India Budget 2015: Incentives for transportation infrastructure to attract significant investment, says Frost & Sullivan

In the sector wise Budget 2015-16 analysis, global consulting firm, Frost & Sullivan has said that the plethora of incentives and initiatives for transportation would auger well in terms of attracting significant investments. The key announcements made by the Union Government includes a national investment and infrastructure fund (NIIF), to be set up with an annual flow of Rs.20,000 crore to it, tax free infrastructure bonds for projects in the rail, road and irrigation sectors; revisiting and revitalising the PPP mode of infrastructure and encouragement for ports in public sector, to corporatise and become companies under the Companies Act to attract investment and leverage the huge land resources.

Srinath-Manda

While speaking about the impact, Srinath Manda, Programme Manager, Transportation and Logistics Practice, Frost & Sullivan said: “The multiple incentives announced for infrastructure sector are expected to attract significant investments into the sector and generate high momentum of development/growth activity within all its sub-sectors such as railways, roadways, ports and airports. NIIF could prove to be a major supporting entity on behalf of government for some critical yet cash strapped and delayed infrastructure projects to enable their faster completion/realization. Tax free infrastructure bonds for transport projects could also prove to be a notable aid for funding of infrastructure projects.”

In addition to that, the revitalisation of PPP mode in infrastructure development would lead to renewed interest in this activity for prospective investors and launch of new projects or faster completion of pending projects, he pointed out.

Transition of Ports into companies

Another notable incentive is the encouragement of public sector ports to transform themselves into companies and attract investments. This could prove to be a major driver for the country’s maritime infrastructure development because almost all the government owned ports (both major ports and minor ports) need scaling up of their capacities, systems and infrastructure, but are unable to do so being dependent on funding from government/public sources. Transformation into companies can help them to get listed on stock exchanges and enhance their value as well as procure large scale investments as witnessed in case of oil & gas companies. Such investments would help in improving these ports to match global standards, he noted.

The second announcement made by the government is the service-tax exemption for pre cold storage services in relation to fruits and vegetables such as pre-conditioning, pre-cooling and ripening. “Service tax exemption for cold storage services would prove to be a major driver for cold chain (or temperature controlled) logistics industry segment. Since this would reduce the cost of these service for the targeted users (manufacturers and traders of food, beverages, pharma and such products), use of these services may increase. All these developments would prove to be beneficial for cold chain industry participants. The existing and potential participants of cold chain industry should also take the benefit of incentives provided in previous budgets, such as customs duty exemption on imports of required equipment/systems for this industry, and expanding the industry’s footprint”, Manda said.

The third announcement is the service Tax exemption for Transport of goods for export by road from factory to land customs station. “Service Tax exemption for transport of goods for export by road from factory to land customs station (such as inland container depot or container freight station) is a notable incentive for exporters in the country. This move would enhance export competitiveness of Indian goods and thereby lead to increased exports from the country”, Manda concurred.

Manda termed the overall impact as positive. While delving deep into the overall analysis, Manda noted: “Frost & Sullivan believes that on the whole, this year’s budget has various incentives for improvement of transportation infrastructure in the country. This could lead to a faster completion of various ongoing infrastructure projects as well as pave way for several new project launches. The service tax exemption to cold storage services would prove to be a major driver for cold chain industry since their services would become more affordable for target users. Service tax exemption for export goods transport by road between factory and land customs station would enhance the export competitiveness of our Indian products and prove beneficial for the country.”

Growth Drivers

Speaking about the top five growth drivers, Manda added: “Developments related to implementation/realization of GST as desired/targeted by April 1, 2016 would prove to be beneficial for logistics service providers (LSPs) as user industries seek to reorganize their operations and turn to LSPs for addressing the post GST scenario needs. Multiple incentives given for transportation infrastructure would lead to significant scale of development/growth activity in all sub-sectors and contribute towards improved transportation efficiencies and other related benefits. Service tax exemption to cold storage services would prove to be a major driver for cold chain industry in the country. Government’s drive to enhance manufacturing activity in India under the ‘Make in India’ scheme is expected to create significant additional opportunities for the logistics industry.”

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