Union Budget 2015-16: Salient features

March 24, 2015 4:48 am0 commentsViews: 646

unionbudgetWith the budget initiatives and coal block auctions one can expect a better future for the power industry, says JD Kulkarni.

Finance Minister Arun Jaitley while presenting the Union Budget for 2015-16 reiterated the government’s commitment to 24×7 power across the country which is a dream of every citizen of this nation who has seen many years of power shortages and load-shedding. People today are planning their activities as per the availability of electricity supply but for the privileged few who have access to 24 hours power supply. How far this dream will come true would depend on progress of the power sector in the next few years. Otherwise this would turn out to be another promise by politicians to the citizens of this country. Fiscal deficit is seen at 3.9 per cent of GDP in 2015-16 as against 3.6 % promised last year. However the finance minister remained committed to meeting the medium term fiscal deficit target of 3 per cent of GDP in three years. As a result of a historic decline in crude oil prices between June and December 2014, the government has budgeted for the petroleum subsidy to come down by half to Rs 30,000 crore in the next financial year 2015-16, thus giving major relief to the government.

The finance minister suggested many measures to achieve 24×7 power supply, including awarding five ultra-mega power projects (UMPPs) on the plug and play mode which he expected would unlock investment to the extent of Rs 1 lakh crore. All the clearances and linkages for UMPPs of 4,000 MW each would be in place before the projects are awarded through a transparent auction system. Only two UMPPS out of four awarded earlier have seen light of the day till date. Hope the new initiatives suggested would help the country to come out of a power-deficit situation. He also said that the government would consider similar plug-and-play projects in other infrastructure sectors such as roads, ports, rail lines, airports, etc. Service tax exemption on erection and commissioning of original works for ports has been withdrawn which is expected to push up tariffs which to some extent may get compensated by improved efficiency by converting government ports to corporates. Setting up of National Investment and Infrastructure Fund (NIIF) may bring in efficiency and additional investment both in ports as well as transport infrastructure sector.

There is a proposal to increase clean energy cess on coal from Rs 100 to Rs 200 which will benefit the government in significantly increasing the National Clean Energy Fund (NCEF) to finance clean environment initiatives. Government levy of carbon tax of Rs 4 per litre on petrol and diesel is expected to generate about Rs 30,000 crore a year and would help improve transport infrastructure. Rs 200 a ton of coal tax is expected to generate about Rs 10,000 crore per year and will be used to promote renewable energy. But the increase in clean energy cess on coal and the coal freight price increase by 6.3 per cent announced in the railway budget earlier would eff ectively lead to an increase in power tariff s to consumers and make power from coal-based merchant plants less competitive.

State-run power PSUs including NTPC, Power Grid and NHPC would be spending Rs 54,910 crore on capital expenditures in the 2015-16 fiscal. It is an increase of 7% over the last financial year, mainly to enhance capacity. During the next fi nancial year, NTPC has earmarked a capex of Rs 23,000 crore to fi nance its ongoing and future projects along with meeting its capital requirements. State-run Power Grid will spend Rs 20,000 crore followed by NHPC Rs 4,180 crore, DVC Rs 3,683 crore, THDC Rs 1,580 crore, NEEPCO Rs 1,292 crore and SJVNL Rs 1,175 crore. This capital expenditure is supposed to improve generating capacity in the country with the capacity addition of about 10,000 MW in the central sector. This would be a major government spending for capacity addition after many years.

Emphasising the need to generate more electricity from clean energy sources, the fi nance minister announced a renewable power production target of 1,75,000 MW by 2022. Out of this solar power share will be of 100,000 MW followed by 60,000 MW from wind energy, 10,000 MW from biomass energy and 5,000 MW from small hydro projects. At present, renewable energy contributes about 6.5 per cent to the electricity mix. It is proposed that this would be taken to about 12 per cent in the next three years. It is also proposed to reduce customs duty on solar PV parts and solar thermal parts and wind project cast components to give a boost to the renewable energy generation.

The finance minister also announced additional depreciation benefi t at 20% on new plant and machinery installed by a company engaged in generation and distribution of power. However, if the asset is installed after September 30 of the previous year, only 10% of the additional depreciation is allowed. It is proposed to allow the remaining 10% of the additional depreciation in the subsequent year.

The finance minister has proposed to merge commodities future market regulator Forward Market Commission (FMC) with Securities and Exchange Board of India (SEBI). This is expected to strengthen regulations of the commodities market. The SEBI act would also be amended to include commodity derivatives. This merger was necessary to bring in better discipline and to have better control on the commodities market. This was necessary especially after the recent incidence in commodities market.

Abolishing of wealth tax and additional 2% increase in income tax for so-called super rich is another step suggested in the budget. Assessment of wealth tax was always an issue and it was not serving the purpose for which it was introduced. Increase in service tax and education cess from 12.36% to 14% was another step suggested in the budget. We are planning to go for a unifi ed GST. Today the excise would be 12.5% while service tax would be 14%. It would have been better if the service tax would have been kept at the present level for unifi cation into GST. The increase in service tax will push up prices of all products. However, the corporate tax is proposed to be reduced from 30% to 25% in next four years. As per the fi nance minister, the corporate tax was high as compared to other countries thereby making our products less competitive in the international market. This is expected to create more jobs and bring in more investment and better growth. The announcement of implementation of Goods and Services Tax (GST) from 1st April 2016 will help reduce multiple taxation and also in simplification of the tax process in India.

There are many other minor steps suggested by the fi nance minister such as to reduce the customs duty on 22 items and doubling of basic customs duty on commercial vehicles to 20 per cent. These steps may not have a major impact on the price of these commodities.

In short, the current budget has suggested many changes in power sector operation in order to give a boost to capacity addition both in conventional as well as the renewable sector. After the merger of FMC and SEBI it is expected that the CERC may have full control on operation of power exchanges in the country. Additional investment in central sector projects by the government should be a welcome step. Reduction in corporate tax may give some relief to the ailing power industry which was expecting relief from the budget. With the budget initiatives and coal block auctions one can expect a better future for the power industry.

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