India’s new Finance Minister presented the much awaited 2014 union budget on 10 July 2014. We set out below key areas that are likely to be of relevance to the international market looking for opportunities in India:
- The cap for foreign investment in Defence and Insurance sectors has been increased to 49%.
- An institution (3P India) to be set up to support public private partnerships, reflecting the Government’s commitment to PPPs going forward for developing public infrastructure.
- Favourable tax structure and incentives have been proposed for Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts that provide certainty and are likely to lead to an uptake in the use of these structures for funding infrastructure developments.
- Funding real estate and infrastructure projects is likely to get a boost in light of relaxation of the cash reserve ratio and the statutory lending norms for long-term money from banks for infrastructure financing.
- 100 ‘Smart Cities’ to be developed and in excess of Rs. 70 billion (£700m) allocated for this purpose.
- Manufacturing companies investing more than Rs. 250 million (£2.5m) in new plant and machinery on or after 1 April 2014 will be permitted a 15% deduction on account of costs of new assets for the purposes of calculating taxable income. This is in addition to the permissible deduction for depreciation for the plant and machinery.
- The concessional withholding tax of 5% on interest paid by Indian companies in respect of foreign borrowing has been extended to any type of bonds (not just infrastructure bonds as was the case previously) until 1 July 2017. This is likely to open up the Indian borrower market to a wider international audience.
- Amendments to the tax legislation that permit retrospective taxation have not been withdrawn. However, the Finance Minister emphasised that this Government will not usually implement retrospective amendments to tax rules.
- Investments are envisaged in relation to metro projects (Lucknow and Almedabad), pipelines to complete the gas grid (via PPP models) and new airports (via PPP models).
Whilst the budget does not contain blockbuster reforms that certain segments of the market had expected, the budget appears to have received a positive welcome from the market.
Infrastructure development is a key priority for this Government and this has been reemphasised by this budget.
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