The Hindu Business Line : Opening the gates for irrigation

Budget 2008 has no surprises for the Infrastructure sector. While the irrigation and road segments will continue to receive favours, not many incentives were dispensed to the power sector.

Similarly, no special support was evident to speed up other infrastructure segments such as ports and airports. The sector as a whole continues to receive healthy outlays with a 27 per cent increase in allocation to the Bharat Nirman iniative, at Rs 31,280 crore.

Thrust on irrigation

Among the various infrastructure segments, irrigation tops the chart in terms of highest increase in allocation. The Accelerated Irrigation Benefit Programme has received an 82 per cent increase in outlay to Rs 20,000 crore.

While companies such as IVRCL Infrastructures & Projects, Hindustan Construction and Nagarjuna Construction are some of the prime beneficiaries, Jain Irrigation Systems, KSB Pumps and Kirloskar Brothers may also reap benefits as a result of order flow from irrigation projects. Pipe manufacturers such as Maharashtra Seamless and PSL could also benefit from the increased outlay.

The establishment of the Irrigation and Water Resources Finance Corporation reflects the Government’s intention to provide sustainable support to the irrigation sector.

Similarly, increased outlay for the Jawaharlal Nehru National Urban Renewal Mission, as well as development in sanitation and drinking water, will see mid and small-sized companies such as Simplex Infrastructures and JMC Projects participating in more urban projects.

In the road segment, there has been a 20 per cent increase in outlay under the National Highways Development programme.

While the allocation is along the lines of earlier Budgets, delays in order flows last year due to finalisation of the Model Concession agreement for roads may have led to an overshoot in cost.

The present increase in outlay does not appear to have factored in the same. The current year, however, is more favourable for larger road players as most of the PhaseV projects are large and require a BOT model.

Cost neutral: On the cost side, while power projects qualifying for ‘project imports’ would see a nominal reduction in customs duty from 7.5 per cent to 5 per cent, the Budget has withdrawn the 4 per cent additional customs duty exemption that was earlier available for power generation, transmission and distribution projects. This is not applicable for mega power projects.

This may not dent margins steeply as rupee appreciation has provided comfort on import costs. Cement, a key raw material for construction, is also unlikely to receive much respite, with the excise duty on bulk cement increased.

However, cement costs might remain neutral as construction companies mostly go for packaged cement rather than bulk cement.

Boost for funding

The Budget’s effort to encourage the growth of corporate debt market by eliminating tax deduction at source on instruments that are in demat form and are listed in the stock exchanges is a welcome move for infrastructure and power companies as debt instruments are a popular source of financing in their projects.

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