The potential growth in the Indian infrastructure sector presents a promising investment opportunity for private sector players, including foreign investors, says Abhishek Goenka, Partner, PwC India.
What are the steps that have to be taken to make infrastructure projects a more bankable proposition for the private sector?
A number of steps have to be taken to improve the bankability of infrastructure projects. The first step is to have a nodal agency to resolve the legacy issues because of which the projects are stuck or are NPAs. This will ensure that capital locked into these projects is released for fresh projects and will increase the confidence of banks in lending to infrastructure projects.
There is also a need for a quick and efficient dispute resolution system which ensures timely compensation of the affected party. This will ensure there is no delay in projects. Also, there is scope for having a better contractual framework which is enforceable and covers the risks adequately.
By when will the infra market space in India become mature enough for private sector players to participate and bid for road, bridge, rail and national highway creation projects on a PPP model? What more can the government do?
The Government of India has taken commendable steps to re-invigorate the Indian infrastructure sector for private and foreign participation. In order to ensure that the plans and policies actually translate into action at the ground level, it is important for the government to maintain its thrust on execution.
Some of the key suggestions to address the important challenges and revitalise the infrastructure sector as a bankable proposition for private sector are summarised below:
India has its own set of challenges and it is imperative to remain open to policy innovation and framework calibration to develop India-specific workable solutions. On balance, the potential growth in the Indian infrastructure sector presents a promising investment opportunity for private sector players, including foreign investors. The success of the next phase of the Indian PPP story would now hinge on the speed and efficiency in addressing the key issues and prioritising action on some of the most pressing challenges.
The Indian government and the NHAI have already taken initiatives to support PPP growth, and over time, new models (Hybrid Annuity, Toll-Operate-Transfer) have emerged (and are still emerging) to address risk and challenges faced by the private sector players.
What are the GST implications for infrastructure developers and EPC contractors with first indicators suggesting a higher-than-expected effective GST tax rate?
Presently, both VAT and service tax are applicable on works contract which has resulted in higher tax burden and litigations for infrastructure projects. The Model GST Law specifically provides works contract to be a service which seems to put to rest as to how a particular contract involving both supply of goods and services should be taxed.
Could you identify the pain areas that still need resolution before the new GST regime comes into force?
The eligibility to avail credit seems to be restricted with regard to goods and services acquired for the purpose of construction of immovable property. The project cost may be impacted due to GST credit restrictions, which needs to be addressed in the final GST Law.
Again, free of cost supplies by project owners to contractors is likely to be liable to GST. The contractor may need to include value of such free supplies in the value of his services. This could increase the tax cost or the working capital requirements. Apart from the above, there are other issues in the Model GST Law which need to be addressed such as the complexities in valuation of services with related persons, documentation for inter-state movement of goods in a scenario wherein the timing for raising the invoice has not arisen yet, continuity of exemptions/concessions, etc.
How would GST differ for infrastructure developers vis-a-vis infra contractors?
There seems to be a restriction on the developer to avail input tax credit on goods & services acquired for the purpose of construction of immovable property. This could lead to higher tax costs for the infrastructure developers.
Is viability gap funding (VGF) going be indispensable for infrastructure development in India, post GST?
The need for VGF would be dependent on continuity of exemptions, eligibility of tax credits, rate of tax, other aspects of the Model GST Law and their ultimate impact on the infrastructure sector, which would be clear once the GST Law is finalised.