Sovereign Fund sops likely to drive infrastructure     

In a major move that is likely to help finance a huge infrastructure outlay, the finance minister Nirmala Sitharaman, in Budget 2020, has incentivised investment by sovereign wealth funds (SWFs) of foreign governments in the sector.

“In order to incentivise the investment by SWFs of foreign governments in the priority sectors, I propose to grant 100% tax exemption to their interest, dividend, and capital gains income on the investment made in infrastructure and other notified sectors before March 31, 2024, and with a minimum lock-in period of three years,” the finance minister said in her Budget speech.

The move may well be the crucial missing piece in India’s infrastructure story, which has suffered from a lack of low-cost, long-term financing. India requires enormous investments in the infrastructure sector that could be more than $1 trillion over the next four years.

Since 2015, several SWFs have set up shop in the country and the latest move to exempt their investment from tax may well accelerate the process. India already has the National Investment and Infrastructure Fund (NIIF) but has seen interest from others such as Singapore-based GIC, Temasek Holdings, and Middle East-based Abu Dhabi Investment Authority.

“Infra investments up to March 2024 from foreign SWFs to enjoy zero tax on interest, dividend, and capital gains—[is a] big step to boost infra investments in the short term,” said Vivek Gupta, KMPG’s partner and national head, M&A and private equity.

Apart from this exemption, the scrapping of dividend distribution tax (DDT) for corporates is also likely to reduce the costs of companies investing in infrastructure, making the sector more attractive.

The finance minister’s speech dwelt on the infrastructure sector for a considerable amount of time with several projects being elaborated on. The Budget has a lot to say on infrastructure—be it roads, railways, housing, and ports. In her Budget speech, the finance minister said that ₹1.7 lakh crore has been provided for transport infrastructure in 2020-21.

Just a month ago, on December 31, the finance minister launched the ₹103 lakh-crore National Infrastructure Pipeline (NIP), which came months after Prime Minister Narendra Modi had made an announcement about investing ₹100 lakh crore in the country’s infrastructure over the next few years.

Sitharaman said the NIP consists of 6,500 projects across sectors and are classified according to their size and stage of development. The projects are in several areas, including housing, safe drinking water, access to clean and affordable energy, healthcare, educational institutes, railway stations, airport, bus terminals and metro and railway transportation, logistics, and warehousing.

The finance minister proposed to set up a project preparation facility for infrastructure projects. The programme would actively involve young engineers, management graduates, and economists from universities. The Budget also proposed to direct all infrastructure agencies of the government to involve youth power in startups. They will help in rolling out value-added services in quality public infrastructure for citizens. She also stated that a national logistics policy will be released soon.

In the road sector, accelerated development of highways will be undertaken which will include development of 2,500 km of access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads, and 2,000 km of strategic highways.

The Delhi-Mumbai Expressway and two other projects would be completed by 2023 and work on the Chennai-Bengaluru Expressway would also be started, the Budget said. The finance minister also wants to monetise at least 12 lots of highway bundles of over 6,000 km before 2024.

Indian Railways, she said, aims to achieve electrification of 27,000 km of tracks. Besides, more Tejas-type trains will connect iconic tourist destinations, and a high-speed train between Mumbai and Ahmedabad would be actively pursued. On ports, she said the government would consider corporatising at least one major port and subsequently its listing on the stock exchanges.

About air traffic, she said 100 more airports would be developed by 2024 to support the Udaan scheme and it is expected that the air fleet number shall go up from the present 600 to 1,200 during this time.