india budget 2018 budget analysis ... the salaried tax payers too expected a cut in the tax and a no...
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Contents
Introduction Financials
Expectations Announcements & Implications
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Introduction
Introduction
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Union Budget 2018 was having a decent built-up as it was touted to be the last budget possibly for this Government because
the polls are forecasted to be organized by the end of this year. Much to the anticipation the Budget pushed for scores of
benefits and incentive packages for the farmers and economically poor segments of the economy, perhaps purely resting
eye‘s on poll bound country. Undoubtedly, the identification of Indian economy globally has been that of an agrarian one and in
line with the identity Government did chose to be focused upon agriculture and rural gamut of the economy. Much to the
delight of the farmers scores of incentives and schemes were announced in favor to realize the objective of doubling an
ordinary farmer‘s income by double till 2022.
The salaried tax payers too expected a cut in the tax and a no revision in taxation scheme for them might dwell neutral for them
and with facility of raising the standard deduction towards travelling and medical allowance shall add to their comfort. For the
industry the Budget 2018 appeared more of a scorecard than actual announcement and was more of an extension of already
existing schemes with an enhanced allocation. Talking in particular for the energy & infrastructure sector Union Budget 2018
did offered positives in a way by extending some the recently announced schemes as for instance ―Saubhagya Scheme‖ for
power sector. Arguably, though Budget 2018 in our opinion perhaps was missing the very push what could lead to a further
bullish energy segment especially for the renewable space.
The purpose of utilizing technology appeared another major takeaway from the Budget 2018 in which the Government focused
on embedding smart tech in developing cities and other key infrastructure projects which shall enhance safety and security.
This year the allocation of infrastructure sector stood at INR. 50,000 Crores, which factored multiple schemes like smart city
mission, AMRUT scheme, embellishment of road infra both at national & state levels, railways infrastructure improvement
(inclusive of station & gauge's), airports development and application of AI & IoT in a larger way under the energy & infra
space by urging more private investments. Government has also announced the finance ratings of the major cities in the
country which is likely to be the key index for investing in the country. Further, strong investment market is also likely to be
promoted by the Government for energy & infrastructure sector of the country as more leeway shall follow post the
strengthening of bond‘s market. However, if all the industry expectations are factored against what Union Budget 2018 has
dished out it arguably rests as an industry languish fiscal in sighting for the FY 2018-19. Although, there still remains scores of
positive which the players in energy & infrastructure sector shall like to harp upon and build following which we have
attempted to determine the implications on these sectors based upon the budgetary announcements and allocations.
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Introduction Home < >
Financials 2018-19 - Snapshot
FY 2016-17
(Actuals) (Billion INR)
FY 2017-18 (Budget Estimates)
(Billion INR)
FY 2017-18 (Revised) (Billion INR)
FY 2018-19 (Budget Estimates)
(Billion INR)
Revenue Receipts 1374203 1515771 1505428 1725738
Capital Receipts 600991 630964 712322 716475
Total Revenue Receipts 1975194 2146735 2217750 2442213
Total Expenditures 1975194 2146735 2217750 2442213
Revenue Deficit 316381 321163 438877 416034
As a percentage of GDP 2.1% 1.9% 2.6% 2.2%
Effective Revenue
Deficit
150648 125813 249632 220689
As a percentage of GDP 1% 0.7% 1.5% 1.2%
Fiscal Deficit 535618 546531 594849 624276
As a percentage of GDP 3.5% 3.2% 3.5% 3.3%
Primary Deficit 54904 23453 64006 48481
As a percentage of GDP 0.4% 0.1% 0.4% 0.3%
Source: India Budget 2018-19
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Introduction Home < >
Summary of Expenditure
Source: India Budget 2018-19
Central Sector
Schemes
24.27%
Other Central
Expenditure
23.22%
Establishment
17.40%
Finance Commission
Transfers
3.75%
Other Transfers
4.51%
Centrally
Sponsored
Schemes
10.47%
Resources of Public
Enterprises
16.38%
Summary of Income
Corporate Tax
28.40%
Personal Income Tax
23.10%
Excise Duty
21.30%
Services
14.40%
Customs
12.80%
Financials
Budget Expectations – Energy Resources
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Overview
When it comes to harnessing the economic growth for any country its energy resources are extremely pivotal. The development pace of these resources shall
be a clear determinant of growth paradigm for the country as well. Last year of the total infrastructure funds of INR. 3,96,135 crores were allocated for the
infrastructure development and is expected to be in the similar tune for this Union Budget too.
Key Issues for Sector
Power for all by March 2019, seems a bullish target for now and GoI has to revamp the speed of augmentation meeting up this deadline. Moreover, with
fiscal buoyancy embellishment it is expected that the expenditure outlay shall increase for the very purpose of schemes like ―Saubhagya‖
More policy reforms are expected to decrease India‘s reliance on imports for oil & gas sector in country which consumes about 15% of the GDP. More
emphasis on domestic exploration and production required.
Solar sector is witnessing scores of equipment being imported from South Asia region in the country which is hampering the interests of the domestic
OEMs and thus a push for promoting anti-dumping duties are rising. However, in case of enhanced anti-dumping duties the country shall stare at
escalation in prices of modules which will averse the capacity growth planning
Mining sector in India carries risk of non-productive mines wherein the companies invest large capital. Insignificant or no production from some mines
results in high cost which turns futile for companies. The sector needs integrated policy & regulatory reforms boost in the form of subsidies, cheaper funds
from government
Expectation from Union Budget 2018
Reduction in corporate tax rate from 30% to 25% anticipated to be applied for all sectors as it is yet to be applied all across uniformly
Abolition of MAT (Minimum Alternative Tax) has been a gripping agenda for infra & energy participating companies in India. It is expected that the MAT
provisions shall be done away with
Electricity needs to be put under zero rating items under GST regime so that input tax credit can be claimed
The proposal for tax consolidation for energy & infrastructure sector is long anticipated and is expected to find a mention in Union Budget 2018.
Application of anti-dumping duties on solar panels is another announcement which industry anticipates. However, the levels shall not be beyond 10-15%
Removal of generation-based incentives, reduction in accelerated depreciation rate and removal of section 80-IA benefit has affected the power sector.
Independent power producers expect revival of some of these incentives or new sops
Financials
Budget Expectations – Energy Sources – Power Generation
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Overview
The gaining momentum for renewable energy in India provides for promising future in India and the development of these resources are likely to take center
stage in the Budget 2018 as well. However, the thermal side of the power generation too needs an improvement and investment flow keeping the COP21 in
mind some relief for IPPs and OEMs are expected in this year‘s budget.
Key Issues for Sector
Government has embarked on ‗24X7 power for all‘ by March 2019, and also set target of 175 GW of renewable energy capacity by 2022, which would
require multi-fold growth
Huge amount of foreign investments shall be required in the renewable segment for the Government to achieve the target of 175 GW by 2022
Uncertainty of the Tax structure for the IPP‘s and Captive power producers in the country and reduction of MAT being applicable for the power generation
sector
Expectation from Union Budget 2018
Exempt power and renewable energy businesses from provisions of section 94B of Income-tax Act on limitation of interest deduction
Roll out geography-based tax incentives for renewable energy clusters such as solar parks, wind energy farms
Extend investment-linked deduction under section 35AD of Income-tax Act, to firms engaged in generation and /or distribution and transmission of power,
similar to infrastructure projects
Customs duty on import of power plant equipment for captive power generation should be exempted to improve cost competitiveness of Indian industry
Exempt /rationalize levy of MAT for power generation business and customs duty on import of power plant equipment for captive power generation should
be exempted to improve cost competitiveness of Indian industry
Duties/cess on captive power generation be subsumed in GST since such levies adversely impact advantages of setting up captive power plants
Installation of solar roof top under EPC contract should be considered as supply of ‗solar power generating system‘ (taxable at 5 percent) under GST
Renewable Energy Certificates should be exempt from GST
Government should consider exemption of GST on goods/ services rendered to setting up and operation of power plants should be exempt from GST
Financials
Budget Expectations – Oil & Gas Sector
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Overview
Undoubtedly demand wise India stands as one of the leading country of the world for oil & gas and boasts an overall share of 5.3% in global
energy demand. According to BP Energy Outlook 2016, India's energy consumption is projected to grow at 4.2% per annum, up to 2035, faster
than all major economies in the world. With this fast pace demand and continued dependence on fuel imports to meet its energy demand,
ensuring energy security is crucial to sustain the country‘s growth momentum.
Key Issues for Sector
Significant initiatives undertaken to overhaul energy policy including HELP to replace previous NELP & introduction of demand-based
bidding under OALP instead of cyclical bidding
Shift from cost recovery model to progressive revenue sharing model and grant of pricing and marketing freedom
National Data Repository set up to provide investors with access to Exploration and Production seismic data
Government has approved merger of HPCL into ONGC, as part of previous Budget proposal to create integrated public sector oil major
through consolidation to bear higher risks, avail economies of scale, take higher investment decisions and create more value
Expectation from Union Budget 2018
Align provisions of Income-tax Act with revenue sharing contract which seeks to allow deduction of expenditure incurred by contractor on
exploration, development and production and also it should clarify scope of ‗mineral oil‘ to include natural gas, eligible for tax holiday
Budget should clarify that offshore platforms used for oil exploration /extraction activities be classified as ‗plant and machinery‘ for
claiming depreciation under the Income-tax Act
To rationalize tax structure for the sector, petroleum products should be brought under GST to enable free flow of credits and avoid
cascading of taxes
Exempt LNG imports from customs duty to promote use as fuel for industrial operations
Financials
Budget Expectations – Transport – Roads & Highways
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Overview
Roads & highway sector in India provides for an important link for the economic growth considering the vast expansion of the country.
Recent regulatory changes and adaptation of GST apart from other legacy issues can potentially be an impediment for the sectorial
growth which government would like to address in the Budget 2018.
Key Issues for Sector
Increased allocation of funds and setting up of dedicated road sector financing institution. Government plans 83,677 kilometres of
roads by spending INR. 7 lakh crore over 5 years. Bulk of financing shall have to be borne by government
Success of PPP model in operation of national highways under different models needs to applied over the state highways as well
Gradual phasing out of toll roads and adaptation of integrated technology to build smart infrastructure for roads at all national, state
and rural levels
Expectation from Union Budget 2018
In taxation, sector wants revenue to be offered to tax for the Operation Maintenance period, not over construction period as
projects are in Build-Operate model, which typically applies to concession agreements for the development of National Highways
To felicitate better urban transport promotion of sustainable financing via dedicated funds and specifying allocation
National Urban Transport Fund be created at national level. States/city governments encouraged to generate additional funding.
Equal matching from NUTF be provided
Transport sector is debt-intensive, high interest costs. Limit on interest deduction should be higher in initial years. Further,
restriction on interest deduction should attract when either of the associated enterprises is non-resident
Amendment on disallowance under section 14A should not apply in investments in SPVs which are strategic and not for dividend
earning
Financials
Budget Expectations – Transport – Railways & Urban Transport
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Overview
In India‘s transport sector railways play an important role in both the passenger & freight mobility. It shall not be an aberration to term
it as lifeline for the country, given the dependence of common man & large freight movement on railways. Although, government has
already initiated scores of reforms for the sector ensuring better infrastructure but the issue of security still remains to be addressed
and is likely to gain central stage for India Budget 2018.
Key Issues for Sector
In Railways, government has planned several measures including the deployment of safety corpus of INR 100,000 crores under Rail
Sanraksha Kosh. Comprehensive plan for Railways to achieve target of 40% freight share, 10% increase in throughput in 3 years
Doubling of tracks on an escalated pace shall demand huge funds to be borne in by Central Government
Integration of electric locomotives gradually phasing out fossil fuel based diesel locomotives shall need greater power procurement
which shall mean requirement of embellished funds.
Budget should promote urban mobility solutions along with promoting electric vehicles. Opportunity for government to introduce
portfolio of measures in urban transport ecosystem through structured policy and planning
Expectation from Union Budget 2018
On model of roads of roads and highway sector railway's might also involve private companies to operate projects on BOO or BOOT
basis
Plan for scale-up of high-speed train network in India. Plan to specify funding requirements, integration of technology transfer into
railways
With reversal of PPP plan for railway station development, larger commitment from Railways‘ allocations and also the action on
listing of IRCON, IRFC, IRCTC could unlock value for Indian Railways
In Urban Transport, promote sustainable financing via dedicated funds and specifying allocation and also Budget provides
opportunity to plan, promote electric vehicle ecosystem to meet targets of 100% electrification by 2030
Financials
Budget Expectations – Transport – Aviation, Ports & Logistics
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Overview
Development of aviation sector is key for sustaining the flow of passenger traffic is important for India as it will provide for low cost
carriers to expand their business to smaller cities. Hence, on lines of railway infrastructure it is important to embellish the airport
network across the country as well. Ports are very important as they become central for economic activities and shall be a great
enabler for import of gas and facilitation of LNG terminals as well.
Key Issues for Sector
In Aviation, with 104.2 million Indian domestic passengers carried in FY17, a growth rate of 22%, there is need for capacity
expansion in airports and for improvement of quality of services
Major initiatives in Ports include Sagar Mala Project, plan to develop 2,000 km of coastal roads to improve connectivity with remote
villages, strategy to increase cargo and passenger traffic via inland waterways by nearly five-fold and construction of 34 mega
multi-modal logistics parks
Expectation from Union Budget 2018
Need policy framework to support development of ‗seamless‘ payment infrastructure in Ports. Need to formulate policies for
development, integration of payment infrastructure at tolls and fuel retail outlets
All tariff regimes on same level, provisions for review of tariff on inflation, political / regulatory changes
Need to bring petroleum products such as motor spirit, high speed diesel, natural gas, crude within GST. With input tax credit, it
would reduce logistics, transportation cost
Provide exemption from provisions of e-way bills for import and export consignments routed via vessels and elimination of
differential tax treatment for shipping industry
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Announcements & Implications Home < >
Implications
Sector Rating
Energy Resources Positive
Oil & Gas Marginally Positive
Solar Power Generation Positive Plus
Wind Power Generation Marginally Positive
Thermal Power Generation - IPP Marginally Positive
Thermal Power Generation - CPP Marginally Negative
Roads & Highways Positive Plus
Railways Positive
Aerospace & Defense Positive
Aviation Marginally Positive
Ports Positive
Urban Transport Positive
Logistics Positive
Source: India Budget 2018-19
Ratings
Marginally Positive Positive Proposals but
lacks industry
expectations at large
Positive Positive Proposals
Positive Plus Predominantly
positive proposals
Marginally Negative No positive proposals
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Announcements - Proposals Involving Changes In Customs Duty Rates
Item From (Per Cent) To (Per Cent)
Solar tempered glass or solar tempered 5 NIL
Motor spirit commonly known as petrol INR 6.48 per litre INR 4.48 per litre
High Speed Diesel INR 8.33 per litre INR 6.33 per litre
Specified parts/accessories of motor
vehicles, motor cars, motor cycles
7.5/10 15
CKD imports of motor vehicle, motor
cars, motor cycles
10 15
CBU imports of motor vehicles 20 25
Truck and Bus radial tyres 10 15
Cellular Mobile Phones 15 20
Specified parts and accessories of
cellular mobile phones
7.5/10 15
Levy of Road and Infrastructure Cess on
imported motor spirit commonly known
as petrol and high speed diesel oil
NIL INR 8 per litre
Source: India Budget 2018-19
Announcements & Implications
Energy Resources &
Power Generation – Key Announcements
& Implications
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Key Announcement Rating Implication
Farmers who set up distributed solar power
projects on their land can avail of remunerative
tariff for surplus power sold to discom‘s. Positive Plus (++)
Shall see a further push for capacity addition
from solar power and that too on off-grid scale.
Good market can be opened for battery energy
storage in rural areas of the country
Reduction of corporate tax rates for corporates
with turnover below INR.250 Crore
Positive Plus (++)
This shall directly benefit the renewable
energy companies and distributed power
players and may enhance the tariff
competitiveness
Allowing ‗A‘ rated issuers to access bond
capital via institutional investors
Positive Plus (++)
It indeed is a very positive step to boost
investment and a large number of energy sector
companies to access such finance particularly
in clean energy space
Long-term capital gains derived on transfer of
equity shares or a unit of an equity oriented
funds or a business trust (including unit of
InvITs) taxable at concessional rate of 10 per
cent subject to conditions
Marginally Negative (-)
Though, in a greater perspective the step
doesn't seem too negative but is for sure shall
dent the industry sentiments for gains over
equity. May also impact investments in the
sector in near-term.
Transfer of a capital asset between holding and
subsidiary not liable to tax in the hands of
recipient
Positive (+)
Good for the small scale companies involved
under the power generation business and
business diversion for such companies
Minimum Alternate Tax (MAT) provisions not
applicable to foreign companies engaged in the
business of - Civil construction, erection of plant
and machinery or testing or commission in
connection of a turnkey power project approved
by the central government
Positive (+)
Foreign Direct Investment shall gain momentum
in the sector which shall prove an enabler for
the desired impetus required for adding
renewable power capacities of 175 GW by 2022.
It is positive step overall for the sector.
Home < >
Energy Resources &
Power Generation – Key Announcements
& Implications (Contd.)
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Key Announcement Rating Implication
Introduction of new levy by the name Social
Welfare Surcharge (SWS) at the rate of 10 per
cent on imported goods in lieu of Education
Cess (2 per cent) and Secondary and Higher
Education Cess (1 per cent)
Marginally Negative (-)
This step shall be resulting into
marginal increase in effective Customs Duty
rate for most products, which might see an
increase in the cost for the power and
renewable sector
Basic Customs Duty rate on solar tempered
glass or solar tempered (anti-reflective coated)
glass for manufacture of solar cells/
panels/modules reduced from 5 per cent to Nil.
Positive Plus (++)
The danger which was lurking upon the solar
segment capacity addition pace and hence the
diminished BCD shall be a great enabler.
However, for the domestic OEM‘s it might not
augur well.
Greater focus on implementation and
information transparency has been brought in
Positive Plus (++)
Good step for the industry overall as it shall
bring the much desired transparency in the
segment
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Oil & Gas Sector – Key Announcements
& Implications
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Key Announcement Rating Implication
Pricing freedom has been granted for difficult,
marginal gas fields Positive Plus (++)
The step is a welcome one as it shall grant the
necessary cost-economics balance to the
investors as the returns shall be better for if
pricing freedom linked with market is granted
Consideration paid to the Government in the
form of Government‘s share of profit petroleum
in respect of services provided or agreed to be
provided by the Government by way of grant of
license or lease to explore or mine petroleum
crude or natural gas or both, is proposed to be
exempted from service tax for the period
commencing from 1st April, 2016 and ending
with the 30th June, 2017
Positive Plus (++)
As the pricing in India is heavily regulated this
step shall grant a breather for the companies in
the upstream business in the country. Though
marginally beneficial shall be able to help the
big players at large
Exemption from IGST on rigs imported for oil/
gas exploration projects under lease.
Positive (+)
Although, the tune for E&P activities and the
pace is not as much in India, however this step
shall be a positive as shall reduce the tax
burden on procurement of equipment
GST rate on offshore works contract services
relating to oil and gas exploration and
production reduced to 12%
Positive (+)
Off-shore exploration does involve heavy
engineering and multiple contracts and
reduction of GST rate is a positive move again
by GoI to promote off-shore exploration
Transportation of natural gas through pipeline
subject to 12% GST with ITC and 5% without ITC
Positive Plus (++)
Shall see the transportation sector be the
biggest beneficiary and the likes of GAIL shall
be benefitted. Further, the inclusion of input tax
credit shall speed up the capacity addition of
pipeline networks in the country as well.
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Transportation Sector – Roads &
Highways – Key Announcements &
Implications
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Key Announcement Rating Implication
Increased allocation in the development of road
network
Positive Plus (++)
The step along with announcement of ―Bharatmala
Pariyojana‖ shall enable the
creation of seamless connectivity to remote areas
and country borders, improving the safety and
reducing the cost of transportation while also
allowing business activities to flourish in such
areas
The Government has allocated approximately
INR.1.2 lakh crore for the Ministry of Road
Transport and Highways, which comprises an
investment of INR.91,663 crore in National
Highways Authority of India (NHAI) and INR.29,762
crore in roads and bridges
Positive Plus (++)
This shall increase the road capacity addition pace
in the country ensuring last mile connectivity.
Further, the utilization of funds to connect far flung
areas shall boost the economy and trade in the
country.
The government expects completion of national
highways exceeding 9,000km in length by the end
of FY18; it has also approved the ‗Bharatmala
Pariyojana‘ which aims to develop a 35,000km road
network (in Phase I) providing connectivity to
interior and border areas of the country — at an
estimated cost of INR.5.35 lakh
crore
Positive (+)
If implemented at the pace anticipated shall be of
greater boon to the country‘s transport
infrastructure and the border area connectivity
shall also support the defense sector mobility.
To raise funds, the NHAI would consider
organising its road assets into Special Purpose
Vehicles and use innovative monetising structures
such as Toll, Operate and Transfer (TOT) and
Infrastructure Investment
Funds (InvITs)
Positive (+)
Innovative financing model shall be a help to
infrastructure and EPC companies raising money
and shall be an enabler in raising capacity of road
network
Fastags and other electronic payments would
replace cash payments at toll plazas; the
government is also planning to introduce a policy
for a toll system on a ‗pay as you use‘ basis
Positive Plus (++)
Shall reduce the burden upon the travellers and toll
road shall be better utilized to reduce congestion
in transportation
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Transportation Sector – Railways –
Key Announcements & Implications
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Key Announcement Rating Implication
During FY19, Indian Railways‘ capital
expenditure has been estimated at INR.1.48
lakh crore Positive Plus (++)
Positive for embellishing railways infrastructure
in the country like doubling of tracks, using
electrical locomotives, escalating to broad
gauge etc.
Doubling of 18,000 km with third & fourth line
works
Positive Plus (++) Capacity constraints shall be better dealt with
addressing more trains and connectivity
Electrification of rail network spanning 4,000
km by the end of FY18
Positive (+)
This shall reduce the bill for railways in terms of
fuel sourcing and enable them to invest to
alternate resources for technology integration
Rolling stock for Dedicated Freight Corridors
comprising 12,000 wagons, 5,160 coaches and
700
locomotives to be procured during FY19
Positive (++)
DFC shall be good for transportation of coal and
other heavy equipment's aiding manufacturing
sector . Also, public transport shall gain from
enhanced infrastructure
The Indian Railway Station Development Co.
Ltd. would be undertaking the redevelopment of
600 major railway stations; further, all stations
with footfalls over 25,000 to have escalators,
and all railway stations and trains would be
equipped with Wi-Fi and CCTV cameras
Positive Plus (++)
Good for technology companies in India to
integrate such facilities in embellishing
infrastructure of the railways
Track renewal of rail network ranging 3,600km
is targeted during the current fiscal; moreover,
the use of technologies such as ‗Fog Safe‘ and
‗Train Protection and Warning System‘ would be
increased
Positive Plus (++)
Shall be a great boon for promoting safety in rail
transport and also be an enabler in generating
mass employment
Home < >
Transportation Sector – Urban
Transport, Aviation & Ports – Key
Announcements & Implications
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Key Announcement Rating Implication
The government is expanding the Mumbai local
rail network by adding 90km of double line
tracks at an investment of INR.11,000 crore; in
addition, 150km of suburban rail network is
being planned with an estimated cost of
INR.40,000 crore
Positive (+)
Good for a city like Mumbai enabling the urban
transport shall be better and generate local
level employment as well
Through the Regional Connectivity Scheme of
UDAN, the government plans to connect 56
unserved airports and 31 unserved helipads
across the country
Positive Plus (++)
Great for last mile connectivity and again a
policy initiative for the end consumers. Low cost
carriers may gain heavily from this, apart from
increase in revenue for Government.
The government also plans to expand the airport
handling capacity of the Airport Authority of
India (AAI) by five times under a new initiative
called ‗NABH Nirman‘ initiative.
Positive (+)
The expansion in the airport capacity shall be
seen as a boon for enhancing travel in smaller
cities through airline. Move again likely to
benefit LCC‘s .
The Ministry of Shipping has been allocated
INR.4,292 crore for port and marine
infrastructure development
Positive (++)
Good move again to improve waterways
transport in the country. The ―Sagarmala‖
project shall be another integrated benefit with
this initiative generating skilled employment
opportunities for the sector.
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