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Infrastructure Revolution: Need of the hour

Infrastructure Revolution: Need of the hour
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First Published: Thu, Feb 28 2008. 05 10 PM IST

Sanath Ramakrishna, partner – tax & regulatory services, Grant Thornton India
Sanath Ramakrishna, partner – tax & regulatory services, Grant Thornton India
Updated: Thu, Feb 28 2008. 05 10 PM IST
Sanath Ramakrishna, partner – tax & regulatory services, Grant Thornton India
It’s quipped that the Government’s policy of non-interference augured well for the Information Revolution. Now, if India has to unleash its true potential and become a global superpower, an Infrastructure Revolution is the need of the hour. However, the rules of the game here are different — the Government has to play a proactive role to provide the framework, clearly the obligation of a Socialistic Welfare State.
The trajectory of growth continuum should be bereft of bottlenecks. Although sincere efforts have been made, there is a need to address the issues in a more holistic manner. It is thus imperative to create a favorable environment to make Infrastructure the nucleus of development agenda.
Macro economic factors
Macro-economic growth has been achieved despite significant infrastructural impediments. A number of factors ranging from land acquisition to law and order affect this sector.
Latest estimates indicate that National Highways commute only 2% of the population; shipping capsizes due to poor rail / road connectivity and inadequate berths; with growing international traffic, aviation crash lands on lack of capacity for runways and aircraft handling; old technology, saturated routes, slow average speeds and low payload-to-tare ratio derails the Railways; the power sector is short-circuited by peaking deficit, energy shortage, high transmission & distribution losses; Telecommunication that has connected India goes out-of-order on spectrum allocations.
Government initiatives such as opening up for FDI and Viability Gap Funding are just a drop in the ocean. High gestation periods and uncertain revenue streams signify the need for greater governmental patronage and public-private partnerships.
Recommendations of the Committee on Infrastructure Financing and launch of dedicated Infrastructure Funds by Mutual Funds need to be implemented in the right earnest to solve the financing issues.
Need for a unified code
At present, there is no uniformity in the definition of Infrastructure within Tax Codes and other statutes. Budget 2008 should aim to harmonize these. Some apparent disparities include:
• Section 11 of the Income-tax Act, lists urban infrastructure projects namely potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport.
• Section 36 of the Income-tax Act, covers Inland Container Depot and Container Freight Station, Mass Rapid Transit System, Light Rail Transit System, Expressways, Intra-urban or semi-urban roads like ring roads or urban bypasses or fly-overs, bus and truck terminals, sub-ways, road dividers, bulk handling terminals for development of rail system, multi-level computerized car parking.
• Section 80-IA of the Income-tax Act, covers road including toll road, a bridge or a rail system, a highway project including housing, a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; a port, airport, inland waterway or inland port.
• Foreign Trade Policy defines Infrastructure facilities to mean industrial, commercial and social infrastructure or any other facility for development of SEZ as notified.
• Project Imports Regulations issued under Customs Act read with Chapter 98 of the Customs Tariff Act lists specific projects for concessional import duties.
• For end-use of External Commercial Borrowings, RBI defines infrastructure sector as power, telecommunication, railways, road including bridges, sea port and airport, industrial parks and urban infrastructure (water supply, sanitation and sewage projects)
Direct taxation
The Income-Tax Department has sought re-examination of several exemptions. For instance, the CBDT is of the view that builders seek bulk deductions through shady industrial undertakings – deduction on construction of housing projects is being claimed by some builders, who are selling commercial plots above the stipulated limit but by entering into more than one agreement with one person and showing it as sale of two properties.
While one does not question the need to have in-built anti-abuse mechanisms within the tax code, concessions should be provided for genuine transactions.
Indirect taxation
There appears to be an urgent need to consider exempting Infrastructure related services from service tax. Further, VAT exemptions should be considered at the State level. These levies end up as an embedded cost as in most cases like Power, Metro Rail etc., where the output services are not taxable, it may not be possible to claim full credit.
Infrastructure projects should be automatically notified as Project Imports and be exempt from duties. Similarly, a separate chapter should be introduced in Central Excise also to provide concessions easily.
Looking ahead
To achieve the aspirations of billions of Indians, it is essential that Infrastructure be granted an Industry status with a Unified National Policy paving way for the creation of a premier association and chamber of commerce of infrastructure industries with global orientation. Such an endeavor would encourage adoption of world class management practices, attract talent, build and uphold highest standards in quality and innovation and provide impetus for an all encompassing growth.
For Chidambaram, this is the right occasion to kick start the process especially in an Election Year when the expectations are of a populist Budget. It would truly be a story of India Rising!
The writer is partner, tax and regulatory services, Grant Thornton India
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First Published: Thu, Feb 28 2008. 05 10 PM IST