State-Run Infra Companies Can Hope For Reintroduction Of Tax-Free Bonds, Says Report

In infra, it is the highways where the government had increased allocation by 6 per cent and set aside Rs 83,000 crore for the 2019-20 interim Budget.

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State-Run Infra Companies Can Hope For Reintroduction Of Tax-Free Bonds, Says Report
New Delhi: 

The government may consider reintroduction of tax-free bonds to raise capital for the infrastructure projects in its full-year budget for 2019-20, sources said. Introduction of tax-free bonds to boost investment is a usual way for raising funds by infra companies or PSUs, sources said. If that happens, the National Highway Authority of India (NHAI) could be an immediate beneficiary.

If one sector which is likely to get maximum Budget focus after social sectors in the upcoming Budget, it is infrastructure, said the sources. In infra, it is the highways where the government had increased allocation by 6 per cent and set aside Rs 83,000 crore for the 2019-20 interim Budget.

The highways sector has been one of the best performing areas of the government with the expenditure rising from Rs 34,345.2 crore in 2014-15 to Rs 78,625 crore in 2018-19. In its Interim Budget presented in February, the government had allocated the highest-ever budgetary support of Rs 83,016 crore to the highways sector, but it was less by Rs 2,000 crore of the 2018-19 Budget allocation.

Infra majors can hope Budget to approve fresh issue of tax free bonds to raise capital. NHAI chairman NN Sinha said the Road Transport and Highways Ministry has asked for Rs 37,000 crore for the 2019-20.

Sources said government needs capital in the infra sector to revive the economy and tackle unemployment. With tax revenues slow, the funds have to be raised from market, so, tax-free bonds are a good option.

Tax-free bonds, issued by the government enterprises, are considered attractive by investors as they offer a fixed interest rate and are a low-risk investment avenue. They most attractive feature is absolute tax exemption as per Section 10 of the Income Tax Act.

The tax-free bonds generally have a long-term maturity of typically ten years or more, and government invests the money collected from these bonds in infrastructure and housing projects. Qualified institutional investors such as trusts, co-operatives and regional banks and corporates are regular investors in tax-free bonds. Individuals, including members of Hindu Undivided Families (HUF) and NRIs as well as high net-worth individuals, often choose this to diversify their portfolio.

There are many public undertakings that offer and issue tax-free bonds. NHAI, NTPC, Indian Railways, Rural Electrification Corporation, Housing and Urban Development Corporation, Indian Renewable Energy Development Agency, Rural Electrification Limited and Power Finance Corporation are regular issuers of tax-free bonds.

NHAI has no less than 10 bond issues active in the market. Coupon rates typically vary from 7.14 per cent to 8.3 per cent. The tenures are of the order of five or ten or fifteen years. Some are due to mature in January 2022 while others as late as 2031. All have face value of Rs 1,000 and all are trading at premium ranging from 10 per cent to 20 per cent.

NHAI bonds are active in the secondary market and are readily available.



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