Key Highlights
With successive Union Budgets, India's Power Distribution Segment has witnessed stimuli of one step forward & a recourse of two steps backward. This too was done with little or no clarity upon the proposed measures would successfully address the long pending issues or not. While the intent of the Government could be deemed as positive with anticipated higher budgetary allocations, this budget would like to emphasize the need for cyclic revenue for both the power generation & transmission sector which can only be aided by an alleviated distribution sector. Therefore, focused policy attention to give the necessary flip for transparency in the distribution sector is quintessential and shall be well addressed if large scale smart metering coupled with privatization of stressed DISCOMs are dished out this Union Budget.
The unattractive bottom lines of DISCOMs seem to have ever waning courtesy of high commercial losses attributed mainly to open-ended subsidies & relatively higher transmission losses. The government seeks to tide this challenge through Electricity Amendment Bill 2020 which renders for direct transfer of subsidies to the consumer under Section 65 of the EA 2003 & consequently, shall reduce the cross-subsidy levied in coherence with tariff policy.
Typically the modus operandi for any infrastructure player has seen the inclusion of processes to set up multiple SPVs that operate on a project basis. Under such a case each parent entity had 50-100 entities under its umbrella. Further, each of such entities (SPVs) was administered and assessed for tax separately which is spiraled into multiple administrative & financial difficulties. Therefore, the government may follow the footsteps of the USA, Australia & Japan who already have implemented the scheme successfully with a model that works around the concept of taxing the parent entity of all income accrued to it, including the income of its subsidiaries. Thus, this model shall reduce the compliance cost and dis regard the intra-group transactions which cascade into unnecessary complexities.
The Energy & Infrastructure segment is capital intensive and thus work on high debts with a long gestation service period. Although, the government is incentivizing lower withholding rates on loans from non-residents the impact of thin capitalization provisions under section 94B of the IT Act has been draconian. Therefore, the existing limit of 30% of EBITA could see a reduction which augurs positively in a post-COVID development for the sector.
The transition towards green energy has been the intent of India post-2014 in a faster manner which is also signified by the plans of the government to add 500 GW of RE capacity by 2030. As currently, India stands at 90 GW of installed RE capacity, and to suffice the intermittent plan of 175 GW of 2022, the country shall need another 85 GW to be added by the coming two years. Though this shall mean roughly 43 GW of annual capacity addition in a recovery phase post-pandemic era seems herculean but could be pushed through with initiatives like greater subsidies for renewable energy, proposal that a minimum fixed percentage of electricity from RE sources should be purchased under Section 86 of EA and tax holidays for domestic manufacturing to reduce the cost of panels & ensure growth.
The road to COVID 19 recovery shall mean enhanced participation from the public sector in the energy & infrastructure sector as well. Therefore, to gear up for the future, the budget might give a big push to infrastructure development in coherence with an already identified large pipeline of projects in NIP under which 2/3rds potentially can be financed by the public sector. However, it will be interesting to see the spread of the projects that can be taken up in FY 2022 as to how much remains on the government's balance sheet and what proportion get financed by the PSUs. In the current pre-text and the status of running states' deficit, the CAPEX of center vs states shall need a determination in line with the concurrent structure.
Taking cues from the very ethos of “success planning” eninrac through its dedicated team of sector consultants and industry specialist would be doing a round up on India Budget 2021-22 with live feeds, structured surveys and quality polls to offer unmatched point of view to all clients
Budgetary Expectations 2021
Tenacity, in order to strike a perfect balance between growth & fiscal prudence, shall be the biggest challenge to address for Union Budget 2021. However, addressing the challenge alone may not suffice as the upcoming budget comes at a time wherein the country is still in the aftermath of a crisis of unprecedented proportions led by COVID 19. Being India's first Budget this decade, and a full-fledged one post-COVID 19, it needs to tick all the boxes and in fact do more than that.
On one hand, the Budget shall have to nurture an incipient growth recovery while on the other hand also have to signal adherence to fiscal prudence, ensuring at least medium-term fiscal stability. The idea at large shall be devising a path to expansion while harnessing the headline deficit.
India Budget 2021 - Infrastructure - Key Announcements
- Dedicated outlay for ensuring robust water supply across 4,378 Urban Local Bodies (ULBs) in India at an outlay of INR 2.87 Lakh Crores;
- Waste Management & Water Treatment gaining focus in BE 21-22 with a planned outlay of INR 1.468 Lakh Crores for Urban Swacch Bharat Mission;
- Tackling air pollution, another important initiative flagged this budget with an outlay of INR 2,217 Crores spread across 42 Urban Centers;
- Vehicle Scrapping Policy announced. Dedicated fitness test centers to assess the vehicle condition. Move positive to push automotive sales;
- Mega Investment Textile Parks announced. First phase of 7 such parks to come by 2023-24;
- Production linked incentive scheme announced for 13 Industrial Sectors, to foster manufacturing growth in line with securing global champions. An outlay of INR 1.97 Lakh Crores planned over a spread of 5 years from 2021-22;
- National Infrastructure Pipeline (NIP) to see 900 more projects added and stands at 7400 projects for 2021-22. Funding to be secured for NIP through creating institutional structure, monetization of assets, and enhancement of state funding in a CAPEX model;
- DFI amounting INR 20,000 Crores to be set for Infrastructure funding and shall have a lending portfolio of INR 5 Lakh Crores spread till 2023-24;
- Securing Debt Financing through renewed interests in InvITs & REITs;
- Asset Monetizing to gain momentum through an established monetization pipeline with the establishment of Asset Monetization Dashboard;
- Additional Assets added for monetization include O&G Pipelines of GAIL, IOCL & HPCL, and warehousing infrastructure of Central Warehousing Corporation and NAFED. Further, an additional Railway Infrastructure to be identified for Asset Monetization;
- Capital expenditure of INR 5.45 Lakh Crores in BE 21-22 planned for Infra Investments;
- INR 1.181 Lakh Crores sanctioned for Ministry of Roads, Transport & Highways, of which INR 18,320 Crores planned for CAPEX;
- National Logistics Policy to be announced soon to enable issues & challenges witnessed by logistics industry of India;
- 9,000 km dedicated economic corridors proposed to be developed with 2,000 km of coastal roads and 2,000 km of highways;
- Railways to work upon National Rail Plan by 2030, involving both East-West & North-South Corridors;
- 72% of Broad Guage Rail Network to be Electrified amounting to 46,000 rkms, by the end of 2021. Further, 100% electrification of broad gauge network envisaged by 2023;
- For passenger safety an outlay of INR 1.55 Lakh Crores have been planned by Railways of which INR 1.07 Lakh Crores is towards capital expenditure;
- 1,016 km of metro in RRTS on the floor in 27 cities. Introduction of metrolite & metroneo services in Tier II and peripheral areas of Tier I cities as well;
- By March 2022, 8,500 km of additional NH corridor to be added & by March 2023, additional 11,000 km NH corridor planned;
- INR 18,600 Crores Bengaluru Local Train Project planned with 20% central equity;
- 100 new airports planned in the country to boost tourism;
- An outlay of INR 1.7 Lakh Crores towards transport infrastructure planned;
- Bengaluru metro Phase 2A & 2B planned at an outlay of INR 14,788 Crores;
- Nagpur & Nashik metro phases planned at an outlay of INR 5,926 Crores & INR 2,092 Crores respectively;
- For Port & Shipping Infra subsidy support of INR 6,420 Crores over a span of five years to be provided;
- BPCL, Air India, BEML, Neelanchal Ltd, IDBI Bank, etc. disinvestment planned under strategic sale to raise funds;
- Stressed Asset resolution to be taken up by a dedicated SPV in the name of Asset Management Company to manage the stressed asset;
- Recapitalization of Public Sector Banks planned at INR 20,000 Crores;
India Budget 2021 - Energy - Key Announcements
- Framework soon for Electricity Consumers to choose from more than One DISCOM in the country which shall help DISCOMs reduce their losses and ensure Power For All;
- Allocation of INR 3.589 Lakh Crores for revamping DISCOMs on a result-oriented basis through feeder segregation & smart metering;
- Launch of National Hydrogen Energy Mission to ensure generation of Hydrogen through Green Resources;
- To boost Domestic Solar Manufacturing the Basic Customs Duty on Solar Inverters raised from 5% to 20% and on solar lanterns from 5% to 15%. Additionally, a phased solar manufacturing plan shall be notified for manufacturing of solar panels & cells;
- To boost non-conventional energy in the country additional budget of INR 1,000 Crores to SECI & INR 1,500 Crores for IREDA granted;
- Independent Gas Transport System operator will be set up for facilitation & coordination of booking for common carrier capacity in all Natural Gas Pipelines on a non-discriminatory Open Access basis. This could give a level playing field for all gas marketers going forward;
- Ujjawala scheme to be extended for additional 1 Crore recipients;
- Additional 100 districts to be identified for City Gas Distribution Network (CGD) by 2023-24;
- Fresh Gas Pipeline Project planned for the UT of J&K;
- Large solar power capacity mulled to be set alongside railway tracks;
- National Monetization Pipeline of potential brownfield projects will be launched to monetize public infrastructure assets. This initiative shall cover the assets of PGCIL in addition with DFCC and NHAI;
India Budget 2021 - Other Sectors - Key Announcements
- Pradhan Mantri Atma Nirbhar Bharat Swasthya Yojana to have an outlay of INR 64,180 Crores over the span of 6 Years;
- National Health Scheme to see additional 3,382 block health units and critical care units in 602 districts;
- Health Infrastructure Database shall be created along with setting up of National Institute of World Health to assist the objectives of WHO in South Asia;
- Approval for setting up of 9 biosafety level 3 labs along with 4 labs of virology;
- Mission Poshan 2.0 to be launched;
- INR 35,000 Crores outlay planned for COVID 19 vaccine roll-out, additional funds to be provided on need basis;
- Overall Budgetary Outlay for health & well being for 2021-22 shall see a jump of 137% and shall be at INR 2,23,846 Crores;
- Setting up of the corporate bond market at GIFT Hub land, regulated gold exchange to be set up with SEBI appointed as regulator;
- Fresh investor charter to be rolled out;
- Permissible FDI in insurance raised from the current level of 49% to 74%;
- IPO for LIC is planned for FY 2021-22;
- Multi-state co-operatives planned to have a separate administrative structure;
- TSA systems to have designs for universal applications;
- INR 16.5 Lakh Crores credit to be provided for rural households;
- 5,000 Crore increase in NABARD Fund;
- 1,000 more mandis to be integrated under e-NAMS;
- APMCs to get AIF;
- Modern fishing harbors to be developed;
- Piloting of 5 shipping harbors to promote fisheries, in addition to setting up of seaweed park in Tamil Nadu;
- One Nation One Ration Card implementation under process for 32 states & UTs reaching 69 Crore beneficiaries as on date;
- 4 new labor codes to be introduced, which shall directly benefit gig & platform workers;
- Stand-up India margin money reduced for SC/ST and women from 25% to 15%;
- Additional grant for INR 15,700 Crores provided for MSMEs;
- For reinvigorating human capital a glue grant for 9 cities under umbrella structure to be provided;
- 100 new Sainik Schools to be set up in coordination with government & private schools;
- Central University in Leh to be set up;
- An outlay of INR 3,000 Crores planned for skill apprenticeship;
- To promote innovation & R&D, NRF outlay of INR 50,000 Crores planned for coming 5 years;
- New Space India Limited (PSU) to be set for enabling seamless satellite launches;
- Impetus upon deep-sea exploration to gain momentum for dedicated funds;
- INR 1,000 Crores support grant for tea workers for West Bengal & Assam;
- First Digital Census to be conducted in FY 2021-22 in the history of India at an outlay of INR 3,768 Crores;
- NSSF loan to be discontinued for FCI;
- Fiscal Deficit in RE 2021 at 9.5% of the GDP;
- Fiscal deficit for BE 2021-2022 at 6.5% of GDP;
- Plan to reduce the fiscal deficit by 2024-25 at below 4.5% of GDP;
- Contingency fund for India raised from INR 500 Crores to INR 30,000 Crores;
- Ceilings for borrowings of states at 4% of GSDP with 3% of fiscal deficit for states planned by 2023-24;
- Additionally INR 18,452 Crores as revenue deficit grant allocated to 17 states in FY 2021-22;
Direct Tax Proposals
- ITAT faceless tribunal centers to be set up;
- DDT removed;
- Dividend payment to InVIT to be TDS free;
- Exemption from audit limit raised from INR 5 Crores to INR 10 Crores;
- Senior Citizens having income through pension and interests waved to file IT returns;
- Zero-coupon bonds to be launched to ensure seamless infrastructure funding;
- One year additional tax holiday for affordable housing projects till March 2022;
- Tax for FDI in Aircraft Leasing 100% exemption granted;
- Tax holidays extended for start-ups till March 2022;
- Capital gain tax evasion granted till March 2022;
Indirect Tax Proposals
Custom Duty Rates revised for the following items:
- Reduced duty on copper scrap from 5% to 2.5%;
- Basic & Special Additional Excise Duty on Petrol & High-Speed Diesel both branded & unbranded is reduced;
- Increased duty on Solar Inverters from 5% to 20%;
- Raised duty on Solar Lanterns from 5% to 15%;
- BCD on Gold & Silver reduced;
- Rationalization of duty on textile, chemicals & other products;
- AIDC has been newly imposed on Petrol & Diesel at INR 2.5/Litre & INR 4.0/Litre respectively;
- For agriculture products, customs duty increased on cotton, silk & alcohol;
- New Initiative called Turan Customs introduced for faceless, paperless & contactless custom measures;
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