India Ratings & Research (Ind-Ra) believes that the proposals in the Union Budget 2014-15 are neutral for the construction sector in the short-term, though the government’s emphasis on infrastructure creation is a positive in the medium-to-long term.

The budget has proposed ambitious targets for infrastructure development. But it remains to be seen when these projects will be awarded, given the recent actual performance. For instance, according to the Economic Survey 2013-14, 1,436km of road projects were awarded in FY14 (FY13: 1,116km) and 1,901km of road projects were completed (2,844km).

The bidding interest for public private partnership (PPP) projects has been reducing given the precarious financial condition of construction players and their lack of funds. The proposal to set up an institution to develop more nuanced and sophisticated PPP models is a positive step, as it could help avoid the pitfalls of the existing models and attract developers once their financial condition improves.

The introduction of infrastructure investment trusts and clarification that tax would be a pass-through will also help develop another source of funds for PPP projects. Construction companies which also own completed PPP assets will be able to monetise their investments. It would also encourage price discovery for completed PPP projects and improve bidding efficiencies.