Can only bond with PSUs PDF Print E-mail
Monday, 19 March 2012 00:00
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Tax-free bonds for PSUs hit private players

Faced with the problem of providing a financial leg-up to infrastructure projects, to make them attractive for banks to lend to, the Economic Survey on Thursday suggested a calibrated system of government guarantees for some of them. Faced with the same question a day later, the Budget has instead decided to make fund-raising for some of them, only the ones owned by the government, tax-free. It has doubled the tax-free bonds public sector financial institutions can raise to R60,000 crore despite the experience of this fiscal. These bonds have all but killed the long-term debt raising plans of all private sector infrastructure companies. A government that can speak in two minds on the most engaging development problem for the economy on two successive days is more than strange; it shows a deep policy vacuum.

Whether as a developer or as the lead contractor, L&T Infra is India’s foremost player in the infrastructure space. Yet, when it tried to raise money in December and in February, there were few takers. The same applies to the bonds issued by the private sector IDFC. By contrast, the Indian Railway Finance Corporation’s (IRFC) bonds got lapped up very quickly even though the organisation IRFC raises money for is all but bankrupt. Given L&T Infra’s rock-solid reputation, the real difference between the two bonds was IRFC’s tax-free status. To add salt to injury, the R20,000 window available to private infrastructure players through the 80CCF list of exemptions—if R20,000 is invested in infrastructure projects, this gets deducted from your taxable income—has been withdrawn in Friday’s Budget. Given that around half of infrastructure investment in the 12th Plan is likely to come from the private sector, surely a tax-free status can no longer be the preserve of just PSUs?



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