Infrastructure Development in India and the Role of Tax Incentives

Abstract

The demand for infrastructural services has increased rapidly after industrial liberalisation of the Indian economy. Recent years have witnessed substantial progress from the old paradigm of public monopoly provision of infrastructure services to the new paradigm which also encourages private investment and provision of infrastructure services within a stable, predictable and commercially viable regulatory framework. The case for attracting FDI is also significantly strengthened through the provision of an adequate level of infrastructure. There is thus adequate economic rationale for encouraging the sponsorship of infrastructure projects and to facilitate investments in this sector. In this context, the provision of fiscal benefits implies a contribution from government that is supported by benefits accruing from the externalities of the project. In the absence of such contribution, the private investment flows may not take place at all. This paper looks at the types of tax incentives being offered in the infrastructure sector that can contribute to mobilising private resources in the financing of projects.