Indian government is expected to table the budget for 2016-17 on 29th February 2016. Due to severe constraints on the government’s fiscal position, room for new expenditure including spending on solar sector seems limited. Intelligent use of the available fiscal resources should be the focus for the sector.
- The budget is likely to approve funding for already announced schemes and higher tax free bond issuance
- Clarity on future of tax holiday and accelerated depreciation benefit will be welcome but is unlikely
- We also expect some measures to promote domestic manufacturing sector, which would benefit from removal of distortions in taxation framework
The Cabinet has already passed the plans for higher capital subsidy of INR 50 b (USD 750 m) to rooftop solar and Viability Gap Funding of INR 50 b (USD 750 m) for utility scale projects. We expect the budget to provision for a part of this requirement to be met in the next financial year but expect no additional support. Although, a long-term investment plan for upgradation of grid infrastructure would be welcome.
Other likely issues of interest in the budget would be – i) efforts to reduce cost and/or improve availability of finance; and ii) getting clarity on future taxation policies. The Ministry of New and Renewable Energy (MNRE) has already sought approval for issuing tax-free green bonds of up to INR 100 b (USD 1.5 b), an increase of 100% over the current year. We believe that the budget would most likely sanction this. On taxation front, the government’s attempts to rationalize corporate tax may result in axing of 10 year tax holiday for the sector particularly as the Minister of Power, Mr Piyush Goyal, has been categorical recently that the power sector does not need any financial incentives any more. BRIDGE TO INDIA is of the opinion that removal of tax holiday will not be a big dampener since the benefit is partly eroded by applicability of Minimum Alternate Tax. Nonetheless, we hope that the industry is given sufficient advance notice of any changes. We also hope that the government provides long-term visibility on availability of accelerated depreciation benefit, which is currently due to expire in March 2017.
Given the Indian government’s strong focus on promotion of domestic manufacturing and its Make in India campaign, it would be reasonable to expect some measures to improve competitiveness of domestic module manufacturing sector. In particular, there are various tax inequities at present which disadvantage domestic manufacturers and they should be removed at the earliest.
Overall, the solar industry should not expect any significant funding support from the budget. If the government can rationalize overall taxation structure and provide long-term visibility and certainty, that will be a major positive.