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Budget 2017-18: Impact on the Indian Renewable Energy Sector

Blog Post created by latikasharma on Feb 4, 2017

The recently released Union Budget tried hard to successfully incentivize the growth of renewable energy in the Indian energy sector. This article is a summarized report on the impact of this Budget on the renewable energy sector. 

Assessing obvious fiscal priorities, compared to last year (Rs 5,036 crore), this year the allocation to the Ministry of New and Renewable Energy stands at Rs 5,473 crore. As much as 74% of the outlay is directed to grid-interactive renewables, specifically mentioning the second phase of solar park development for 20 GW of capacity. The total budget is further split between Rs 3,361 crore for solar and only Rs 408 crore for wind, a clear indication that the government will continue to prioritize solar. Additionally, the budget extends support to power 2,000 railway stations through solar, under the Indian Railways 1 GW solar mission. Smaller sums of Rs 135 crore and Rs 76 crore have been earmarked for small hydro and bio-power, respectively. Despite recent suggestions, large hydro remains outside the purview of renewable energy.

 

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 photo-voltaic 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 up to Rs 50 crores, translates to a panel manufacturing capacity of only 20 MW, which may not create the required impact in the sector.

 

In a bid to incentivize domestic value addition under Make in India initiative of the Government, the Finance Minister has proposed to reduce Customs and Excise duties on several items related to the Renewable Energy Sector. This includes all items of machinery required for – fuel based power generating system to be set up in the country for demonstration purposes; systems operating on bio-gas/ bio-methane/ byproduct Hydrogen; LED lights or fixtures etc. The Finance Minister has proposed zero Customs and Excise duties on certain items related to cashless transaction devices to promote domestic manufacturing of these products. 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.

 

This might be something, but it is clearly not enough. Another aspect unexplored in the Budget is how the goods and services tax (GST) will impact renewables. Researchers at the Council on Energy, Environment and Water (CEEW) find that if solar components were categorized based on current levied tax rates (including exemptions and subsidies), GST would impact solar tariffs minimally. However, if preferential tax benefits to renewable energy were not accounted, then GST could raise utility scale solar tariffs by as much as 9.5%, hampering progress.

 

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 different kind of green revolution necessary in India for the growth and betterment of the nation as a whole.

 

Source: The data in this article is obtained from multiple sources, including www.firstpost.com, www.india.com, www.livemint.com and www.economictimes.indiatimes.com.

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