Most sections of the overall Indian industry have labeled the budget presented on Saturday (28th February 2015) as an incremental progress in the right direction and not a ‘big-bang’ or reformist budget (the yardstick being the 1991 budget). While infrastructure has received its due attention, unfortunately, for the solar industry, incremental progress just doesn’t add up to the new and ambitious targets promised for the sector (100 GW by 2022).

• Planned budgetary allocation has marginally increased to INR 62 billion, not in line with the new plans
• There is a risk of underfunded new programs being started with negative consequences
• Some benefits in the form of custom duty exemptions have been provided for inverter assembly and PV cell manufacturing

The most positive budget announcement for renewables has been the doubling of the clean energy cess on coal for a second year in a row. At INR 200 per tonne, the government is expected to collect around INR 120 billion (USD 1.9 billion) during the upcoming financial year. This trend, coupled with the continuation of higher taxes on petroleum products, effectively changes India’s status from a carbon subsidizing economy to a carbon taxing economy. This is good news.

However, all said and done, the Ministry for New and Renewable Energy (MNRE) has been provided only a slightly enhanced planned budgetary allocation of INR 62 billion (USD 1 billion), up from approx. INR 50 billion (USD 800 million) in the last budget. With this budgetary allocation, the ministry is expected to provide the following: “central financial assistance for grid-interactive power capacity addition from wind, small hydro, biomass power/cogeneration, urban and industrial waste to energy, and solar power. In addition, it should promote the deployment of off-grid/distributed renewable power systems. On top of the on-going schemes/programs, it is also expected to help fund (i) a scheme for mega renewable power generation of 100 GW, (ii) a 20 GW scheme for unemployed graduates, village Panchayat and small scale industries (refer), (iii) rooftop grid-connected projects as well as provide interest an subsidy scheme for such projects, (iv) creation of an international agency for solar policy and applications and (v) a scheme for establishment of solar zones and (vi) provide an outlay of INR 100 million (USD 1.6 million) for a scheme to train 50,000 youths under the ‘Surya Mitras’ program (refer).

Looking at this list, it is evident that there is a huge disconnect between the government’s ambition and the MNRE’s to-do list on one hand and the budgetary allocation on the other. From the solar industry’s experience with the rooftop solar capital subsidy, we already know what happens, when programs are started without sufficient budgetary allocations: they not only stall, but even prevent the un-subsidized market from picking up.

On the manufacturing side, there is some support in the form of a reduction of the basic customs duty on the Active Energy Controller (AEC) to 5%. AEC is a microprocessor based electronic component that is mostly imported and used for manufacturing renewables inverters. This will increase the competitive advantage of domestically assembled inverters by companies such as ABB, Schneider, Refusol, Bonfiglioli and TMEIC. An excise duty exemption has also been provided for the copper wire and tin alloys used in making solar cells. In the past, there has been a duty on importing raw materials for solar PV cells and modules but no duty on the finished products. This has been hampering the competitiveness of the domestic manufacturers. This exemption is in line with the government’s plan to remove inverted duty structures on import of raw material.

On the services side, an increase in the service tax to 14% is likely to add to the EPC and O&M costs for solar projects. On financing, there are now tax-free bonds for rail and roads, but against industry expectations, renewables are not included in this list.

The government re-affirmed that it wants to provide power to India’s un-electrified villages (it counts 20,000 of them) with a special mention of solar energy. This is good, but there is no detail on whether any allocation for such a program would be provided to the MNRE or would it be limited to the rural electrification programs under the Ministry of Power.

Overall, the budget shows some, incremental progress from the last time, but it falls well short of meeting the raised expectations of the solar industry. The hope is that the larger projects will get supplementary budget allocations through the course of the year. However, the prospects for any accelerated growth in rooftop and rural solar look slim.

Jasmeet Khurana, is Senior Manager – Market Intelligence at BRIDGE TO INDIA