An inclusive budget - Feedback

There were enough drivers / headwinds for the Government to be more aggressive to present a growth budget. Given the overall macro situation and the global slowdown, the FM has done a reasonably good job of focusing on the key areas that needs immediate focus while sending out a message that India wishes to be fiscally prudent, consolidate and also grow. In view of this, the focus was on:

  • Stimulating Agriculture, Rural infrastructure, and the weaker sections of the society
  • Addressing structural reforms and pushing big on infrastructure spends
  • All this, while staying prudent at 3.5 Fiscal deficit

This signals a very sharp and serious content led budget devoid of heroics.

On the Energy front specifically, as the Energy Minister says, “I did not ask for anything specific” sums it up well. I had mentioned before, the Power sector was already on a “catalytic growth” through a series of “OFF Budget” initiatives such as UDAY, IPDS, DDUGJY, Green Corridors and the Solar parks initiatives. This budget, does not aim to disturb the trend and is only likely to stimulate more power demand and growth for the sector as indicated below:

  • The increased allocation in the Rural Electrification will be the key in attaining the Electrification goals of ‘Unelectrified villages’, which is being done at very high speed.
  • Overall focus on Agriculture and Rural sector growth will be the key in stimulating power demand and thereby drive better PLF’s for most plants.
  • Increased Cess on Coal will largely be used for Green Corridors and may impact the tariffs marginally, which could be managed in a growing economy.
  • Dividend Distribution Tax (DDT) exemption on InVIT’s will be a key driver for RE projects. This will allow SPV’s to be recapitalized or valued at differential levels.
  • Increased allocation to IREDA will be useful in stimulating demand for the RE vision of 175 GW
  • Increased allocation of Rs. 5500 crs to the Ministry of New & Renewable Energy is a welcome step to boost the Solar Roof Top Projects which needs the Ministry’s intervention now to create a market eco system.

Most other aspects of the Energy Ministry is self-maintained and does not rely on the Union Budget to stimulate or activate the necessary steps required for growth. This is likely to continue.

One key aspect, many economists and media commentators are unable to grasp is the issue of Banks recapitalisation and it is made out as a major problem with this budget. The problem is with looking at the Banks problems in isolation and looking at the Rs. 25,000 crores allocation set aside for this. One needs to look at this holistically and look at 2 other important elements as well, related to the Energy Sector:

  1. UDAY intervention is already a step towards addressing the Banking stress – One of the major reasons for the Public Sector Banks’ stresses are the Utility outstanding which is to the tune of Rs. 3-4 Lakh crores. The Power Ministry had already set out on the UDAY path to ensure that this does not impact the bank books nor the DISCOM’s and it is handled by the State exchequer. So, this move has eliminated one major bottle neck is the Discom’s balance sheet and bank’s books. This was done well before the budget was announced
  2. InVIT investments may take up some stressed projects off the books of the Banks and allow them to be revalued at a far higher rate in the present day markets.

The incentives in the Oil & Gas exploration is a welcome move towards more O&G exploration as the old NELP policies were not yielding any tangible results.

There were many industry specific expectations from the Budget, which had no mention here. But, given the way this Government has enacted on so many progressive reforms for the Sector without a ‘Union Budget’, it gives us confidence that any reasonable issue for the industry will be looked in to in the near future.

About A. M. Devendranath

Vice President, Head - Energy Practice Feedback Business Consulting Services Private Limited I

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