This year’s Budget has given a special focus on building rural economy and rural infrastructure. Reiterating the focus on “power for all”, the government announced to have 100% electrification completed by May 1, 2018. The minister has allocated a fund of Rs 8,500 crore under ‘Deen Dayal Upadhyaya Gram Jyoti Yojana’ that will be used to facilitate rural electrification. The Budget has also exempted service tax for rural electrification. This will encourage more players and bring in more private participation and accelerate the rural electrification. We clearly see more role for our sponsored companies like Tata Projects & Tata Power Solar to have enhanced participation. However, to sustain an electrified India, there also needs to be a strong power distribution sector. We hope more discoms will benefit from the Uday scheme to meet this goal.
In the past, there was a sharp decline in installation of wind power projects in India when the Accelerated Depreciation (AD) and the 10-year tax holiday was eliminated. The AD was restored back last year and this helped in bringing back wind capacities in India. Already the tariffs in some states, when it comes to supply to commercial and industrial sectors, are on par with wind and solar power generation.
The Clean Environment Cess (erstwhile Clean Energy Cess) has doubled from Rs 200 per tonne to Rs 400. This would increase the cost of power generation by 10-12 paisa per unit. This will also put more stress on tariffs and regulators, as in most of the states, cost of Average Billing is already lower than Average Cost of Service. Given the sectorial lending caps on domestic lenders, there is need to widen the scope of financial incentives and options to the sector.
The initiatives by the FM to strengthen the financial sector are overall a welcome move and would help infrastructural development in the country. Also, on pursuing PPP options and debottlenecking PPP matters through ‘Public Utility Dispute Resolution Bill’ and ‘Guidelines for renegotiations of PPP contracts’ would go a long way in resolving matters related to stranded assets.