Infrastructure and Economic Policy in India
Infrastructure creation is a fundamental element of India’s economic policy. Despite the increasingly selective nature of global capital flows, India aims to mobilize large-scale, long-term capital from both domestic and international sources through efficient financial structures.
Role of Business Trusts
- Listed Business Trusts: They serve as a bridge between long-duration savings and income-generating assets, facilitating the monetization of operational infrastructure.
- Current Landscape: India has five listed Real Estate Investment Trusts (REITs) and over 24 listed Infrastructure Investment Trusts (InvITs) with a combined market capitalization of approximately ₹4 lakh crore.
Design Principles of Business Trusts
- Distribution Discipline: Regulations mandate that 90% of free cash flows must be distributed from Special Purpose Vehicles (SPVs) to the trust and from the trust to unit holders.
- Single-Layer Tax Framework:
- Dividends from SPVs outside the new corporate tax regime are tax-exempt at both the trust and unit holder levels.
- Interest, rental income, and capital gains are taxed in a defined manner to prevent multiple taxation of the same cash flow.
Budget 2026 and Taxation Challenges
- Minimum Alternate Tax (MAT) Credits:
- Linking the use of accumulated MAT credits to the transition to the new corporate tax regime creates a structural constraint for SPVs.
- SPVs face a choice: move to the new regime and render dividends taxable, or remain outside and risk lapsing MAT credits and future liabilities.
- Impact on Cash Flows: These changes introduce uncertainty in distributable cash flows, impacting yield and investor attractiveness.
Role of REITs and InvITs in Infra Financing
- Significance: They are vital for India’s infra financing, managing assets worth nearly ₹10 lakh crore, and set for expansion.
- Investor Attraction: They appeal to long-horizon capital from pension funds, insurance companies, mutual funds, and sovereign investors.
Policy Recommendations
- Allow SPVs to remain outside the new corporate tax regime while utilizing accumulated MAT credits to preserve yields.
- If transitioning to the new regime, retain the single-layer taxation principle to keep dividend income tax-exempt for unit holders.
Future Outlook
India aims to expand the asset pipeline and increase domestic participation in REITs and InvITs while ensuring a stable and predictable framework to maintain investor confidence and support large-scale capital recycling.
