Powering India

Power sector has been the mainstay of Indian economy, but it has been plagued by multiple issues. The sector’s incremental capital output ratio has deteriorated significantly over the last five years. Coal-based thermal power, which constitutes over 60 per cent of India’s power generation capacity, was the biggest contributor to stressed assets of the Indian banking industry.

To alleviate these issues, Budget 2014 has announced a host of direct and indirect measures. It also aims to restore investor confidence in this core sector.

To clear uncertainties on fuel availability, the Government has assured coal linkage to the power projects which have achieved commissioning, or are scheduled to achieve commissioning by March 31, 2015. This will address concerns of investors and channelise funds towards projects held up due to uncertainty in fuel availability.

The rationalisation of coal linkages and introducing a requirement of crushed and washed coal, are the right steps; these will reduce costs for each stakeholder in the sector. Further, suitable changes in the Mines and Minerals (Development and Regulation) Act, 1957, have been suggested to address regulatory hurdles.

The Government has set aside ₹500 crore for developing large-size Ultra Mega Solar Projects in Rajasthan, Tamil Nadu, Ladakh and Gujarat. This will set the necessary momentum to reach the target of 15 per cent share of renewable energy in the total energy mix by 2020.

The Budget has allocated ₹400 crore for launching a scheme for solar power-driven agricultural pump sets and water pumping stations and has adopted a progressive approach by not announcing customs duty on import of solar photovoltaic modules.

Instead, the Budget has incentivised local manufacturers by rationalising customs duty on import of raw materials and excise duty on domestic manufacturing of solar panels and wind turbines.

The Budget has offered some welcome measures on finance. Banks can raise long-term funds for lending to infrastructure projects with minimum regulatory pre-emption such as CRR, SLR and Priority Sector Lending (PSL).

The Budget focuses on improving liquidity in the corporate bond and currency markets, and encourages banks to extend longer-term financing infrastructure.

Power sector development has been stressed by exposure limits and capital constraints of financial institutions, including banks. The Government has recognised requirement of ₹2,40,000 crore towards capitalisation of public sector banks by 2018.

The expansion of power sector capacity will also be supported by infrastructure investment funds for securitising infrastructure projects, which will reduce the pressure on banking.

However, it will remain subject to taxation policies and resolution of issues related to distribution tax on securitised papers.

The extension of tax exemption under section 80IA for projects commissioning by March 31, 2017, is laudable. It brings stability to the policy and will help investors plan investments better.

The improvement in technology is an ongoing activity and ₹100 crore has been allotted for preparatory work for Ultra Modern Super Critical Technology, which sets up a trend in investing in higher efficiency and eco-friendly power generation.

Equally important are initiatives such as the Deen Dayal Upadhyay Gram Jyoti Yojana, with an initial corpus of ₹500 crore, to augment power supply for improving rural life.

The writer is president of Assocham