Budget 2020 Allocates ₹220 Billion to Power & Renewable Energy Sector, Empowers Consumers

Emphasizes on the expansion of solar


Amid the ongoing economic slowdown, the Union Budget 2020-21 has tried to instill hope in the investors and taxpayers.

The Finance Minister Nirmala Sitharaman presented the Union Budget 2020-21 in Parliament with a focus on three main points: Aspiration India, Economic Development for all, and Building a Caring Society.

Budget 2020 Allocates ₹220 Billion to Power & Renewable Energy Sector, Empowers Consumers

The finance minister announced that for the year 2020-21, ₹220 billion (~$3.08 billion) has been allocated for the power and renewable sectors.

In 2019-20, the budget outlay was ₹9.20 billion ($130 million) for wind power, ₹30.05 billion ($440 million) for solar (both grid-connected and off-grid) and ₹5 billion ($73 million) for green energy corridor, ₹40.66 billion ($590 million) was toward the power supply program of Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY), and ₹10.35 billion (~$150 million) for the power system development fund.

The National Infrastructure Pipeline, announced last year with an outlay of ₹103 trillion (~$1.44 trillion), consists of more than 6,500 projects across sectors including clean and affordable energy.

Budget 2020 Allocates ₹220 Billion to Power & Renewable Energy Sector, Empowers Consumers

In her second budget announcement, Sitharaman said, “Our government has brought a paradigm shift in governance-structural reform and inclusive growth. Fundamentals are strong, ensuring macroeconomic stability. Inflation was contained, banks were cleaned up and recapitalized. Companies provided exit through the Insolvency and Bankruptcy Code. Steps for the formalization of the economy were taken up. Goods and Services Tax (GST) has been historic.”

Mercom has been reporting consistently on the concerns around GST and how it has affected the renewable industry. Considering the confusion and uncertainty revolving around GST, the government said that a simplified return format for GST would be introduced from April 2020. It is decided to transfer the due balances out of collections from 2016-17  and  2017-18 into the GST Compensation Fund in two installments. Now, the transfers to this fund would be limited only to the collections made through GST compensation cess.

Budget 2020 Allocates ₹220 Billion to Power & Renewable Energy Sector, Empowers Consumers

The government also underlined its ongoing efforts to provide clean energy through solar power and Ujjwala program that provides clean cooking fuel to households.

“Committed to doubling farmers’ income by 2022, the budget points out that integrated farming systems in rainfed areas would be expanded. Multi-tier cropping, beekeeping, solar pumps, solar energy production in the non-cropping season would be added.

Talking about India’s farmers, she said that the Pradhan Mantri Kisan Urja Suraksha Evam Utthan Mahabhiyan (PM KUSUM) serves many of India’s sustainable development goals, such as energy independence, higher income for farmers, reduced use of fossil fuels, reduced emissions, lower import bill, relieve load on national power grid and ease cross-subsidy burden on industry. The government plans to expand PM-KUSUM to provide two million farmers to set up standalone solar agricultural pumps and 1.5 million farmers to set up grid-connected pumps.

Sitharaman further said that under the program, farmers with fallow lands would be able to generate solar power to sell to the grid.

Highlighting the importance of solar, the minister added that a large solar capacity would be developed along the railway tracks on lands owned by the Indian Railways. The government aims to electrify 27,000 km of railway tracks, she said. Besides this, for solar cells not assembled (8541 40 11) and for those assembled in modules or made up into panels (8541 40 12), the government has proposed a basic customs duty of 20% (At the moment, it is unclear how all this will play out. We will follow-up with more details as they emerge).

The budget has also provided incentives for states that are taking measures for cleaner air in big cities (with a population above one million). For this, ₹44 billion (~$615 million) has been allocated in the budget.

To provide support to infrastructure projects, an investment clearance cell to be set up through a portal and will provide end-to-end facilitation, support, pre-investment advisory, information on land banks and facilitate the center and state approvals.

The government will also create a single investment cell to expedite the grant of licenses to promote entrepreneurship. Sitharaman also proposed to reduce the corporate tax rate for new companies in the manufacturing sector to 15%. This is for companies that start manufacturing by March 31, 2023.

The dividend distribution tax has also been abolished. Moreover, the budget specified that old thermal plants will be asked to shut down if their emission is above the pre-set norms.

To incentivize investment by the sovereign wealth fund of foreign governments in the priority sectors, it has been recommended to grant 100% tax exemption to their interest, dividend and capital gains income for the investment made in infrastructure and other notified sectors before  March 31, 2024, and with a minimum lock-in period of three years.

To attract investment in the power sector, the concessional corporate tax rate of 15% could be extended to new domestic companies engaged in the generation of electricity.

The finance minister has also proposed a 100% profit deduction for three years out of 10 years for startups with a turnover of up to ₹1 billion (~$13.98 million).

Taking electricity to every household has received a major thrust from the government. However, the distribution sector, particularly the DISCOMs, has been under financial stress.

To this end, the government said it intends to promote smart metering. “I urge all the states and union territories to replace conventional energy meters by prepaid smart meters in the next three years. Also, this would give consumers the freedom to choose the supplier and rate as per their requirements,” the finance minister said in her budget speech. Five new smart cities would also be developed in coordination with states on a public-private-partnership model.

On India’s plan for expanding electric mobility, she said that customs duty rates are being revised on electric vehicles.

In what could be a significant concern for the industry, the finance minister said that the government is looking at amending safeguard duty provisions to regulate the surge in imports in a systematic way.

To encourage foreign investments, the limit for foreign portfolio investment (FPI) in corporate bonds, which is currently at 9% of outstanding stock, would be increased to 15% of the outstanding stock of corporate bonds.

To promote the listing of bonds at India International Exchange (IFSC), the withholding rate is reduced from 5% to 4% on interest payment for the bonds listed on its exchange.

Addressing the liquidity constraints of the non-banking financial companies (NBFCs), the government had earlier announced the Partial Credit Guarantee Program for the NBFCs. Providing further push, the government would offer support by guaranteeing securities floated by the NBFCs.

A few days ago, Mercom spoke to several industry stakeholders about their expectations from the budget. Read about the industry expectations here.