Thrust
on Infrastructure
Continues
Indian Budget
Focuses on Overall
Economic Growth
Finance Minister
P. Chidambaram
unveiled the
Union Budget
for the financial
year 2008-09
(April-March)
which attempts
to consolidate
and develop
on the three
key objectives
of - inclusive
growth, fiscal
consolidation
and building
a knowledge
society.
These three
objectives are
manifested in
the current
Budget through
the continued
thrust on agriculture,
education, healthcare
and infrastructure.
The Budget for
2008-09 has
been formulated
in the background
of moderating
growth, a difficult
international
environment,
unimpressive
agricultural
performance,
rising world
oil prices,
surging capital
flows and continued
infrastructure
bottlenecks.
Infrastructure
Higher
allocations
have been made
in the Budget
for some of
the infrastructure
sectors though
capital expenditure
as the ratio
of GDP shows
a decline. The
energy allocation
is higher by
30%, the roads
and transport
by 22% and communications
by 32%.
The total plan
expenditure
in the Union
Budget shows
an increase
of 17.3% over
the revised
estimate for
2007-08, though
this is just
about one-half
of the level
in 2004-05.
The Budget carries
the momentum
in the 11th
Five-Year Plan
by increasing
the allocation
for the sector.
Following are
the key initiatives:
Rural
Infrastructure
Development
Fund
• Corpus
for the Rural
Infrastructure
Development
Fund (RIDF)
XIV raised by
16.7 % to Rs140
billion in FY2008-09
with a separate
window for rural
roads. Allocation
for Bharat Nirman
Programme raised
by 27 % to Rs
312.8 billion
in FY2008-09
Rs.24603 crore,
which are in
the nature of
improving connectivity
and rural infrastructure.
Roads
National Highway
Development
Programme (NHDP):
• Allocation
for NHDP enhanced
to Rs.12,966
crore in 2008-09
from Rs.10,867
crore in 2007-08
• Completion
rate in the
Golden Quadrilateral
is 96.48% and
in the North
South, East
West Corridor
project is 23.36
% - special
attention being
paid to SARDP-NE
• 180
km of roads
construction
was completed
in 2007-08 and
300 km. of road
targeted for
construction
in 2008-09.
• 24 major
and medium irrigation
projects and
753 minor irrigation
schemes with
an outlay of
Rs.20,000 crore
against Rs.11,000
crore in 2007-08
initiated .
• The
general CENVAT
rate reduced
to 14% from
16%.
Higher allocation
to Bharat Nirman,
increased focus
on NHDP &
irrigation augurs
well for companies
engaged in infrastructure
especially companies
which are involved
in road construction
and BOT irrigation
projects such
as Jain Irrigation,
Madhucon Projects,
NCC, HCC, IVRCL
and Gammon India.
Further, reduction
in CENVAT will
be a key positive
for the sector.
Power
• Against
11th Plan target
for additional
power generation
capacity of
78,577 MW Commercial
Operation Date
(COD) on about
10,000 MW to
be achieved
by end March
2008.
• Ultra
Mega Power Project
(UMPP): Fourth
UMPP at Tilaiya
to be awarded
shortly
• Chhattisgarh,
Karnataka, Maharashtra,
Orissa and Tamilnadu
urged to bring
five more UMPPs
to the bidding
stage by extending
the required
support.
• Rajiv
Gandhi Grameen
Vidyutikaran
Yojana will
be continued
during the 11th
Plan period
with a capital
subsidy of Rs.28,
000 crore. The
budget further
allocates Rs.5,500
crore for 2008-09.
• Accelerated
Power Development
and Reforms
Project: Rs.800
crore to be
provided in
2008-09.
• A National
Fund for transmission
and distribution
reforms to be
created.
A total capacity
addition in
the power generation
sector has been
56,722-Mega
Watt in the
last three five-year
plans. Now the
government has
set an ambitious
target of 78,577
MW capacity
additions during
the 11th Plan.
This important
initiative will
go a long way
in addressing
the power deficit
in the medium
to long term.
Information
Technology
• Allocation
to the Department
of Information
Technology enhanced
to Rs.1,680
crore in 2008-09
from Rs.1,500
crore in 2007-08.
• Two
Schemes for
establishing
100,000 broadband
internet-enabled
Common Service
Centres in rural
areas and State
Wide Area Networks
(SWAN) with
Central assistance
under implementation.
• New
scheme for State
Data Centres
also approved.
• Rs.75
crore provided
for the common
service centres.
• Rs.450
crore provided
for SWAN and
Rs.275 crore
for the State
Data Centre.
• Customs
duty on specified
convergence
products reduced
from 10% to
5%.
•
Customs duty
on specified
raw materials
and inputs for
use in IT/electronic
hardware industry
reduced from
10%/7.5% to
Nil, on end-use
basis.
• Excise
duty reduced
from 16% to
8% on specified
convergence
products.
• Excise
duty increased
from 8% to 12%
on packaged
software.
• Allot
Rs. 100 crore
to IT ministry
to link knowledge
institutions.
• Three
new IITs to
be set up in
Andhra Pradesh,
Bihar and Rajasthan.
No
extension to
the STPI scheme
disappointed
the IT industry.
Few IT, hardware
components have
been exempted
from customs
duty this budget.
Focus on education
will also have
positive impact
on companies
like NIIT, Aptech
and Eudocom.
The imposition
of service tax
of 12% on customized
software and
higher excise
duty on packaged
software could
lead to increased
cost of IT and
could slowdown
the IT usage
in the domestic
sector. IT-BPO
industry, is
a talent and
skilled-based
industry - to
benefit by primary
and higher education
and skill building
initiatives.
Telecommunications
• General
rate of excise
duty (CENVAT)
reduced from
16% to 14%.
• Excise
duty fully exempted
on Wireless
data modem cards.
CVD shall also
be exempted
on imported
cards
• Customs
duty on specified
parts of set-top
boxes reduced
from 7.5% to
Nil.
• Reduction
in the customs
duty on convergence
products from
10% to 5%.
• Excise
duty reduced
from 16% to
8% on specified
convergence
products.
• National
Calamity Contingent
duty (NCCD)
at the rate
of 1% has been
imposed on mobile
phones.
Reduction in
the CENVAT and
cut back in
the custom duty
& excise
duty on convergence
product would
lower the burden
of levies on
the sector and
provide an incentive
for greater
investment for
expansion of
service. Exemption
of excise duty
and CVD on wireless
data modem cards
will reduce
the cost of
service for
the end user
and roll out
affordable services
to all areas
and especially
to the semi-urban
and rural areas.
All telecommunication
service provider
as well as manufacturer
like Bharti,
RCom, Idea,
Gemini Comm,
etc are going
to welcome such
an application.
The move to
levy 1% excise
duty would not
only increase
the price of
mobile phone
sets but also
restrict subscribers'
growth for mobile
services companies.
However, the
increase in
the disposable
income of individuals
may set off
this loss. Nonetheless,
allocation of
Rs.31,280 crore
for Bharat Nirman
is also going
to benefit the
sector.
With so much
focus on the
infrastructure
sector, it is
expected that
infrastructure
funds which
have been the
key out-performers
in the industry
of late both
in terms of
returns performance
as well as attracting
fund flows,
will continue
to occupy a
prominent place.
