Given the backdrop of tight money supply, the fact that the budget seeks to pave the way for fund flow into the infrastructure sector is a positive.
The government’s allocation for fiscal 2012 is 23% higher at Rs 2.14 trillion. Besides, the investment limit by foreign institutional investors in bonds issued by infrastructure companies has been raised.
Of course, slippages on execution remain a concern. After all, only 35% of the projects planned under the 11th Plan that ends in March 2012 have been commissioned so far.
Also See | Infrastructure (PDF)
So far, domestic power equipment makers such as Bharat Heavy Electricals Ltd, Larsen and Toubro Ltd, Thermax Ltdand BGR Energy Ltdfaced a disadvantage as they paid full excise levies, while imported equipment was exempt from customs duty.
The anomaly has now been set right, so far as supply of power equipment for power projects with installed capacity of 4,000 megawatt (MW) goes. Domestic companies who supply for expansion of existing big power projects (above 1,000MW) will be exempt from duty, thus making them more competitive against Korean and Chinese firms, who had captured a significant portion of the market in the last 24 months.
This comes against the backdrop of a slowdown in order inflows for the sector. Infrastructure companies have also been struggling because of the tight liquidity situation as well as the increase in interest rates.
Graphic by Yogesh Kumar/Mint