Finance minister Arun Jaitley announced the new budget for the financial year 2014-15 on 10th of July. The Indian solar sector was looking forward to it as the new administration had signalled strong support and ambitious plans for the industry. Unfortunately, there is very little in the budget for the solar sector. It is, perhaps, still too early, in the new administration, for game-changing policies. There were four key announcements:
- The ten year income tax holiday (section 80 IA) on solar projects has been extended till March 2017
- A total of INR 5 bn (USD 83 m) is dedicated to the development of new ‘ultra-mega’, GW-scale solar projects in Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Ladakh
- Customs duty is waived on copper wire ribbons (used in modules), back sheets and EVA sheets. There are also waivers on duties for imported machines used in the manufacture of solar equipment such as cells and modules
- The clean energy cess on coal and lignite has been doubled from INR 50 (0.8 USD) to INR 100 (1.67 USD) per tonne
We think this budget is a disappointment for the solar sector. This is a surprise. Prime Minister Narendra Modi is widely regarded as a strong believer in solar. Many (including BRIDGE TO INDIA) expected a more far reaching, directional and visionary budget. Perhaps it’s still too early to expect this from the new administration.
The budget speech in parliament is a legacy of the British Raj. It serves very little practical purpose other than it being a good platform for the government to communicate its policy intents. Although the government has given some importance to solar when compared to other renewable energy technologies like wind or biomass, it has not laid out a comprehensive policy program on solar, nor has it provided details on how the modest proposals are to be achieved.
The key announcements:
- Encouraging the “ultra mega”, GW-scale solar power projects in Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Ladakh. Going by the budgetary estimate (a paltry INR 5 bn or USD 83 m), this would only be used for the initial feasibility studies and planning. (This is a start, but not more.)
- The government has allocated INR 4 bn (USD 66 m) towards funding solar powered water pumps for agricultural uses.
- INR 1 bn (USD 17 m) will go towards developing solar canal projects.
- Continuation of the 10-year tax holiday for all power projects until 2017. This is an important announcement and well appreciated by the sector. However, an extension of the 80% accelerated depreciation benefit on solar projects has not been announced.
- Support for solar manufacturing in India through waiving of import duties on manufacturing supplies and equipment. This makes little sense, if the government wants to seriously incentivize domestic manufacturing.
- The clean energy cess on coal and lignite has been doubled from INR 50 (0.8 USD) to INR 100 (1.67 USD) per tonne to garner funds to fund clean energy projects. The government will likely collect over INR 50 bn (USD 833 m) going only by Coal India’s target for 2014-15. Considering the fact that only INR 10 bn (USD 167 m) worth of funds have been proposed in this financial year, the excess fund utilization is a mystery. How will this be utilized? Details are sorely lacking.
- The budget failed to set a clear road map for India’s solar future. It also sorely lacked on specifics. The industry expected an upward revision of the National Solar Mission targets and a commensurate budgetary allocation. The MNRE received a budgetary allocation of INR 39.41 bn for the FY 2014-15 that is almost identical to the last financial year (INR 39.15 bn). There was also no mention of a boost towards distributed/off-grid generation. The 30% MNRE subsidy has completely dried up in the last two years and the industry expected the finance minister to revive this by a larger allocation.
- The manufacturing sector also missed out. The concessions are mere tokens. The customs duty on solar manufacturing equipment was reduced to 5%. Flat copper wires (an insignificant component contributing 2.25% of module cost) were exempted from customs duty. If the government believes that this is enough to revive domestic manufacturing, it is mistaken. The government needs to adopt a holistic, long-term approach to incentivize manufacturing of solar cells and modules. The budget has given no indication of such an approach.
- There was no mention of rationalizing grid power tariffs, preventing power theft through e.g. smart metering (the only reference to ‘smart’ was with respect to ‘smart cities’) or restructuring the debt of DISCOMs. Ultimately, large solar power projects require a healthy off-taker and a stable grid, which means debt-free DISCOMs. This is one of the key barriers to private investment in the power sector. A holistic approach to completely de-regulate power prices and improve the economic situation of DISCOMs was missed in this budget.
- Lastly, the industry expected the accelerated depreciation benefit to be extended to homeowners of solar systems. This would have created a vibrant market for the 1-5 kW rooftop market. Although there was some talk in the market about this, it was completely left out in the budget.
The new government has been in office for less than two months. Given this, one cannot expect too much. Also, one should not read too much into the budget speech and the budget itself, because it only has a directional quality. Nevertheless, we believe that the budget is a good platform to showcase the government’s vision. In that, we are disappointed. Our score for the budget is 3/10.
Mudit Jain is a consultant at BRIDGE TO INDIA.