Infrastructure, capital goods yet to gain policy momentum
Domestic capital goods firms have got no respite from foreign competition
The BSE capital goods index fell 3.4%, steeper than the broader market. Hopes that the budget would increase duties on imported equipment were not fulfilled.
add_main_imageFurther, given the high fiscal deficit and the resulting squeeze in government spending, the onus remains on the private sector to kick-start the capex cycle. But, do companies have the wherewithal to account for nearly half the investment activity needed in the infrastructure space, as envisaged by the 12th Five-Year Plan?
Sure, there were some positive proposals. For example, the announcement that about 3,000km of road project would be awarded in the first six months of the next fiscal year. Finance minister P. Chidambaram has also promised more power transmission lines, additional handling capacities at some ports and coal-price pooling, all of which should bring fresh investments into infrastructure. NextMAds
“Work on two new industrial corridors—Chennai-Bangalore and Bangalore-Mumbai—are proposed to commence in FY14. Also, the finance minister accepted a long-awaited demand of road developers in the form of carving out the regulatory function of NHAI (National Highways Authority of India) into an independent body,” said Sanjay Sethi, senior executive director and head of the infrastructure group at Kotak Investment Banking.
More importantly, steps to channelize retail savings into infrastructure through tax-free bonds, along with innovative ways to allocate resources for rural development, are long-term positives. That said, these measures need quick action.
The increase in royalty tax is unlikely to have a negative impact on the Indian outfits of multinational firms as the parent company overseas will shoulder the burden. However, like most of corporate India, the sector is likely to see higher taxes as the increase in surcharge and dividend distribution tax stacks up substantially on the base tax rate. That could be in the region of 4% to 6%, unless firms avail of exemptions under research and development etc.
There was an expectation that relief on minimum alternate tax would be provided for infrastructure firms, said Sethi, and the fact that this didn’t materialize is a negative.
sixthMAds
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