Policy anomalies and lack of consensus on what constitutes infrastructure have undermined efforts to spur creation of physical assets. A look at the current status and the need to define infrastructure.
How is infrastructure defined in India?
There is no clear definition as of now. A broad meaning of the term is based on a series of reports and observations made by different government agencies and committees. A commission chaired by C Rangarajan in 2001 attempted to define infrastructure according to six characteristics: natural monopoly, high sunk costs, non-tradability of the output, non-rivalry in consumption (which implies benefit of public good can be extended to additional consumers without any huge additional cost), possibility of price exclusion and bestowing externalities on society. However, these characteristics were not considered absolute.
For taxation purposes, the income-tax department considers companies dealing with electricity, water supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation, storage (at ports) and industrial parks or SEZs as infrastructure. However, special tax benefits are also given to sectors like fertilizers, hospitals and educational institutions, adding to the confusion.
The Reserve Bank of India and the Insurance Regulatory and Development Authority have also tried to define infrastructure and identify sectors.
Why is a precise definition of infrastructure needed?
A clear understanding of what is covered under the rubric of infrastructure is necessary for policy formulation, setting of targets, and monitoring projects to ensure consistency and comparability in the data collected and reported by various agencies. Moreover, the emphasis on infrastructure has led to the government extending many incentives and tax benefits to infrastructure companies. Without a proper definition these benefits can be misused.
What is the international norm?
Globally, too, defining infrastructure has been an arduous task. The US and most European countries have defined infrastructure sectors for tax purposes. There is no consistency across the developed world on what constitutes infrastructure. Many countries have also identified sub-sectors like core infrastructure, social infrastructure, retail infrastructure, and urban and rural infrastructure.
How is India approaching the issue?
The finance ministry will identify the sectors primarily based on the characteristics set out by the Rangarajan committee with some additional requirements. Based on the criteria, the finance ministry is likely to notify 25 sectors as infrastructure. These sectors will be eligible for tax incentives, viability gap funding and will be covered by regulatory framework for infrastructure which will include levy of user charges.
How is infrastructure defined in India?
There is no clear definition as of now. A broad meaning of the term is based on a series of reports and observations made by different government agencies and committees. A commission chaired by C Rangarajan in 2001 attempted to define infrastructure according to six characteristics: natural monopoly, high sunk costs, non-tradability of the output, non-rivalry in consumption (which implies benefit of public good can be extended to additional consumers without any huge additional cost), possibility of price exclusion and bestowing externalities on society. However, these characteristics were not considered absolute.
For taxation purposes, the income-tax department considers companies dealing with electricity, water supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation, storage (at ports) and industrial parks or SEZs as infrastructure. However, special tax benefits are also given to sectors like fertilizers, hospitals and educational institutions, adding to the confusion.
The Reserve Bank of India and the Insurance Regulatory and Development Authority have also tried to define infrastructure and identify sectors.
Why is a precise definition of infrastructure needed?
A clear understanding of what is covered under the rubric of infrastructure is necessary for policy formulation, setting of targets, and monitoring projects to ensure consistency and comparability in the data collected and reported by various agencies. Moreover, the emphasis on infrastructure has led to the government extending many incentives and tax benefits to infrastructure companies. Without a proper definition these benefits can be misused.
What is the international norm?
Globally, too, defining infrastructure has been an arduous task. The US and most European countries have defined infrastructure sectors for tax purposes. There is no consistency across the developed world on what constitutes infrastructure. Many countries have also identified sub-sectors like core infrastructure, social infrastructure, retail infrastructure, and urban and rural infrastructure.
How is India approaching the issue?
The finance ministry will identify the sectors primarily based on the characteristics set out by the Rangarajan committee with some additional requirements. Based on the criteria, the finance ministry is likely to notify 25 sectors as infrastructure. These sectors will be eligible for tax incentives, viability gap funding and will be covered by regulatory framework for infrastructure which will include levy of user charges.
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