose mandate is to recommend investments of up to Rs.5,000 crore to the finance minister. FDI beyond the cap needs cabinet committee on economic affairs approval.

    Global Posturing & Digital Gaon
    In order to position the country as a global manufacturing hub, FM has announced increase in allocations towards schemes like Modified Special Incentive Package Scheme (M-SIPS) and Electronic Development Fund (EDF) to Rs.745 crore in 2017-18. The government is creating an eco-system to make India a global hub for electronics manufacturers. Over 250 investment proposals for electronics manufacturing has been received in the last 2 years, totaling an investment of Rs.1.26 lakh crore. A number of global leaders and mobile manufacturers have set up production facilities in India.

    Conclusion
    In the Budget proposals, the economic stimulus from higher government spending and lower corporate and individual tax rates will lead to higher disposable incomes and lower interest rates will again lead to lower cost of equity, lesser borrowing costs and improved balance sheets for leveraged companies. The Budget initiatives aim to stimulate growth, simplify tax structure, provide relief to the middle class, eliminate black money and maintain fiscal consolidation. The implementation of GST and transparent political funding drew accolades across segment and at the macro level, the FM pegged the fiscal deficit to 3.2 per cent of the GDP ensuring prudent fiscal management and eliminating inflationary tendencies. Overall, the Budget focuses on 10 critical themes of farmers, rural population, youth, the poor and the underprivileged, infrastructure, financial sector, digital economy, public service, prudent fiscal management, and tax administration. These have been aimed at boosting growth, enhancing productivity, further reining in inflation, and infusing transparency into commercial activities, delivery of public services.

    However, there is a concern about inadequate allocation for highway maintenance, which is almost unchanged at Rs.3,000 crore. On the negative side, the maintenance of MAT and corporate tax rates at the same level, and inadequate provision for recapitalizing banks, are the surprises not touched in the overall Budget allocations.
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