OPINION: Fiscal Consolidation Programs are the Need of the Hour for India’s Renewable Energy Sector
India has achieved a revolutionary development in the renewable energy (RE) sector. Over the past 7.5 years, installed RE capacity has increased by 286%, making India the fourth largest in the world, for installed RE capacity. In October 2021, India’s RE capacity reached 149.57 gigawatts (GW), up from 94.4 GW in 2020.
Recently, on January 20, 2022, the Cabinet also approved a capital injection of ₹1,500 crore to the Indian Renewable Energy Development Agency (IREDA) as proposed in the Union Budget, 2021.
However, the journey has only just begun and there is still much to do. The renewable energy sector has a gigantic target of 227 GW of generation capacity in 2022, of which around 114 GW is planned for solar, 67 GW for wind and the rest for hydro and bio, among others.
Further, at the COP 26 climate summit in Glasgow, reinforcing its commitment to climate change, India pledged five –
‘Panchamrits’ – become a ‘
To achieve this ambitious goal, various reforms are expected in the 2022 Union budget to push the industry. A few of them are listed below:
Extension of LIP programs
Currently, the PLI scheme only covers solar cells and modules. However, to boost domestic manufacturing, it is also imperative to incentivize other members of the renewable energy segment. This can be achieved by extending the benefits of the scheme with additional budget allocation to:
- Manufacturers of electrolysers to generate green hydrogen
- Manufacturers of batteries for electric vehicles
- Greening Indian Railways
- Wind turbines.
Tax incentives for the adoption of the green economy
Promoting green technologies is key to India’s commitment to its net zero emissions goal. Countries around the world are taking steps to advance the green economy by providing free land, concessional electricity costs, low interest financing, government incentives, and more. in addition to concessional tax rates.
To push renewable energy players and provide a level playing field globally, similar benefits could be provided in the upcoming budget. With regard to tax-related measures, it is expected that a preferential tax rate of 15% will also be extended to companies investing in green technologies, combined with an additional deduction for the investment or purchase green technology assets.
Promoting social infrastructure projects like converting waste to energy
In order to promote social infrastructure projects such as energy recovery from waste as well as projects that lead to the transformation of waste into energy, it is recommended that they be included in priority sector loans. This has been successfully implemented by the municipalities of Indore and Nagpur.
The government may, together with the state government/municipal corporation/gram panchayat, develop a policy setting a development target for such social infrastructure projects in the respective localities. Companies participating in such projects should also be incentivized with tariff rate subsidies, free land and other benefits.
Tax consolidation policy
Typically, RE projects are domiciled in separate Special Purpose Vehicles (SPVs) for various reasons such as regulatory constraint, convenience for bankers, and the need to separate cash flows. Having multiple SPVs for a single line of business leads to inefficiencies and increased compliance burden.
Also, the losses of one SPV cannot be offset against the profits of another SPV. All these factors make
Rationalization of GST rates
The Goods and Services Tax (GST) rates on specified RE appliances and parts have been increased from 5% to 12%, whereby the effective rate of GST for EPC contracts has increased from 8, 9% to 13.8%. It is therefore recommended that the GST rate be restored to 5% in order to reduce the cost for businesses.
There are various other measures that need to be taken in order to establish long-term political stability and promote investment in the renewable energy sector, such as the regularization of DISCOM payments, land acquisition and the resumption of projects. staggered. Thus, the RE sector expects
Budget 2022 to pursue the ambitious dream of making India a net zero carbon emitter by 2070.
Jimit Devani is Partner, Naman Shah is Principal and Jash Davda is Deputy Principal at Deloitte Haskins and Sells LLP.
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