There was a lot of speculation that the Budget would give impetus to the infra sector. But a major fall of capital goods, infra and power companies scrips after the Budget speech bared the disappointment of investors with his Budget. There was no concrete roadmap how capital expenditure will be spurred. Barring mention of few industrial corridors and setting up two smart industrial townships in Maharashtra and Gujarat, there was little on bridging the burgeoning infrastructure deficit.
India is targeting Rs 55 lakh crore investment in 12th Five Year Plan for infrastructure development where private sector is expected to contribute 47% of the capital. But neither the Planning Commission nor finance minister has ever clarified how this mammoth capital will be tied up for infra projects.
Reduction in tax-free bonds from Rs 60,000 crore in fiscal 2013 to Rs 50,000 crore in fiscal 2014 reflects that government has understood the poor appetite of investors for such bonds.
With 2% increase of custom duty on steam coal and hike of countervailing duty from 1% to 3% imported coal will be costlier in coming days. JSW Energy and Adani Power that are running all their power units on imported coal are likely to be hit.
But all is not gloomy for power, capital goods and infra sectors in this Budget.
Extension of tax sops to power generators under section 80-IA for one more year, re-introduction of generation based incentives for wind sector and proposal for low-cost funding for renewable energy are some of the silver linings for the power sector.
But the biggest positive surprise comes with the proposal of providing 15% investment allowance to manufacturing units for capital expenditure involving purchase of new plants and machinery over Rs 100 crore. Well, this step could help in boosting capex that has been almost stalled for past one year owing to slowdown in the economy. It will also provide job opportunities in the manufacturing sector. Fineprint of how this incentive will be provided is not clear, but will spur investments as corporate houses will see benefit in setting up new units.
Second big announcement is allocation of Rs 1,400 crore for setting up water treatment plant. Companies including Thermax and Va Tech Wabug, Triveni Engineering, L&T and Voltas are big players in water treatment plant.
The finance minister has also done well by allocating Rs 500 crore to textile industry for setting up affluent treatment plants as textile industry is one of the major contributor to water pollution and for them setting up such plants were non remunerative capex. With subsidy from government now, textile industry can see benefit in setting up such plants. Another major step is viability gap funding for waste to energy products under public-private-partnership model. This proposal will help Thermax, Ramky and A2Z in finding new contracts. Especially, this move will help Thermax as Danstoker, its German based subsidiary, has multi-fuel boiler technology.
India can only achieve high growth if it starts delivering on infra capex front. But with this Budget it looks difficult that India will achieve the targeted growth of over 7% in fiscal 2014.