WEDNESDAY l MARCH 6 l 2013

w w w. f i n a n c i a l e x p re s s . c o m

Infrastructure 11

Nothing much to cheer about

Non-adversarial approach in tax administration is a welcome relief
partners should be a positive step in reducing the dependence on imported coal. Further, the FMs proposal to equalise import duties (customs and countervailing duties) on steam coal and bituminous coal should help the nation import higher quality coal at a uniform rate. This should help coastal power plants import coal cheaper, but would impact most other companies that import low-value coal. Companies that were importing higher quality coal were being forced to pay an import duty of 6% while those importing low-quality coal were paying only a countervailing duty of 1% earlier. Following the clarification, taxes on both variety of coal have been equalised. Theintroductionof generation-based incentives for wind energy projects is a right step in moving towards clean energy . This would reboot the wind energy sector which has been in trouble owing to the lack of incentives and high cost of capital.

BUDGET

AKHIL SAMBHAR

HE Economic SurveyandtheFinance Budget, though, reemphasised the importance of the infrastructure sector for the economy , no significant benefits were presented by the finance minister in the budget. The budget speech mentioned the historical figure of $1trillionexpected infrastructure investment in the 12thPlanandtheneedforprivate investment to hit that figure. In tune with this, the FM has proposed some measures to attract private investmentinthesector,such as the infrastructure debt funds (IDFs), tax-free bonds, and allocation for the freight corridor project. These should increase investment in the infrastructure sector. Constitution of a regulatory authority for road sector, as announced in the budget, to monitor the challenges faced by the road construction firms to pro-

vide transparency and thus boostinvestorconfidence. Announcements for shipping and aviation sectors-related reforms such as introduction of a new waterway , movement of bulk cargo through coastal shipping and concessions to set up MROs (maintenance, repair & overhaul units) should facilitate in reviving the shipping industry , which has been consistently ignored in the past budgets. The minister has proposed to establishtwo new portswitha capacity to handle 100 million tonnes eachandtoimprovetheconnectivity of national waterways, roadsandportsforeasiertransportation within the country . The proposal to devise a PPP policy framework with Coal India Ltd as one of the

Taxation

On the direct tax side, the budget hasnt brought in much for theinfrastructuresector.Asexpected,thefinanceministerhas extended the sunset clause for tax holiday available for the power sector by a year (till March 2014), which should drive project owners for completion of ongoing projects before March 2014. However, the same would not be helpful in attracting fresh investments in the sector. Further, the proposed increase in surcharge rates would increase the minimum alternate tax (MAT) and dividend distribution tax (DDT) rates for companies, which would automatically increase the tax cost. The tax incentive on investmentsinplantandmachinery exceeding R1 billion should driveinvestmentsacrossindustry segments. Technology sharing is vital to the technology-deprived infrastructure sector. The proposed amendment to increase the

tax rate on royalties and fee for technical services from 10% to 25% is a steep rise considering the value that the foreign companiesbringtothesector. However, the silver lining is that the lower rates applicable under relevant double taxation avoidance agreement (DTAA) could be availed of (most of the countries with which India has a DTAA have a rate in the range of 10-15%). But payment to foreign service providers from non-tax treaty countries such as Hong Kong would be taxed at 25% plus surcharge and cess. The budget, however, disappointed foreign investors by failing to deliver the much-anticipated cut in withholding taxes for debt investments and creating confusion with a proposalthatappearedtotargettax treaties. The proposed levy of 20% tax on buyback of shares by unlisted companies will not only dent foreign investment but also add to the woes of foreign investors towards unstable Indian tax regime. Earlier, the buy-back transaction was subject to capital gains on which tax treaty protection was available to the foreign resident. The new provision provides that Indian unlisted company will have to paya20%taxondistributedincome on buy back of shares. Distributed income has been defined to meanconsideration

paidbytheunlistedIndiancompany as reduced by the amount received by the unlisted Indian company for issue of such shares. Moreover, this may give the investor an impression of changing tax regime. Changes as were promised are incorporated in GAAR provisions (definition of impermissible transaction and tax benefit introduced, and clarificationsonfactorsfordeterminingcommercialsubstancehave been provided.) Implementationof GAARfromApril2016is a welcome move, as this will build at least some confidence in taxpayers and allow them time to gear up for GAAR. Theindirecttaxeshavehardlyseenanyactioninthisbudget other than few cosmetic changesinthetaxrates. The current budget seems to be presented on a cautious note incomparisontolastyearssubstantial changes that were brought about through various retroactive amendments. The budget has a long-term aim of reviving the ailing economy . Though there are no bigbangannouncementsorpolicy initiative on the tax front, the government has assured tax payers with a non-adversarial approach in tax administration. The announcements are positive, but implementation is the key . It would be interesting to see how many of the proposals will eventually materialise in improving the country's infrastructure. The author is directorinfrastructure practice, Ernst & Young. Vinay Aggarwal, senior tax professional, also contributed to the article. Views are personal

Designing is changing the dynamics of infrastructure industry

ture underpins a highly productive environment. Use of 3D visualisation and designing to improve understanding of the connections and interdependencies in an area helps investors/ government develop improved methods of evaluating infrastructure benefits. Technology today can manage the entire life cycle of a project from its conception, through design and construction, to service during lifetime and decommissioning. This helps businesses and governments in coping with the constantly escalating complexities and engineering challenges of large and complex projects, keeping in view the and environment and sustainability aspects. Such technology platforms provide business and people with virtual universes to imagine sustainable innovations in infrastructure. Such approaches are reducing risks and liabilities in infrastructure projects around the world. Advanced3Dvisualisation,simulation and analysis of designs reduce overall project costs as well. The author is vice-president, business transformation, Dassault Systemes India

Collective visualisation

3D TECHNOLOGY

Special wagon space is vacant

Private players should take the lead to bring labour-saving wagons and devices
FTER the invention of the wheel, railways is perhaps the most significant inventionforeconomicdevelopment,offering the most efficient means of surface transport of goods. A steel wheel rolling over a steel rail gives railways a significant advantage over road in fuel efficiency . Forinstance,a4,000hpdiesellocomotive will haul a 45-wagon train with a 3,000-tonne payload that would otherwise need 200 trucks of 15 tonne capacity , each powered by a 150 hp diesel engine, totalling 30,000 hpnearly eight times that of a train locomotive. Railways also provide seamless transport across state boundaries avoiding octroi posts and other man-madehurdles.Aroadvehicle, however, is inescapable for the last mileconnectivity ,providingplantto-godown delivery . A truck is also more suited for transport of small consignments. Also, a truck has to seldom return empty , which is not so with rail wagons, which have to return empty , especially when carryingcoaltoathermalplant. Rail transport is no rocket science, yet the system needs to be highly reliable, fast and safe and carry goods at the lowest possible unit cost. For this, it has to substantially reduce manpower costs throughmechanisationof loading and unloading operations. Recognising this, over the years, the Railways has added, to its fleet of 250,000 general purpose wagons, special wagons, like the bottom discharge ones for carrying coal, iron ore, cement and alumina. Flat wagons with special pockets have been designed to carry steel coils. Tank wagons with high pressure vessels carry liquid ammoniaorLPGondedicatedsectors, while wagons designed for double-decker loading carry Maruti cars from Gurgaon to Mumbai and Mundra. Mechanised bulk loading through silos has, however, been limited. ContainerCorporationof India (Concor), a subsidiary of Indian Railways, has developed capability for carrying small, high-value white goods and export-import cargo in inter-modal containers,

LOGISTICS

AJAY VERMA

RC ACHARYA
moving 2.4 million TEUs (twenty foot equivalent units) last year, in the process capturing almost 80% of export-import traffic. It has also started carrying perishables with a fleet of insulated containers for carrying bananas fromJalgaonandBhusawalinMa-

NIndia,poorinfrastructureis agrowthhurdle.Manyempirical studies link growth in GDP to availability of scalable and world-class infrastructure. Roads, highways, mass transport systems, power generation capability , bridges, ports are all areas where nation has to get on an accelerated path, if it is to be counted as a major economic powerhouse of the world. Theinfrastructureindustryin Indiaisatvariousstagesof maturity in terms of usage of technology and global competitiveness. There is an opportunity for companies to evolve and adapt to new generation technology without going through some of the inter-

mediate stages that companies in other parts of the world would have had to. One such opportunity is 3D modelling. Design tools and technologies such as the 3D Experience Platformallowallstakeholderstoparticipate in every element of project conceptualisation, detailed design, study of impact, usage of lean/green practices, material and design compliance, etc. Using design technologies, it is possible today to simulate how displacements would impact habitat, transportation and oth-

er allied servicesbe it in an urban area or in the hinterland. This in itself is a huge helpenabling projects to factor in these aspects and socialise with the affectedaudiences,andtherebyensuring projects come up on time and within budget. Such 3D visualisation and design technologies also helps in studying the viability and feasibility of some of the most complex projects. Infrastructure investment in terms of designing for growth is crucial. Designing in infrastruc-

wagons to carry coal, limestone and iron ore, special hopper wagons carry granular material such as fertilisers, food grain, cement and alumina, with track-side silos for loading and bottom discharge facility for bulk unloading and storageatthedestination. A major share of the car transport is by special double-decker wagons with high level platforms at both ends to ensure fast and safe loading and unloading of cars for delivery from plants to consumers acrosstheUSinpristinecondition. Covered wagons with large sliding doors or slding/swinging roof ease loading/unloading with cranes and forklifts for packages or crates, while perishables are carried in insulated wagons fitted with on-board refrigeration facility for cooling and control of air quality .

INFRA-MONITOR
Power Generation

Billion KWh

POWER GENERATION BY UTILITIES

Hydroelectric Thermal Nuclear Bhutan import

2011-12
Apr-Dec

876.887 580.664 683.753 4.55

130.510 100.178 92.543 -13.9 8.55

708.806 454.404 560.879

32.286 21.183 24.653 3.54

5.285 4.898 4.677 -7.49

2011-12 2012-13

Growth (%)
Source: Ministry of power

harashtra to markets in Delhi and Kolkata. Meat products are carried from Delhi and Kanpur to Mumbai for exports in special 44wagon rake loaded with Reefers (refrigerated containers), with one power car marshalled in the middle providing the energy to run the refrigerator units. However, in the highly competitive transport market in the USA, special types of wagonsmostly ownedbyeitherashipperoraleasing company that would then hire it out to various usersoccupy a dominantplace.Eachtypeisdeveloped to carry a particular commodity that yields substantial economies of scale and lower handling costs by extensively using variouslabour-savingdevices. Inadditiontotheopengondola

Possibilities for replicating such facilities here are unlimited butinvolvelarge-scalefinancialinvestments. But logistics players have been slow to venture in, given the vagaries of the business environment compounded by the Railways penchant for frequently changingpoliciesandtariff. Adequate volumes are a prerequisite for even a small fleet of special types of wagons to make any economic sense. Given the Railways scarce financial resources and the Planning Commissions liking for the public-privatepartnership(PPP)route,time isnowripeformajorlogisticsplayers to enter the space. The author is former member , Railway Board