Steps taken to attract investments in the power sector

Written by Anil Sardana | Updated: Mar 1 2011, 07:10am hrs
While the honourable FM outlined the theme of the Budget by saying that food inflation is a key area of concern and that strong fiscal consolidation is necessary, the Budget seems to be a mixed bag for power sector.

We appreciate the steps taken to attract investments in power and infrastructure sector to support the growth aspirations through measures like introduction of tax-free bonds, , lowering withholding tax of 5% for notified Infra funds, raising FIIs limit in corporate bonds for investment in infrastructure and extending tax sops on infrastructure bond by a year. The import duty reduction on coal from 5% to 2.5% will benefit the power industry as a whole and is a welcome step. Domestic equipment supply to UMPPs and Mega Projects was always exempt from domestic excise duty but expansion was not covered; that minor disincentive is being levelled up now and will be helpful. Raising Rural Infra Fund from Rs 16,000 crore to Rs 18,000 core is also appreciated.

With a view to encourage power generation and reduce transmission and distribution the tax holiday for the power sector was extended by one more year till March 31, 2012. However, the tax exemption would only benefit projects that are expected to take off in the remaining time of the 11th Five Year Plan (2007-12), including Ultra Mega Power Projects.

For power sector one of the key measures that could have been introduced was extension of tax holiday 80 IA for generation capacities coming up until March 31, 2017. Further, to achieve the ambitious goal of power for all at affordable cost, power sector definitely requires fiscal support in the form of minimal taxes from the government. Exemption from MAT, Central Sales Tax and Service tax are a must as they impact the growth as well increase tax burden on end customers. In keeping with the concerns on climate change, we also expected to see tangible tax deductions/benefits to organizations incorporating energy efficient technologies or setting up renewable energy infrastructures.

The Power sector is also facing the problem of increasing cost of input. The marginal increase in MAT from 18 to 18.5% is likely to adversely affect the power industry and directly impact the cost of electricity to be charged to consumers.