The development of world level Infrastructure remains the key focal area in the Union Budget 2011-12, with budgeted spending in infrastructure estimated at Rs 2,14,000cr an hike of over 23% from Rs 1,73,000cr during 2010-11, providing 48.5% of the plan allocation.

The budget has proposed to provide the much needed foreign investment in Indian infrastructure by mountaineering their venturing limit to $40bn from $20bn earlier.

The total disbursement target for India Infrastructure Finance Company Limited (IIFCL) has been hiked to Rs 25000cr from Rs 20000cr. However, there is a marginal increase in allocation to rural infra fund to Rs 18000cr from Rs 16000cr.

The budget widens the classification of Infrastructure by including ‘Cold Storage facilities’ and ‘capital investment in Fertilizers’ as sub section of Infrastructure. With the higher allocation in to Infrastructure coupled with GoI’s intentions to provide much needed long term money into infrastructure, via, creating infrastructure debt fund, through tax free bonds worth Rs 30000cr and by extending deduction of Rs 20000 in Tax liability by investing in long term infrastructure bond, this will clear the much longer debate to speed up Infrastructure development and will act as highly positive for the Industry.

However, no allocation has been made to ramp up the Transmission and Distribution capacity of power in the country, which stands at 13.7% of the country’s power generation capacity at 21000 MW.

STEEL INDUSTRY- POSITIVE

Overall the union budget has been POSITIVE for the Steel sector considering our expectations. The budget provided for enhancing infrastructure spending to Rs 2, 14,000cr which will boost the demand for steel products. However, hike in Iron Ore export duty to 20% came in as a surprise, which will provide the much needed respite to domestic producers, as their margins were under pressure on grounds of high raw material prices. Hike in Iron ore export duty will dent the margins of Sesa Goa and NMDC.

With increased focus of Government of India to build sound infrastructure, the domestic steel industry is expected to grow at a CAGR of 10% in next five years against the average annual growth of 8% achieved between
1991-2010.

Going forward we expect steel prices to remain firm on account of strong demand lead by domestic markets coupled recovering global economies. We believe this scenario would be positive for steel companies.

No clear regulatory framework from Government of India with regards to environmental policies and land acquisition policies still leaves ambiguity to foreign investment.