Budget 2019-20: Big Boost to Transport Infrastructure

Budget 2019 20
Blueprint for $5-tr Economy by Building Transport Infrastructure

The finance minister Nirmala Sitharaman, in her budgetary proposals has aimed at achieving 8% GDP growth and scaling up the country’s economy to $5 trillion in the next five years. The economy, which stood at $ 1.85 trillion five years ago, has now reached $ 2.7 trillion and the target is achievable within the stipulated timelines. While taking forward the reformist measures of the last term, the proposals for the current stint are strong commitments to infra building across segments. The increased focus on infrastructure has come with a promise of ₹100-trillion investment commitment over the next five years. In totality, the Budget proposals strengthen foundation of New India that is prepared to ride the wave of mega technological advances. Increasing access to capital and skill building through corporate tax reforms, easier tax norms for startups, encouraging knowledge-sharing and lax FDI norms will help exploit India’s unique demographical divide with enriched dividends.


The Budget focused on all forms of physical connectivity like Pradhan Mantri Gram Sadak Yojana, industrial corridors, dedicated freight corridors, Bharatmala and Sagarmala projects, Jal Marg Vikas and Udan. The allocations for rail, road and airport sectors is ₹2.52 lakh crore and this is significantly higher. The government will carry out a comprehensive restructuring of national highway program to ensure that the national highway grid of desirable length and capacity is created using financeable model. After completing the Phase 1 of Bharatmala, in the second phase, the states will be helped to develop state road networks. To accelerate the speed of achieving universal connectivity of eligible habitations, the target has been advanced from 2022 to 2019. For instance, allocation towards Sagarmala project, which leverages country's coastline to drive industrial development, will increase from ₹381 crore for FY19 to ₹550 crore for 2019-20. Similarly, capital outlay towards Pradhan Mantri Gram Sadak Yojana (PMGSY) has been raised by 22% to ₹18,925 crore in 2019-20 over 2018-19. It is envisaged to build and upgrade 1,25,000 km of road length over the next five years, with an estimated cost of ₹ 80,250 crore. Given the huge capital requirement for the infrastructure sector, the National Investment and Infrastructure Fund (NIIF) can play a vital role in augmenting available capital for the sector. After completion of the first phase of the ongoing Bharatmala program, the focus would shift towards developing the state road network. In its first phase, the Bharatmala project aims to construct 20,000 km of highways connecting the western and eastern parts of the country at an estimated investment of ₹7 trillion.

Commenting on the Budget proposals for the transport infrastructure, Partner & National Head-Transport, Leisure & Sports at KPMG, Jaideep Ghosh, said that effective implementation of budget proposals could fast track the $5 trillion economy goal. Transport infrastructure is the backbone of an economy and that the reforms proposed in infrastructure financing as well as the massive investment boost for transport infra along with effective implementation will go a long way towards realizing country’s dream of, becoming a $5trillion economy.

Practice Leader and Director - Transport and Logistics, Crisil, Jagannarayan Padmanabhan, echoes this viewpoint and says, “It shows that transportation remains a big focus area for the government as budget allocations for transportation sector for 2019-20 worth ₹2.89 lakh crore is a jump of 15% over the last year”.

Railways & Metro

In a sharp shift from the interim Budget, this time there is no mention of a favorite bullet train rather the focus has turned to development of sub-urban railways and on connecting cities located at small distances like Delhi and Meerut. Another focus area is the development of metro rail network to improve public transport within the cities and reduce load and congestion on city roads. The FM focused on the need of massive investments in Indian Railways as the rail infrastructure needs a total investment of ₹50 lakh crore between 2018 and 2030, which means that ₹1.5 lakh crore per year, and to achieve this, the private sector will play a pivotal role. In her Budget speech, the FM revealed that the sanctioned projects of Railways will take decades to complete. Hence the PPP model is being proposed to unleash faster development in the form of better rolling stock, railway tracks and passenger and freight services. With the success of Vande Bharat Express, the railways is looking forward introducing more such semi-high speed trains across the country and is looking to partner with the private sector for manufacturing aluminum bodied coaches. She also made a mention of the Dedicated Freight Corridors (DFCs) as a key project to decongest Railways’ network. The move will ensure faster movement of both goods and passenger trains.

Affordable Housing

The FM stated that the government has tried to address the slump in real estate market with a slew of sops. There is a provision for deduction of ₹2 lakh on payment of home loan interest u/s 24 of Income Tax Act. As such, the buyer would get additional deduction of ₹1.5 lakh under a new section, 80EEA, on loan taken for residential unit from any financial institution but this has come with score of riders. Moreover, to avail benefits u/s 80EEA, the buyer should be careful that the carpet area of unit doesn’t exceed 60 square meter in metropolitan cities like Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region) or 90 square meter in cities or towns other than the above mentioned metropolitan cities. The government has also revealed its intention to correct the rental housing market with a much-awaited tenancy policy. Current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A model tenancy law will also be finalized and circulated to states and this has been listed on the ministry’s 100-day agenda, FM claimed.

In another major move in the budgetary proposals, the government would transfer the supervisory powers on its housing finance companies to Mint Street from National Housing Bank (NHB), ending the regulatory arbitrage that local mortgage lenders have been enjoying to date. NHB, besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB. The government has proposed to return the regulation authority over the housing finance sector from NHB to the RBI and the move is aimed at improving supervision of housing finance companies. In fact, urban renewal has always been a top agenda for the current government with the largest number of flagship missions under the direct control of Ministry of Housing and Urban Affairs. Apart from this, there has been an increase of 10% in the allocation under AMRUT and Smart Cities Mission.

Airport Sector

For making air travel more affordable for the common man, the government has launched UDAN scheme. The FM said that India has become the third largest domestic aviation market in the world and the focus is now on pushing developing aircraft financing and leasing model in the country and is now going to leverage the country’s large engineering pool to develop it as a hub for maintenance, repair and overhaul (MRO) services and this has been welcomed by the industry. The government will leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment by adopting suitable policy interventions for the development of the industry. Commenting on this proposal, Executive Director, Air Works, Ravi Menon, said that the intent stated will create a level playing field in the region in terms of cost competitiveness. The larger benefit will be the progressive development towards self sufficiency in aircraft maintenance and engineering services.

Gift Cities

India’s first IFSC has been set up at Gujarat International Finance Tec-City (GIFT-City) in Gandhinagar, Gujarat, to rival international financial centres in Dubai and Singapore. In order to encourage the setting up more such cities, the budget has proposed to expand the benefit of tax exemption given to dividends paid by IFSC units. They can now pay dividend free of tax out of their profit accumulated after April 1, 2017 as currently, tax is not levied if the dividend is paid out of their current income. In this connection, the finance minister has given a further boost to the International Financial Services Centre (IFSC) by proposing to exempt capital gains tax on equities traded on stock exchanges in the enclave, and to double the tax holiday for businesses operating out there. So far, capital gains exemption was limited to derivatives and certain notified debt. The managing director, International Exchange IFSC,V Balasubramaniam said that it has now been proposed to extend the exemption to all securities including equities, exchange-traded funds, alternative investment funds and mutual funds. This will provide complete clarity to foreign investors that no capital gains tax will be applicable on any product traded on IFSC stock exchanges. The budget also proposed to widen the types of securities traded on IFSC stock exchanges that would be eligible for exemptions on capital gains tax and has proposed a 10-year tax holiday on 100% of the profit for business units in the IFSC. At present, full tax deduction is allowed for five years and 50% for another fives. The units can claim the tax holiday for any 10 consecutive years out of 15 years from the start of the business. These and other measures like the proposal to create a Unified IFSC Regulatory Authority will help the IFSC alone to provide $1 trillion to the Indian economy in the next few years.

Boost to Make in India

In a major boost to make in India drive, the Budget has provided tax relief to companies confined to small and mid-tier businesses and has lowered the corporate tax rate to 25% from 30% for enterprises with a turnover of up to ₹400 crore. Personal taxes went up to 50% but an increase in the turnover threshold for lower corporate tax rate is welcome, said Nishith Desai, founder of Nishith Desai Associates. Shefali Goradia, partner, Deloitte India, adding that large companies will remain less competitive as the total effective tax rate, including the dividend distribution tax, is as high as 48.31%. The government clarified that this will cover 99.3% of companies. The philosophy seems to be common in personal income tax and corporate tax. Bigger companies will need to contribute more just as the rich have to pay more tax. The sweetener for large firms is the tax incentive – an investment-linked deduction for large manufacturing companies that invest in electronics and other advance technology areas and on this the government has not gone by the size of the company. Moreover, the budget has proposed significant concessions in basic customs duties to encourage local manufacturing in the country including raising customs duties on a number of products, withdrawing exemption from some and lowering rates for others to encourage value addition. The aim is to emerge as an attractive investment destination for companies looking to diversify manufacturing operations from China. The move also intends to give some protection to domestic producers this is so because Make in India is a cherished goal of the government. Indirect tax proposals are based on promoting the key themes around Make in India, environmental concern, technology-led tax administration and ease of doing business, National Leader, Indirect Taxes, PwC, Pratik Jain, said.

Coal & Mining Sector

According to the Budget proposals, the allocation for the coal and mining sector has registered a jump of 48.2 per cent to ₹1,159.05 crore in 2019-20 from ₹781.85 crore in the preceding fiscal. The increase has been over the revised estimates of the 2018-19. While the expenditure was at ₹770.91 crore for 2018-19, in case of 2017-18 (actual) it was ₹722.21 crore as the bulk of increase in the Budget allocation for 2019-20 is towards central sector schemes. The expenditure budget of ₹1,159.05 crore in the 2019-20, includes ₹1,097 crore on central sector schemes and projects.

Lax FDI Norms

The Budget proposals recognized a critical fact — domestic savings are inadequate to fund the 8%-plus GDP growth needed to take the economy to the $5 trillion target over the next five years. A lot more foreign savings need to be brought in more aggressively. The most important step in this direction is the decision to finally break the taboo against the sovereign government seeking funds abroad. This could be the game changer for Indian borrowers abroad. While government may actually borrow a small amount in line with its conservative external debt management practices there could be significant ‘externalities’. A sovereign bond issue would help set a clear benchmark for other external bond issuances and is likely to bring borrowing costs down across board for Indian companies as well as increase the appetite for Indian debt paper. The government proposed to further relax foreign direct investment (FDI) norms in the single brand retail sector to attract more overseas investment and in the process the local sourcing norms will be eased for FDI in single brand retail sector. This assumes significance as several foreign entities had raised issues related to mandatory local sourcing norms from India. Gokul Chaudhri, partner, Deloitte India, said, “Foreign investment flows eased after a lull of several years, both for portfolio investors and strategic investors and that the gradual increase in FDI flow will definitely give a much-needed impetus to the economy and boost consumption. Currently, online sale by a single-brand retail player is allowed only after opening of physical outlet. It also suggested that retail traders may be allowed to adjust the incremental sourcing of goods from India for global operations during the initial 6-10 years, from the current five years (beginning April 1 of the year of the opening of first store), against the mandatory sourcing requirement of 30 per cent of purchases from India but this will subject to quantum of FDI one brings into India.

Electric Mobility & Common Mobility Card

In the Budget the government has announced a slew of measures and concessions for faster adoption of electric vehicles under the Faster Adoption and Manufacture of Electric vehicle (FAME) as electric vehicles are fast emerging as a pollution-free and sustainable mode of urban transportation system. With the rapid development of transportation infrastructure in the country, the government also wants to provide ease of use and has already launched a common mobility card as it can be used for metro and bus travel, payment of toll taxes and parking charges and even for retail shopping and withdrawing money.


The Budget appeared to be unexciting, incremental and protectionist as it seeks to reduce import dependence rather than increasing exports. As such, the proposals are more supplementary. However, with the help of ₹90,000 crore of excess capital to be transferred from the Reserve Bank of India, plus higher cess on petrol and diesel, the fiscal deficit came down marginally to 3.3% of GDP as compared to 3.4 % announced in the interim Budget. The Budget pledged bank recapitalization of ₹70,000 crore, which should revive lending in a big way. This can boost growth through booming credit rather than loose fiscal policy. The FM says the recapitalization may be spread over three years, not in one big bang. Despite this, the FM has skillfully balanced the current needs of a slowing economy with the medium-term goal of scaling up the Indian economy to a level of $5 trillion by 2024-25. But an across-the-board steep cut along with removing tax planning opportunities would have been more equitable vis a vis small and medium-sized companies. Experts opined that it would make industry more competitive, leave more cash in the hands of corporate for investment and expansion, and avoid driving business people elsewhere. A reduction in corporate tax rate for smaller companies would help the government’s resource-mobilization measures, said Partner, PricewaterhouseCoopers India, Kaushik Mukerjee, who added that extending the cut to large corporates would have further helped FDI inflow in advanced technology areas.

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