It is one of India’s most happening sectors and by one estimate—from a late November speech by finance minister P. Chidambaram—the country needs an investment of around $475 billion (Rs18.7 trillion) in it over the next five years ($120-130 billion from foreign investors) to sustain a growth of 9%.
Yet, until now, infrastructure didn’t really have one definition here.
The Reserve Bank of India, the finance ministry, and the World Bank, all have different definitions of infrastructure. There is no standard definition of the term and no uniform list of services and activities that are eligible for benefits, usually fiscal concessions, that various government departments have announced for “infrastructure industries”.
The government is now looking to arrive at a standard definition of the term which will include new businesses, such as non-conventional energy.
The Planning Commission, the country’s apex planning body, has named a wider list of businesses that should be defined as “public infrastructure” say government officials who do not wish to be identified; the existing definition encompasses water supply, sanitation, telecom, roads and bridges, ports, airports, railways and irrigation.
The officials add that the commission has suggested that watershed development, which deals with conservation, regeneration and the judicious use of water resources within a particular region be included in the definition of infrastructure and clubbed with irrigation.
They also say the commission wants the new definition to include infrastructure created to distribute gas and non-conventional energy such as wind and solar power.
“The idea of having a standardized definition helps pronounce what comprises public infrastructure, which can lead to better policymaking in these areas. We also want to include sectors where the public-private partnership model can be used,” said a senior official at the Planning Commission who did not want to identified.
The commission’s proposal has been submitted to the Empowered Sub-Committee of the Committee on Infrastructure, headed by the deputy chairman of the Planning Commission, Montek Singh Ahluwalia.
Once approved, these recommendations will be placed before the Committee on Infrastructure (CoI), headed by Prime Minister Manmohan Singh. CoI is the apex body that oversees the country’s infrastructure policy.
After CoI clears the recommendations, they will be placed before the Union cabinet for approval. Till such time the new definition of infrastructure would be advisory in nature, not binding.
Analysts welcome the move and say this could have some implications on the tax regime.
“At some point, the income-tax department will have to align their definition to that of the Planning Commission. So, it could have implications on tax in a few years,” said Amrit Pandurangi, who heads the infrastructure practice at audit and consulting firm PricewaterhouseCoopers.
Apart from adding several sectors to the definition of infrastructure, the Planning Commission has also suggested the exclusion of a few such as housing, hospitals and educational institutions.
Pandurangi said this is consistent with the finance ministry’s attempt to reduce ongoing subsidies.
Companies engaged in creating infrastructure are currently eligible for incentives including a 10-year tax holiday and a grant of up to 40% of project cost from the state and Union governments under the Viability Gap Funding Scheme.
Being classified an infrastructure business helps, according to U.D. Choubey, chairman and managing director, GAIL (India) Ltd. The finance ministry defined the business of gas pipelines as an infrastructure in Budget 2007 and offered it a tax holiday of up to 10 years.
“It has led to lot of interest by other players in the sector.”
(Rahul Chandran and Utpal Bhaskar contributed to this story.)