RE Industry Views on Union Budget

RE Industry Views on Union Budget

Authored by
Shyam Sharma – CFO at O2 Power

Overall Comments

  • Directionally it’s a growth-oriented budget providing focus on capital expenditure to revive economy and sustainable high-level GDP growth. It has gone against earlier budget themes of controlling fiscal deficit with in 3.5-4% range and spending more on revenue expenditure aiming to consumption led growth. Overall full marks to FM to take the political risk and present a budget which can push India towards becoming $ 5 trillion economy
  • Going forward, increased capital expenditure will have a multiplier effect and will lead to expansion of economy, job creation and reduced deficit

 

Sector Announcements

  • Allocation of INR 3,05,984 crores to discoms over five years for new infrastructure creation, reduction in losses and improving financial health — This will help RE companies to get timely payments against power sales
  • Monetization of INR 7000 crores power transmission assets by PGCIL through InvIT will free up capital for creating more greenfield power evacuation infrastructure. This will help the power sector to grow at a fast pace
  • Increased focus on clean energy by allocating INR 1000 crores to SECI
  • Proposal to launch Hydrogen Energy Mission in FY 21-22 for generating hydrogen from green power sources. This will encourage RE players to set up bigger plants to meet the energy requirements for this mission
  • Proposal to notify a phased domestic manufacturing plan for solar panel and cells

 

Finance

  • Allocation of INR 1500 crores to IREDA will help increased lending to RE sector by IREDA
  • Proposal to set up professionally managed Development Financial Institution (DFI) with initial capital of INR 20,000 crores to provide long term funding to the infrastructure sector. Target for DFI would be to fund portfolio of INR 5 lakh crores in three years. This is a welcome announcement which will go a long way for RE sector financing and was one of long-standing demands of the industry
  • Debt Financing of InVITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITs thus augmenting funds for infrastructure sector
  • Creation of Institution for buying investment grade Corporate Bonds will deepen the bond market helping the RE sector to raise domestic bonds at attractive rates
  • Public sector banks will be recapitalized by INR 20,000 crores enabling them to increase lending
  • An Asset Reconstruction Company (ARC) and Asset Management Company will be set up to consolidate and take over existing stressed bank debt and then manage and dispose of the assets to Alternate Investment Funds (AIF) and other potential investors for eventual value realization. This will help banks to hive off their bad loans to ARC and will open up bank lending to power sector

 

Indirect Taxes

  • To promote domestic manufacturing, custom duty on solar invertors increased from 5% to 20% and 5% to 15% on solar lanterns
  • No mention of BCD on solar modules in the budget. However, from 1st October2021, Govt intends to put in place a revised customs duty structure, free of distortions. It is being debated among RE Industry that 20% BCD might be announced on solar modules w.e.f 1st October 2021 to promote domestic manufacturing
  • Reduction in custom duty on steel and copper will lead to reduction in balance of system costs for the RE sector
  • Notification No. 1/2011, customs is rescinded. Under this notification, custom duty on any goods, equipment imported for initial setting up of solar PV power plant was restricted to 5% or actual, whichever is higher. To avail benefit of this notification, developer needed to submit CCDC (Concessional Custom Duty Certificate) issued by MNRE for the respective equipment. CCDCs were issued by MNRE for imported inverters, trackers and cleaning robots. Now, the custom duty on these items will be charged as per their respective HSN codes. Taking away of this exemption will push domestic manufacturing of these items

 

Direct Taxes

  • No change in corporate taxation is a big relief for the industry
  • Exemption from withholding tax (TDS) on dividend payments by subsidiaries to InvITs. This will improve cashflows of the InVITs enabling them to distribute more dividend to its unitholders
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