Infrastructure has received a booster shot of Rs 70,000 crore and another Rs 24,000 crore of increased outlays on roads and railways. This would take the existing spend on infrastructure for 2015-16 from Rs 2,10,000 to Rs 3,04,000 crore plus the funds created as an outcome of the seed money invested in National Investment & Infrastructure Fund which in turn will find its way into infrastructure funding companies like IRFC & NHB where they will evolve with a factor of ten. The PSUs too have been asked to enhance their capex spend with an infusion of Rs 80, 844 crore. Around seven per cent of the GDP is locked in stalled projects, out of which 85 to 88 per cent in the private sector; - projects worth Rs.8.7 lac crore are stalled due to the difficulties in clearances; litigations and other financial issues. Incubating a project and then handing it over for investment as fully ready, has been done in the past - the Mumbai-Pune Expressway project - the model unfortunately was not emulated elsewhere. The government´s plan to set up five ultra mega power projects of 4,000 mw each under this new model means the contractor can start implementing the project immediately without bothering about all the regulatory clearances, coal and gas linkages. Logically speaking, this will infuse fresh blood in the construction equipment sector, specifically foundation equipment and high tonnage cranes and supporting lifting equipment, apart from earthmoving and concrete equipment. However, on a medium term, it would be the coal mines which have been recently auctioned which will show more definite will in implementing an aggressive expansion plan for capex as they have actually committed an investment of Rs 1,00,000 crore in the mine rights.
The numbers published by ICEMA clearly shows that there is a slight uptick on the larger equipment like excavators and wheel loaders. In the smaller equipment like mini excavators, backhoe loaders etc have still to pick up the trend. The sharp increase in the outlays for roads and railways augurs well for the CE industry. Import duties on Commercial Vehicles is set to rise from 10 per cent to 40 per cent making locally manufactured vehicles much more attractive as the economic cycle assumes an upward journey. Excise duty has been marginally increased across the board from 12.36 per cent to 12.5 per cent. The announcement of the introduction of GST from 1st April 2016 will enable cross-country trade dynamically enhancing momentum adding nearly 2 per cent to the GDP. The adoption of the 14th Finance Commission recommendation will also enable cooperative and competitive federalism thereby leaving a larger share of the central tax revenues with the state and vendors may have many more opportunities arising from the state governments than earlier. On the flip side, the realty sector seems to be disappointed as there was no major impetus given to it. The increase of freight charges by Railways is expected to increase the price of coal, steel and cement. Further, the increase in service tax, is also expected to hurt. The extended dip in demand will indirectly impact CE segment, especially the concreting, lifting and hoisting equipment segments.
Overall, the budget has brought infrastructure back to the front and in expeditious execution lies the key to the rainbow ahead.