Will Budget 2016-17 light up India’s power sector?

Will Budget 2016-17 light up India’s power sector?

All eyes are on the Union Budget 2016-17 that is expected to give an energy-packed policy push to the power and coal sector that holds the key for putting India’s GDP back on high growth track. 

The industry is optimistic that in order to boost investments and impart momentum to the ongoing industrial and manufacturing activity in the power sector, the government may look at extending the 10-year tax holiday to companies that start power generation by March 31, 2020.  

Industry players from the power sector have been pressing for the extension of the sunset tax clause for power companies to include plants that provide power till March 2020 as opposed to 2017 earlier.  

“The upcoming Union Budget is expected to further put in place levers to strengthen India’s economic growth and boost demand and investments in the country especially in core infrastructure sectors such as the power sector,” said DG, IPPA, Harry Dhaul.

Srisailam Dam, Andhra Pradesh
Srisailam Dam, Andhra Pradesh

A meeting was held recently between the government and the representatives of the power industry to discuss ways of promoting manufacturing and growth of the sector. The industry under the aegis of the Independent Power Producers Association of India (IPPAI) included key stakeholders from the power sector. PK Pujari, Secretary, Ministry of Power and Anil Swarup, Secretary, Ministry of Coal, Government of India were also present in the meeting.

The industry participants included power consumers industry, Independent Power Producers, Captive Power Producers, Energy Research Institutions, Banks and Financial Institutions. 

The gist of industry suggestions include: 

  •   Reduction of Minimum Alternate Tax (MAT) to 10 per cent and a suggestion that the entire provision of MAT be re-examined to incentivize investments in the power sector.
  •   Reduction in Customs Duty on Coking Coal – Import duty of coking coal had been increased to 2.5% in the Union Budget 2014-15. Negligible quantity of coking coal is available domestically, and thus the need is met mainly from imports. It was therefore recommended that the duty on coking coal be exempted as was the case prior to the Union Budget 2014-15.
  •  Clean Energy Cess – Levy of a clean energy cess on coal (INR 200/ton) – which increases the cost of thermal power leads to increase in power tariff for consumers across the spectrum in a scenario where most power consumed in the country is coal fired power. The industry has requested for restriction of the aforesaid cess to only those power producers who do not adopt clean technologies/modernize their plants. Power producers who have already adopted internationally recognized clean technologies, at considerable investment, should be incentivized and encouraged by way of being exempted from levy of any clean energy cess. Moreover, it is felt that the cess is collected as National Clean Energy Fund (NCEF) and is disbursed for renewable energy based initiatives and power projects. Looking at the current scenario where the solar power tariffs are being at an all-time low (lowest being INR 4.63/unit), the aforesaid cess may kindly be abolished for power producers who use clean coal technologies.
  •  Grant Power transmission & distribution (T&D) sector the status of infrastructure industry with extension of related tax benefits as available to other infrastructure sectors. This move as per the industry will reduce the cost of power projects and the per-unit tariff which is ultimately borne by consumers.

Various suggestions have also been received during another recently held third Pre-Budget Consultative meeting recently between the representatives of Industry and Trade Groups and Finance Minister Arun Jaitley. Major recommendations included higher investments in rural infrastructure sector as this will increase the spending capacity of the rural people which in turn will create demand for various items and increased economic activity. Other suggestions included focus on disinvestment of public sector undertakings by the Government to raise additional revenue and to reduce Government borrowings which, in turn, will make more money available for the private sector to borrow. Other suggestions include measures be taken to revive private sector investment especially in infrastructure sector through NIIF, use of Infrastructure Finance Companies like IIFCL to rebuilt the capacity of the private infrastructure sector by making it easier for them to raise funds. Bank guarantees be replaced by ‘bid bonds’ or ‘surety bonds’ for companies which, in turn, will help them getting credit at reduced cost and removal of cess and surcharges etc. 

Tungabhadra Dam, Karnataka
Tungabhadra Dam, Karnataka

It was suggested that measures be taken to uplift the power sector which is facing a challenging time. Suggestions were also made to boost the exports, especially the MSME exports. Along with Jaitley, the Pre-Budget Consultative Meeting was attended by R.N. Watal, Finance Secretary, Shaktikanta Das, Secretary, DEA, Dr. Hasmukh Adhia, Revenue Secretary, Anjuly Chib Duggal, Secretary, Financial Services, Amitabh Kant, Secretary, DIPP and Dr. Arvind Subramanian, Chief Economic Adviser (CEA). The representatives of the Industry and Trade Groups present during the meeting included Sumit Mazumdar, President, CII, Sunil Kanoria, President, ASSOCHAM, Harshavardhan Neotia, President, FICCI, R. Chandrasekhar, Chief Economist, NASSCOM, Ajay Piraman, Piramal Enterprises Ltd, S.C. Ralhan, President, FIEO, R Seshasayee, Vice Chairman, Ashoik Leyland, Ashish Gupta, Consulting CEO, Federation of Associations in Indian Tourism & Hospitality (FAITH), P.K. Shah, Chairman, EEPC India, G. Venkatesh Babu, LANCO Anpara Power Ltd, Sangam Kurade, President, Federation of Indian Micro and Small & Medium Enterprises (FISME), Abhishek Tiwar, Federation of Indian Women Entrepreneurs (FIWE), and Girish Srivastava, Secretary General IBF among others.

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