Budget 2010 and its effects on Power sector (Managerial Economics)

A term paper on

Budget 2010 and its effects on Power Sector (Managerial Economics)

By

ATIF ASHFAQ
Reg. No: 11013908 Roll no: R1003B76 (Group II)
Department: Lovely School of Business

Submitted to Mr. Satinder

(Faculty of MBA)

By Atif Ashfaq

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Budget 2010 and its effects on Power sector (Managerial Economics)

INTRODUCTION
BUDGET
A budget (from old French word bougette, purse) is generally a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in micro economics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms. A budget is an itemized summary of probable expenses and income for a given period. Or, you may prefer to think of it as a way to keep from running out of money before you run out of month! No matter how you refer to it, its a tool to help you prioritize your spending and manage your moneyno matter how much or how little you have. A budget can also be called as: a sum of money allocated for a particular purpose; a summary of intended expenditures along with proposals for how to meet them In summary, the purpose of budgeting is to: Provide a forecast of revenues and expenditures i.e. construct a model of how our business might perform financially speaking if certain strategies, events and plans are carried out. Enable the actual financial operation of the business to be measured against the forecast. By Atif Ashfaq Page 2

Budget 2010 and its effects on Power sector (Managerial Economics)

TYPES OF BUDGET
Budgets are of many types. They are:

Sales budget: The sales budget is an estimate of future sales, often broken down into both units and dollars. It is used to create company sales goals.

Production budget: Product oriented companies create a production budget which estimates the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labour and material.

Cash Flow/Cash budget: The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.

Marketing budget: The marketing budget is an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.

Project budget: The project budget is a prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each.

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Budget 2010 and its effects on Power sector (Managerial Economics)

Revenue budget: The Revenue Budget consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.

Expenditure budget: A budget type which include of spending data items.

Importance of budget
The following are some of the importance of budget :Knowledge Personal budgeting allows you to know exactly how much money you have even down to the penny, if you so desire. Furthermore, a budget is a selfeducation tool that shows you how your funds are allocated; how they are working for you; what your plans are for them, and how far along you are toward reaching your goals. Knowledge is power, and knowing about your money is the first step to controlling it. Control A budget enables you to take charge of your finances. With a budget, you have the tools to decide exactly what will happen to your hard-earned money and when. You can be in control of your money instead of having your money limit what you do. This bears repeating: You can be in control of your money instead of letting it control you! Organization Even in its simplest form, a budget systematizes by dividing funds into categories of expenditures and savings. Beyond that, budgets can provide further organization by automatically providing records of all your monetary By Atif Ashfaq Page 4

Budget 2010 and its effects on Power sector (Managerial Economics)

transactions. They can also provide the foundation for a simple filing system to organize bills, receipts and financial statements. Communication If you are married, have a family or share money with anyone, having a budget that both or all of you create together is key to resolving personal differences about money handling. The budget becomes a communication tool to discuss the priorities for where your money should be spent. It also allows all involved parties to "run" the system. Opportunities knowing the exact state of your personal monetary affairs and being in control of them, allows you to take advantage of opportunities that you might otherwise miss. Have you ever wondered if you could afford something? With a budget, you should never have to wonder againyou should know.

BUDGET 2010
India has bravely battered the global financial crisis and Indian economy is estimated to be in a better state at present as compared to its position a year ago. The nation has experienced severe economic imbalance in the year 2009 and a major decline in the agricultural production due to delay in monsoons. Therefore, the main challenges in Budget 2010 in front of the government were to swiftly relapse to 9% growth, target for double digit expansion to make the recuperation more intensive and make the development process more comprehensive by laying guidelines for food security and surmounting the failure of public delivery system of the government.

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Budget 2010 and its effects on Power sector (Managerial Economics)

UNION BUDGET 2010 Highlights of Union Budget 2010 proposed by Finance Minister of India Mr Pranab Mukherjee on February 26, 2010 are:

4% of concessional tax to be charged on solar power plants constructed by the Council of Scientific and Industrial Research

5% of concessional tax to be charged on the machinery imported by cable TV operators

Tax charged on coal manufactured in India is re-introduced at Rs.50 per tonne.

Toys to be entirely excluded from central excise tariff Service sector tax maintained at 10% to assist the initiation of GST. Inclusion of more services under tax limits.

Authorized news agencies are entirely excluded from service tax Public participation will be appreciated for discussion on Draft Food Security Bill

Monetary allotment on primary education is hiked from Rs.26,800 crore against the existing Rs.31,300 crore

Banking services to be offered for all residents with a populace of more than 2,000

Allocation of Rs.66,100 crore for rural expansion in the current fiscal year

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Budget 2010 and its effects on Power sector (Managerial Economics)

Allocation of Rs.40,100 crore and for the Rs.48,000 crore for National Rural Employment Project and Bharat Nirman respectively

Hike in allocation of Rs.1, 270 crore for Rajiv Awas Yojna, that works for underprivileged section of the society, against the present Rs.150 crore. It is an attempt to improve the living standards of slum dwellers and progress towards a "slum free India".

46% of scheme allowances for the development of infrastructure in the current fiscal year.

Set targets for improvement in the performance standard of Coal Regulatory Authority of India

61% increase in the monetary allotments for new and renewable energy industry to Rs.1,000 crore against the existing Rs.620 crore

Initiation of National Clean Energy Fund Allocation of Rs.200 crore for Goa to check and prevent the corrosion activities and develop tourism.

Commitment to the development of Special Economic Zones. Introduction of four different strategies for the development of agriculture industry.

Allocation of Rs.200 crore for the weather-resilient agricultural proposals. Participation of private sector in grain storage to prolong for the next two fiscal years.

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Budget 2010 and its effects on Power sector (Managerial Economics)

Considering the natural calamities like floods, drought, etc, the debt reimbursement phase is elongated to June 2010.

Introduction of 5 major food processing plants FDI influx is registered at $20.9 billion during April-December 2009 FDI guidelines to be made more accessible with one all-inclusive article. Excellent fiscal security council to be established for banking industry. Additional accredits will be provided to private sectors by Indian Banking Association. BUDGET AT A GLANCE

(In Crore of Rupees) 2008- 2009-2010 2009-2010 2010-2011 2009 Budget Estimates Revised Estimates Budget Estimates Actual@ 1. Revenue Receipts 2. Tax Revenue (net to Centre) 3. Non-tax Revenue 4. Capital Receipts (5+6+7)$ 5. Recoveries of Loans 6. Other Receipts 7. Borrowings and other Liabilities* 8. Total Receipts (1+4)$ 9. Non-plan Expenditure 10. On Revenue Account of which, 11. Interest Payments 12. On Capital Account 13. Plan Expenditure 540259 614497 443319 474218 96940 140279 343697 406341 6139 4225 566 1120 336992 400996 883956 1020838 608721 695689 559024 618834 192204 225511 49697 76855 275235 325149 577294 465103 112191 444253 4254 25958 414041 1021547 706371 641944 219500 64427 315176 682212 534094 148118 426537 5129 40000 381408 1108749 735657 643599 248664 92508 373092

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Budget 2010 and its effects on Power sector (Managerial Economics)

14. On Revenue Account 15. On Capital Account 16. Total Expenditure (9+13) 17. Revenue Expenditure (10+14) 18. Capital Expenditure (12+15) 19. Revenue Deficit (17-1) 234774 278398 40461 46751 883956 1020838 793798 897232 90158 123606 282735 (4.8) 400996 (6.8) 175485 (3.0) 264411 50765 1021547 906355 115192 329061 (5.3) 414041 (6.7) 194541 (3.2) 315125 57967 1108749 958724 150025 276512 (4.0) 381408 (5.5) 132744 (1.9)

253539 (4.5) 20. Fiscal Deficit 336992 {16-(1+5+6)} (6.0) 21. Primary Deficit (20-11) 144788 (2.6)

Effects of Budget on Power Sector

Plan allocation for power sector excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) doubled from Rs 22.30 bn in FY10 to Rs 51.30 bn in FY11. Government proposes to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks. A Coal Regulatory Authority is proposed to be set up to create a level playing field in the coal sector. This would facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance. Plan outlay for the Ministry of New and Renewable Energy increased by 61% from Rs 6.20 bn in FY10 to Rs 10.00 bn in FY11. Solar, small hydro and micro power projects at a cost of about Rs 5.00 bn to be set up in the Ladakh region of Jammu and Kashmir. National Clean Energy Fund for funding research and innovative projects in clean energy technologies to be established. To build the corpus of the National Clean Energy Fund, clean energy cess on coal produced in India at a nominal rate of Rs 50 per tonne to be levied. This cess will also apply to imported coal. By Atif Ashfaq Page 9

Budget 2010 and its effects on Power sector (Managerial Economics)

Provide a concessional customs duty of 5% on machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units and also exempt them from central excise duty. Ground source heat pumps used to tap geo-thermal energy to be exempted from basic customs duty and special additional duty. Exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from central excise duty. The total outlay for the Ministry of Power is Rs 60,751.42 crore. The provisions are mainly towards schemes pertaining to NHPC - Rs 781 crore, Energy Conservation - Rs 143.94 crore, Bureau of Energy Efficiency - Rs 66.92 crore, RGGVY - Rs 5,500 crore, Restructured Accelerated Power Development Reform Programme - Rs 3,700 crore and interest subsidy on National Electricity Development Fund Rs 227.64 crore. The total outlay for Nuclear Power Scheme is Rs 4,739 crore. The Plan outlay consists of Rs 1848 crore by way of budgetary support and Rs.2,891 crore of IEBR.

REVIEW OF LITERATURE

The research is done by LEGAL PUNDITS INTERNATIONAL SERVICES LTD. The research was done on the effects of budget 2010 on various sectors. In case of agriculture sector, budget 2010 showed a NEGATIVE effect on this sector. The positive effects of budget on agriculture sector were as follows:

Increase in cost of Coal is Largely Negative coupled with MAT on SPV is negative for the Sector.

However, doubling of allocation to power sector to 5000 Cr + in positive for the Sector. Page 10

By Atif Ashfaq

Budget 2010 and its effects on Power sector (Managerial Economics)

The research was done by ANGEL SECURITIES on Budget 2010. The findings from the research were as follows:

Increase in the allocation for power sector is a marginal positive for power sector. The increase in the rate of MAT is negative for private power companies like CESC, GIPCL etc. Clean energy cess on coal of Rs.50 per tonne for imported and domestic coal is expected to have a negative impact on private power generators like Tata Power, Reliance Power and Adani Power etc.

The research was done by INDIA INSTITUTIONAL RESEARCH. The budgetary allocation for the power sector excluding RGGVY has been raised by 130% from Rs22.3bn to Rs51.3bn. The hike in MAT from 15% to 18% would have a neutral impact, as it would be passed on to the end users. A clean energy cess of Rs 50 per tonne would be levied on domestic as well as imported coal. As fuel costs for the power sector are a pass through, we expect power tariffs to rise by 23 paise per kwh. On the renewable energy front, the budgetary allocation has been increased by 61% from Rs 6.2bn to Rs10bn.

The research was done by INFODRIVE INDIA. The findings from the research were as follows: Plan allocation for power sector excluding RGGVY doubled from Rs.2230 crore in 2009-10 to Rs.5,130 crore in 2010-11.

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Budget 2010 and its effects on Power sector (Managerial Economics)

Government proposes to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks. A Coal Regulatory Authority to create a level playing field in the coal sector proposed to be set up. Plan outlay for the Ministry of New and Renewable Energy increased by 61 per cent from Rs.620 crore in 2009-10 to Rs.1,000 crore in 2010-11. Solar, small hydro and micro power projects at a cost of about Rs.500 crore to be set up in Ladakh region of Jammu and Kashmir. The research was done by ONE INDIA. The findings were as follows: "The allocation does not include allocations for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)," said Finance Minister Pranab Mukherjee in his Budget speech in Parliament on Friday, Feb 26. He said that Government accords the highest priority to capacity addition in the Power Sector. The framework for induction of super critical technology in large capacity power plants of the National Thermal Power Corporation is now in place. The Mega Power Policy has been modified is now consistent with the National Electricity Policy, 2005 and Tariff Policy, 2006. He said it would help in lowering the cost of generation and cost of power purchased by the distribution utilities. News Stories on Union Budget 2010 The total outlay for the Ministry of Power is Rs 60,751.42 crore. The provisions are mainly towards schemes pertaining to NHPC - Rs 781 crore, Energy Conservation - Rs 143.94 crore, Bureau of Energy Efficiency - Rs 66.92 crore, RGGVY - Rs 5,500 crore, Restructured Accelerated Power Development Reform Programme - Rs 3,700 crore and interest subsidy on National Electricity Development Fund - Rs 227.64 crore. The total outlay for Nuclear Power Scheme is Rs 4,739 crore. The Plan By Atif Ashfaq Page 12

Budget 2010 and its effects on Power sector (Managerial Economics)

outlay consists of Rs 1848 crore by way of budgetary support and Rs.2,891 crore of IEBR. The research was done by STOCK MARKET REVIEW. The main points of this research are: The Union Budget 2010-11 reiterated that the government accords the highest priority to capacity addition in the power sector. The Budget also noted that the framework for the induction of supercritical technology in the large capacity power plants of NTPC is now in place. The budget also said that the Mega Power Policy has been modified, and is consistent with the National Electricity Policy, 2005 and the Tariff Policy, 2006, which would help in lowering the cost of generation and the cost of power purchased by distribution utilities. The Budget also said that it proposes to introduce a competitive bidding process for allocating coal blocks for captive mining, to ensure greater transparency and increased participation in production from these blocks.

INDIAN CURRENT AFFAIRS has done research on Budget 2010 and the main points were as: The need to accelerate power generating capacity and improve distribution network is of utmost importance. The shortage of peak power as well as of aggregate energy is officially estimated to be 10-15 percent, but measured on a more comprehensive basis the shortage is higher. The average cost of power for most industrial units works out to around Rs 6-7 per unit. This is a handicap to the competitiveness of By Atif Ashfaq Page 13

Budget 2010 and its effects on Power sector (Managerial Economics)

Indian industry. These large shortages also lead to production losses. The combined impact is quite adverse to sustained economic expansion, it added. Despite significant capacity creation, including that from the private sector, power shortages will remain due to historical deficit conditions and the higher trajectory of Indian growth seen in recent years, the review said. It is now one-and-a-half years since India was able to regain access to global nuclear technology, as well as to nuclear fuel. There is an urgent need to make the necessary regulatory changes quickly so that investment, including that from established private companies interested in this business, can begin to flow. This research was done by BUSINESS MAPS OF INDIA. The main points are as follows: Since Independence the Power Sector in India has shown a significant rise. However, with the growth in power demands the Indian power sector is required to produce more electricity to meet the consumer requirements. Over the years, it has been observed that the power generation of India is considerably lower that the premeditated targets set by the government, chiefly due to the lack of availability of fuel. Indian Power Sector witnessed power deficit in the year 2009-2010 which increased to 12.6% from 11.9% in 2008-09. The power requirement in India for the years 2010-11 and 2011-12 is expected to be 906316GWh and 968659GWh respectively. While on the other hand, the Central Electricity Authority has anticipated peak energy scarcity of 14.98 GW in the FY 2009-10. To cope up with the energy requirements India is setting mega power projects which would not only elevate power supply but would also increased per capita consumption by 1000 units. Each plant will have a yearly competence of 4 GW and would infuse 12GW extra captive energy into the network. The 2010 Budget Power Sector Expectations of common man is income tax exemption from the vending of CER (Carbon Emission Rights) credits By Atif Ashfaq Page 14

Budget 2010 and its effects on Power sector (Managerial Economics)

and for businesses involved in bio-diesel extraction from non edible seeds under clause 80IA of Income Tax Act, regardless of district or region.

Research Methodology
The following points come under research methodology:

Research design:
This research is basically exploratory research. This research is also called as formulative research. The objective of this research is to gain familiarity with a phenomenon or to achieve new insights into it. By Atif Ashfaq Page 15

Budget 2010 and its effects on Power sector (Managerial Economics)

Data collection method:

In this research data is mainly collected from secondary sources like books, magazines, internet, journals and newspapers.

Findings
The need to accelerate power generating capacity and improve distribution network is of utmost importance. Increase in the allocation for power sector is a marginal positive for power sector. The increase in the rate of MAT is negative for private power companies like CESC, GIPCL etc. There is an urgent need to make the necessary regulatory changes quickly so that investment, including that from established private companies interested in this business, can begin to flow. These large shortages also lead to production losses. The combined impact is quite adverse to sustained economic expansion. The budget also said that the Mega Power Policy has been modified, and is consistent with the National Electricity Policy, 2005 and the Tariff Policy, 2006, which would help in lowering the cost of generation and the cost of power purchased by distribution utilities. Solar, small hydro and micro power projects at a cost of about Rs.500 crore to be set up in Ladakh region of Jammu and Kashmir.

Conclusion
From this research it is clear that increase in the allocation for power sector is a positive change for power sector. The government also accords the highest priority to capacity addition in power sector. The budget also said that the Mega Power Policy has been modified, and is consistent with the National Electricity Policy, 2005 and the Tariff Policy, 2006, which would help in lowering the cost of generation and the cost of power purchased. There is also need to accelerate By Atif Ashfaq Page 16

Budget 2010 and its effects on Power sector (Managerial Economics)

power generating capacity and improve distribution network so that far flung areas will enjoy benefit. There is also need to make necessary changes so that the investment, including that from established private companies interested in the business, can begin to flow.

Reference (bibliography) Websites

www.google.com www.ecohost.com www.scribd.com www.docstoc.com www.proquest.com

Book Managerial Economics by Geetika Piyali Ghosh

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Budget 2010 and its effects on Power sector (Managerial Economics)

URLs
http://www.infodriveindia.com/Budget_2010_2011-Highlights.aspx http://news.oneindia.in/2010/02/26/planallocation-for-power-sector-doubled.html http://www.stockmarketsreview.com/news/indian_union_budget_review_2010_2011_ 20100306_3316 http://indiacurrentaffairs.org/%E2%80%9Ctowards-union-budget-201011%E2%80%9D-low-farm-yield http://business.mapsofindia.com/india-budget/2010-expectation/2010-budget-powersector-expectations.html

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