The global economy is passing through the most difficult times since the great depression. While India is relatively isolated, it is an integral part of the world economy, and is affected by developments in its environment. This situation presents both uncertainties and opportunities for us.
The finance minister has presented a balanced budget in these circumstances. He has addressed issues of both consumption and investment to maintain a stable growth rate. He recognised that infrastructure in the key area of focus, and addressed it in the initial part of his speech.
He has committed that infrastructure spend will rise to 9 per cent of GDP by 2014.
Some of the positive features of the budget are:
To ensure that infrastructure projects do not face financial difficulties arising from the current downturn, the FM announced that IIFCL would refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months.
‘Takeout Financing’ will be used to effectively address the asset liability mismatch for lenders to long-term infrastructure projects, and will free up capital for financing new projects. It will also help banks that have reached their sectoral limits to release funds for funding new long-term projects.
IIFCL and banks are now in a position to support projects involving total investments of Rs 1,00,000 crore. In the roads sector, the allocation to the NHAI has been increased by 23 per cent.
In the railway sector, the outlay has been increased from Rs10,800 crore to Rs 15,800 crore.
Investment in irrigation schemes will be increased by 75 per cent.
In response to the long-standing demand, the budget places gas at par with oil by providing a tax holiday benefit for seven years.
Excise duty has been exempted on pre-cast concrete goods manufactured at site for use in the same project. This will significantly reduce the tax litigation.
Increase in MAT from 10 per cent to 15 per cent will add to the burden for software and infrastructure companies which otherwise enjoy the tax relief.
Commitment to GST (Goods & Service tax) rollout from April 1, 2010 has been maintained. Taken together, these initiatives will help stimulate economic growth.
On the other hand, the FM failed to announce any initiatives in the power sector, which is crucial to our economic growth. The anomaly of the cascading effect of dividend distribution tax has not been removed. This results in multiple taxation of dividends for most projects.
At L&T, we expect our order intake and sales to continue to maintain growth as per our guidance levels for the year.
(The writer is chairman and managing director of Larsen & Toubro)