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There was a general feeling of uncertainty in Corporate India in the build-up to Budget 2011 considering sticky inflation, lukewarm corporate results in the last quarter and foreign institutional investors ( FIIs) tightening their purse-strings as they found alternative markets better.
To entice the FIIs back and to give some boost to a stagnant economy, Budget 2011 appears to have honed in on the infrastructure sector. The FII limit for investment in corporate bonds — with residual maturity of over five years issued by companies in infrastructure sector - is being raised by an additional limit of $20 billion, taking the limit to $25 billion. This will raise the total limit available to the FIIs for investment in corporate bonds to $40 billion. As most infrastructure projects set up a special purpose vehicle (SPV), investment in unlisted corporate bonds with a minimum lock-in of three years would also qualify for FII investment.
Cold Storage Units get infrastructure status. The India Infrastructure Finance Company Ltd (IIFCL) is set to disburse more than Rs 25000 crore in the coming financial year.
Another positive assertion about the implementation from next year makes Direct Taxers Code(DTC) sound realistic. Entities contemplating investments in the current year would need to consider the fact that the DTC specifies an investment-based exemption in the Thirteenth Schedule as against the present deduction from profits in Section 80-1B. Transitory provisions to the DTC could specify a phasing out of the present deductions.
The tax-breaks for investments in infrastructure bonds continue for another year while the newly created Infrastructure Debt Fund with withholding tax at 5 per cent and income exemption is another effort at attracting investments to the sector.
Infrastructure projects involve large financing and the combination of both attracts corruption. While tangible results are apparent from the encouragement to the sector, the lack of a definitive pronouncement on steps to tackle corruption – an attempt at a Corruption Audit would have soothed many- can be considered to be the biggest shortcoming. The Five-pronged strategy to tackle black money appears generalistic and has been in existence in some form through anti-money laundering law.
(The author is a Bangalore-based chartered accountant.)
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