Budget 2020: Big Boost To Infrastructure Investments With Tax Exemptions for SWFs

The second complete budget by the NDA 2.0 announced 100 per cent tax exemptions for sovereign wealth funds for their investments in the infrastructure sector. This is expected to help investments in the infrastructure sector in the country. Alongside, the end of the Dividend Distribution Tax (DDT) will also enable benefits to foreign infrastructure investors in India looking for significant yields on their investment. 

To quote Finance Minister Nirmala Sitharaman, ‘In order to order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, I propose to grant 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before 31st March 2024 and with a minimum lock-in period of 3 years. 

Over the next 4-5 years, significant investments in infrastructure are warranted as highlighted by the National Infrastructure Pipeline (NIP) plan that came out in December. The investments required are said to be in excess of $1 trillion. 

Apart from the National Investment and Infrastructure Fund (NIIF), which is also the country’s only sovereign wealth fund, India India has already seen a large pool of infrastructure investments by global sovereign wealth funds such as Singapore based GIC, Temasek Holdings and Middle East-based Abu Dhabi Investment Authority.

NIIF is India’s first sovereign wealth fund that was set up by the Government of India in February 2015. It manages over $4 billion of capital commitments across three funds.

The government will provide tax exemptions for a sovereign wealth fund which is wholly owned and controlled, directly or indirectly, by the Government of a foreign country and it is set up and regulated under the law of such foreign country.

Last year, ADIA, the world’s 3rd biggest SWF, and GIC invested about $329 million in Greenko Energy, a Hyderabad-based renewable energy company. 

In March 2019, ADIA had committed $500 million to a new distressed fund backed by Kotak Investment Advisors, the alternative investments arm of Kotak Mahindra Bank. ADIA also committed to investing $1 billion in NIIF and an agreement had been signed between NIIF Master Fund and a wholly-owned subsidiary of ADIA, as reported in the Economic Times.