Union Budget 2018: What is in store for India’s energy sector

Posted on 01 Feb 2018

Twelve months ago Finance Minister Arun Jaitley’s series of sops to improve clean energy, access to power, energy security and so on had revitalized the country’s energy sector. The industry was waiting with bated breath for further incentives to push itself ahead on an exponential growth path.

Continuing from where he left on, Jaitley has announced some measures, albeit not in a grand way, which could prove vital for galvanizing India’s energy segment in the long-term.

The budget has come in the backdrop of subdued economic growth. As per National Economic and Fiscal Commission 2018 Budget Fiscal Report the revenue realization was low while expenditure was high. The country’s fiscal deficit came to around Rs.5.25 trillion in the April - October 2017-18 recording an increase of 79.3 per cent in the same quarter during 2016-17.

Jaitley with his latest budget has attempted to strike a balancing chord between populist demands and meeting the country’s economic goals while simultaneously trying to bring fiscal discipline which Prime Minister Narendra Modi has been advocating for long. The government through this budget aims to reduce the fiscal deficit to 3.2% of the GDP for 2017-18.

On the outlook ‘Budget 2018’ may seem to be a far cry from ‘Budget 2017’ but the current one comes with its own silver linings given the challenges which the government had to grapple with in the changed circumstances.

For the solar sector import duty on components that make solar panels has been eliminated. Duty on imports of solar glass has been reduced from 5% to nil. This will give a boost to domestic solar panel manufacturers who use the glass to manufacture solar cells and panels. This may also benefit solar energy project developers.

The budget has also allocated Rs 217 crore to the state-owned Solar Energy Corporation of India (SECI) under the internal and external budgetary resources.

“The budget has focused on giving relief to farmers and many of them will now be encouraged to install solar water pumps to irrigate their fields. The government’s willingness to ensure a mechanism whereby surplus solar power is purchased by distribution companies at competitive prices is a positive sign,” an energy analyst working with a solar major told Indoen.

However, this is despite the uncertainty over imposition of duties such as import duty, safeguard duty and anti-dumping duty in the sector.

In yet another development which could have far reaching impact on the renewable sector the government has proposed to reduce the corporate tax rate to 25% for entities having a turnover of up to Rs 250 crore.

“The reduction in tax rate is positive for renewable IPPs, given that a majority of them have capacities of less than 200 MW and thus revenues within the prescribed limit,” Sabyasachi Majumdar, Senior Vice President at ratings agency ICRA was quoted as saying by media.

In fact, in the face of increasing capital outlay solar and wind sectors were in the anticipation of a few subsidies and incentives. However to their surprise, the government hasn’t declared any such measures.

On the power front, the strong emphasis on developing railway network is supposed to have a positive bearing. The minister in his budget speech specified that in addition to shifting to broad gauge electrification work will also be taken up in a big way. Over 3,600 kilometres of track renewal was targeted. As the government takes up the electrification and augmentation work the demand for power will increase. Power industry can look forward to sign some fresh MoUs in the medium term with government having a capex allocation of Rs.1.48 lakh Cr in the budget for electrification and maintenance works.

Further, the government has earmarked Rs.16,000 Cr for providing power connection for the economically weaker section residing in India’s rural areas under the PM Saubhagya Yojana scheme which is expected to create demand for power in the long-term.

To keep in line with the Paris agreement India has to produce 40% of its total energy through renewable sources. With the government not clearly spelling out the incentives for renewable sector this time, as was the case a year ago, it would be interesting to see how the government plans to meet its target of 175 GW by 2022 including 100 GW of solar and 60 GW of wind energy.

“The government’s thrust to build smart cities and identification of 99 cities under the smart cities mission will enhance clean energy sector. These cities will come up with state-of-the-art amenities where renewable energy will have a big role to play,” a second analyst told Indoen.

While the domain of coal remained almost untouched in budget proposals, oil sector was revised of duties on petrol and diesel.

The budget lowered the basic excise duty on petrol and diesel by Rs 2 per litre each to Rs 4.48 and Rs 6.33 a litre, respectively. The budget also abolished Rs 6 per litre additional duty of excise on them.

Market sentiments remained muted on the new proposal as the total tax incidence remained the same keeping the prices in the same band.

“Slashing excise duty on petrol and diesel by the government is a welcome move as it offers immediate relief. However it will be important for the government to consider the potential changes in the global energy market and specifically the possible surge in oil price and plan accordingly,” Nandakumar Janardhanan, Assistant Professor of Energy Studies at Jawaharlal Nehru University said.

“While the domestic oil price today is linked to the international price, the domestic consumers may find it difficult to adjust to a huge price rise. After Goldman Sachs predicted oil price to reach $82 in a week’s time, the price trend already began to reflect an upward surge,” he added.

(The author is a Delhi-based journalist. He can be reached at prasad.n@indoen.com)