10 Jul 2019

 The Finance Minister Nirmala Sitharaman presented maiden budget of the NDA government’s second term on 5 July 2019 with a renewed focus on infrastructure. Though energy including renewables received a lot of coverage in the budget, there was no notable increase in funding allocation, subsidies or incentives.

Total budgetary allocation to MNRE for 2019-20 is INR 52.5 billion (USD 675 million), a mere 2% increase over 2018-19. Nearly 60% (INR 30 billion) of the funding is earmarked for the solar sector - INR 24.8 billion for 7,500 MW of grid-connected projects and balance for off-grid systems. Allocation to the wind sector has dropped 3% to INR 9.2 billion. It is a surprise that no money has been set aside for the two flagship distributed solar schemes covering rooftop solar (26 GW target over 3 years, budgetary outlay of INR 118 billion) and rural solar (36 GW over 3 years, INR 344 billion).

There was, however, more concrete move on electric vehicles (EVs). GST on EVs has been reduced from 12% to 5%. There is also an additional income tax deduction of INR 150,000 on interest paid on EV loans as well as customs duty exemption on certain parts of EVs. Taken together, these steps should reduce the cost of ownership of a mid-ranging EV by about 10-12%.

Elsewhere, the budget lists a slew of broad potential policy measures to deal with power sector problems. To that end, it reads more like a set of policy priorities or a wish list of the new government rather than a statement of financial spending and revenue targets. The government has proposed to boost manufacturing of solar cells and li-ion batteries, and plans to enhance EV charging infrastructure by providing investment-linked tax incentives. The Minister has also proposed a package of power sector tariff and structural reforms. She announced that the central and state governments would work together to address removal of cross subsidy surcharge (CSS), duties on open access sale of power as well as captive generation plants. There is also a mention of review of the UDAY scheme and announcement of a follow up scheme.

Most industry observers have expressed disappointment with the budget because of lack of concrete financial proposals to support the sector. But we believe that it is not strictly a bad thing. Much more than the financial support, the sector needs a clear, consistent and visible policy framework as well as strong implementation to address key challenges facing the project developers and investors.

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