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Sector Focus : Roads & Ports

Aviation

Sector Focus : Roads & Ports

• · A ten year tax holiday has been proposed for development of airports which can be availed of in the first fifteen years of operation.
• Progress: Post Union Budget 2000-01
• · Bids invited for privatisation of Air India and Indian Airlines
• · Draft of the Civil Aviation Act, 2000 prepared for better development and regulation of civil aviation including operation of air transport services to meet the needs of the people for safe, secure, regular, efficient and economic air transport; establishment of the Civil Aviation Authority.
• · Draft Civil Aviation policy was published and circulated for comments from public.
• · Preparatory work for long term lease of airports in four metro cities is in progress. The process of leasing is expected to commence in the first half of FY 2001-2.

Pending issues

• · Foreign investment in domestic passenger aviation services is permitted up to 40 per cent only by a company not involved in aviation services. As a result, there is no foreign investment in any company operating domestic passenger aviation service.
• · Redefining role of Airport Authority of India as a regulatory authority
• · Initiatives to attract private investment in construction of new airports and upgradation of existing airports. The aviation policy is expected to include provisions for the same.

Ports

Budget impact

• · A ten-year tax holiday has been proposed for the development of ports. It can be availed of in the first fifteen years of operation. This is expected to give impetus to fresh investment in the ports sector.
• · Port services have been included in taxable services and brought under the purview of service tax. It is expected that the service tax would be passed on to the users of ports and the user charges are expected to be affected adversely.
• · The rates of depreciation for ships and inland water vessels have been increased from 20 per cent to 25 per cent per annum. This will result in marginal cashflow augmentation due to tax savings, thereby providing the operators with opportunities to increase fleet capacity.

• · The process of corporatisation of major ports has been initiated. Ennore port has been corporatised and studies for corporatisation of Jawahar Lal Nehru Port are expected to get underway soon. Mormugao, Tuticorin and New Mangalore ports are also under various stages of corporatisation
• · A Model concession agreement and tender documents pertaining to private participation in major ports have been finalised by MoST. The model documents prescribe the terms and conditions of the license and lay down bidding procedures and selection criteria with respect to private sector projects being adopted by major ports.
• · Greenfield development of minor ports by the private sector in various maritime states and the privatisation of major port, is underway on a BOT basis. Cargo handling capacity of the major ports was enhanced to 314 million tonnes per annum in FY 2000-01. It is expected to increase to 376 million tonnes per annum in FY 2001-2002.

Pending issues

• · Amendments to the Indian Ports Act, 1908 enabling privatisation, and the Major Ports Trust Act, 1963 for facilitating corporatisation have been identified but are yet to be passed.
• · Labour reforms at the major ports (exit policy, mechanism for redeployment of labour, etc.) need to be addressed and initiated.
• · Tariff regulatory issues need to be reviewed in view of increasing competition, private participation and impending corporatisation.

Roads

Budget impact

• · Total outlay for the road sector has been enhanced by 93 per cent to Rs 87.3 billion.
• · For improvement of rural connectivity, Rs 25 billion has been earmarked from cess on diesel. Rs 9.6 billion are being made available from the funds collected through cess on diesel and petrol for development of state roads.
• · A ten year tax holiday has been proposed for development of roads. The tax holiday can be availed of in the first twenty years of operation.

Progress: Post Union Budget 2000-01

• · Work has been awarded for more than 1500 km of the Golden Quadrilateral in addition to the completed sections totaling 600 km. The balance portion is expected to be awarded by the middle of FY 2001-2002.
• · Resources for Phase I of National Highway Development Fund have been tied up. This phase is to be completed by December 2003.
• · Sections of the Mumbai - Pune Expressway opened to traffic.
• · NHAI has set up its own company-Moradabad Toll Road Company for constructing Moradabad bypass. The company has raised loans from the market to implement the project.

Pending issues

• · The Central Government has not delinked the funds collected through cess on diesel and petrol from the Consolidated Funds of India. This could result in delays in sanctioning of funds to the highway projects and could also impact the amount of budgetary allocation, in case of fiscal constraints on government expenditure.

• · The budget has also proposed a tax holiday of 10 years for other core sectors of infrastructure. These include, rail system, water treatment and supply, irrigation, sanitation and solid waste management systems (tax holiday has to be availed of in first 20 years of operation) and inland ports, waterways and industrial parks (tax holiday has to be availed of in first 15 years of operation).
• · For availing the tax holiday of 10 years, the period of commencement of business for industrial parks has been extended up to 31, March 2006.
• · Investment in Special Economic Zones has been brought on par with investment in industrial parks. The concessions available by way of a 10-year tax holiday will be available to the developers of Special Economic Zones on the same lines as developers of industrial parks. The income of investors making long term investment for the development of SEZs will also be exempt.

Rediff-CRISIL Budget Impact Analysis
Budget 2001

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