Budget 2017: Support for renewable energy minuscule; why cos may be unhappy?
When there are a number of gaping flaws in the sector which reappear periodically, it may be a bit too soon for the Government to take a back seat
For the multiple stakeholders in the renewable energy sector, the 2017-18 Union Budget provided much needed clarity about the government’s focus and priorities for the sector. In the midst of mounting pre-budget expectations for renewable energy, the importance accorded to the sector in the coming year was conspicuous by its absence.
The Economic Survey, published on 31 January 2017, served to emphasise the government’s accomplishments in the sector, particularly regarding the 14.30 GW of capacity addition in grid-connected renewable energy in the last two and a half years, including 5.8 GW from solar power and 7.04 GW from wind power. It is also imperative to note that in contrast to last year’s Economic Survey, the 2017 Economic Survey fails to mention any proposal to reform the renewables sector, merely highlighting the measures taken over the past year to promote the sector, such as the amendment of the National Tariff Policy in January 2016.
Highlights for the RE Sector
Solar power continues to be the Government’s focus point this year, with the budget split being Rs 3,361 crore for solar and only Rs 408 crore for wind. The 2017-18 budget allocation to the Ministry of New and Renewable Energy of Rs 5473 crore has not seen a significant spike from the allocation in 2016-17. The Budget also announced support for the second phase of solar park development for an additional 20,000 MW capacity and the powering of 7000 railway stations with solar power, both of which were already in the offing.
Finance, one of the greatest impediments to the advancement of the renewable energy sector, has received some attention in the 2017-18 Budget. Foreign investment in the sector may also see a spurt of growth due to the extension of the applicability of the concessional withholding tax rate of 5% being charged on interest earned by foreign entities in external commercial borrowings or in bonds and Government securities to 2020 from 2017. Also, this benefit has been provided to masala bonds, which are rupee denominated bonds that were introduced by the Reserve Bank of India in September 2015. Masala bonds are an effective means of raising international capital for renewable energy projects at preferential rates without developers bearing any foreign exchange risk.
On the manufacturing front, the key takeaway from the 2017-18 budget is the reduction of basic customs duty to nil for tempered glass used in the manufacture of solar cells, panels and modules and the reduction of countervailing duty from 12.5 percent to 6 percent for parts used in the manufacture of tempered glass which is used in solar PV cells, modules, etc. This, together with the incentive of reduction of income tax payable by companies with an annual turnover of up to Rs 50 crores to 25 percent, could provide a minor impetus to the small domestic solar manufacturing sector. However, it is important to note that a manufacturing unit with an annual turnover of upto Rs 50 crores, translates to a panel manufacturing capacity of only 20 MW, which may not create the required impact in the sector.
Another prime focus area of the Government in the Budget has been on skill development by way of setting up of various centres across the country and increased allocation of funds to skill development programmes. The specifics of the nature and sectoral focus of the skilling have not been provided. However, with an estimated generation of about 4 jobs per MW of operational manufacturing capacity in the solar manufacturing sector, the government may consider implementing targeted skill development programmes to benefit the renewable energy sector.
Interestingly, the Union government has made an endeavor in the 2017-18 Budget to stimulate the development of new clean energy technology, particularly fuel cell based power generating system, systems operating on bio-gas, bio-methane and by-product hydrogen by way of indirect tax incentives. However, the minuscule nature of the incentive, with no additional allocation for testing, R&D, or financing support, will be inadequate in driving the phase-out of generator sets in India, a key focus area of the central and state pollution control boards.
A number of areas that required government support, which the Budget could have addressed, remain unaddressed. Allocation of funds to specifically mitigate financial risks plaguing the renewables sector by way of developing and institutionalising innovative government-backed financial instruments could have been a potential game changer. Stakeholders also relied on the 2017-18 Budget to put to rest some of the crucial uncertainties plaguing the sector such as the impact of the implementation of the Goods and Services Tax regime. The Budget failed to provide any clarity or certainty on this front as well.
Could this perhaps be indicative of the Government’s view that it has provided enough fiscal and policy support to put the sector on auto-drive to achieving the set targets, with the occasional requirement of minor incentives to ensure a smooth ride? When there are a number of gaping flaws in the sector which reappear periodically, it may be a bit too soon for the Government to take a back seat.
(The writers are researchers at the Council on Energy, Environment and Water – an independent not-for-profit policy research organisation based in New Delhi. They can be reached at firstname.lastname@example.org and email@example.com)
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