Indian power sector expects the government to continue its thrust on infrastructure and pins its hopes on incentives for the renewable energy sector and extension of sunset clause under Income Tax Act in the budget for 2011-12 to be tabled in parliament on 28 February. Under section 80-I(A) of the Income Tax Act mega power generation projects, with over 1,000 megawatts (MW) in case of thermal and over 500 MW in hydro, are exempted from income tax for 10 years, if they are commissioned before March 2011. The industry is, however, divided over the issue of levying customs duty on imported power equipment. The present power infrastructure of the country is inadequate to meet demand in an economy that has been growing more than 8 per cent over the past few years. The government has forecast a GDP growth of 8.6 per cent for 2010-11. The government's thrust, more off-budget than through budget, is to help the sector add generation capacities, discourage wastage, encourage generation of renewable energy, ensure supply of power equipment and facilitate rural electrification. However, analysts are suspicious of the government's ability to implement this agenda as speedier as it intends to. The government had cut capacity addition target for 2007-12 (Eleventh Five Year Plan) several times in the past year. "Overall, policy and regulatory framework for the sector has evolved over the last decade, now the industry expects more in terms of tax and other incentives," Charudatta Palekar, principal consultant, energy, utilities and mining, PricewaterhouseCoopers' said. Issues For 2011-12 Indian power equipment manufacturers have been demanding imposition of customs duty to ensure a level-playing field vis-a-vis foreign manufacturers, while power project developers have been lobbying against it on fears the move will dry up supply of cheaper equipment in the market. At present, there is no customs duty on equipment used for mega-power projects. The government is unlikely to change this given its plan to achieve capacity addition target faster, analysts said. Another issue is the import duty on power equipment spare parts. "A concessional rate of duty is applicable for import of power equipment, which is not being extended when I import spare parts," Issac George, Chief Financial Officer, GVK Power said, hilighting the concerns of power producers. That the power sector has no service tax exemption is an anomaly as other infrastructure segments such as roads, airports, railways, transport terminals, bridges, tunnels and dams are enjoying this benefit, industry officials said. In its pre-budget memorandum, the Indian Electrical & Electronics Manufacturers' Association (IEEMA) has sought to rectify this anomaly. The power equipment makers' body has also sought duty-free import of specialised steel, referred to as CRGO electrical steel, until indigenous production commences. CRGO steel, demand for which is estimated about 3.5 million tonnes per annum for the Twelfth Five Year Plan (2012-17), is a critical raw material for manufacturing transformers, IEEMA said. The companies are completely dependent on imports for this now. The 2010-11 budget had more than doubled fund allocation for the sectoral schemes and also extended, by one year, the sunset clause in the Income Tax Act. (Reuters)
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