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Budget 2012: A Mixed Bag for Infrastructure and Real Estate

  • By GRK Reddy, chairman & managing director, MARG Group

  • For infrastructure and real estate sectors, the Union Budget 2012-13 throws up a mixed bag in terms of positive measures and disappointments. However, amidst a backdrop of rising inflation, tight liquidity, high interest rates, industrial slowdown, delayed reforms and a negative market sentiment, the budget at best can be described as 'realistic' and to a large extent 'growth oriented'.

  • INFRASTRUCTURE: A string of measures by the Finance Minister to boost investment in the infrastructure sector is most welcome. I am sure that the below measures will propel the economy to a healthy growth trajectory in the coming years.Concrete measures for the growth of infrastructure in India have been taken as part of budget 2012-13 by creating adequate funding mechanisms

  • Tax-free infrastructure bonds doubled to Rs 60,000 crores - This is a welcome move in creating access to funds for infrastructure projectsPower plants to benefit significantly from access to ECBs, tax holiday for power plants that commence generation by 31.03.2013Cascading effect of DDT (Dividend Distribution Tax) has been eliminated - To benefit infra companies that typically operate with an SPV model.

  • REAL ESTATE: Measures in budget 2012-13 have largely been disappointing except for some interventions in the affordable housing space.Interventions such as awarding infrastructure status to realty, access to ECBs (except for affordable housing) would have significantly benefited the industry by reducing capital costs

  • Interventions such as increase in income tax exemption on principal & interest would have boosted demand. Instead, the increase in service tax by 2% along with the prevailing high interest rates will further negatively impact demand. Only silver lining is the extension of 1% interest rate subvention loans upto Rs. 15 lacs for housing projects upto Rs.25 lacs by 1 more year and ECBs for affordable housing.However, it would have had more impact if a broader price bracket was coveredSEZ: The delay in implementation of the Direct Tax Code (DTC) and the continuing lack of clarity with respect to SEZs is a big disappointment.

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