Grants Only For eak Road Projects

Government grant will be available only to select private sector highway projects. It is not a blanket offer.

It will be available only to those projects which are either outright non-viable or where the viability is doubtful.

This comes as a damper to the private investors who had thought that the government's offer of grant in the road sector would be automatically made available for every project they would like to bid for.

Government officials explained the incentive was meant to serve as a financial cushion for "weak" projects only.

It is felt that the 'weak projects --- howsoever important they may be from the viewpoint of the national interest --- may not attract enough investment since they may not have enough traffic potentials and the promoters may not like to put money in ventures that do not promise good returns.

The officials further added that even in cases where grants are offered and even though the ceiling on the amount to be offered is 40 per cent of the project cost, the preference for project allotment would go to those who ask for a minimum grant component.

Another criterion in selecting bidders in such cases would be the length of the concession period.

The policy package allows a concession period of up to thirty years. But, the less the concession period, the better claim an investor has on the project he bids for.

Thus, although government grant forms an integral component of project financing, "the less the grant and lesser the concession period, greater the chances of an entrepreneur bagging a project", said a top official.

As for the tax relief to real estate developers, this would come into force only after two concerned acts are amended.

One is the National Highway Act which has to provide for treating real estate development in the project area as an integral part of the highway project in question.

The finance ministry will then be required to amend the Income Tax Act to extend tax concession to housing activities in highway projects.

It is unlikely that the income tax amendment would be carried out before the budget session of the parliament next year.

However, since the cabinet has approved of the concessions, the investors could be assured of it. Besides, real estate development and ploughing of the profit into highway development which would entail the developer to tax concessions, should take a minimum two/three years. As such the delayed amendments are not likely to affect the interest of the promoters.

A snag here, however, is the condition that the tax benefit would accrue to the real estate developer only after he spends the income from it on highway development.

This means the investor would first concentrate on real estate development and only thereafter would he able to take up highway development.

This concession would, therefore, appear to be more an incentive to promote housing activities than highway development.