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Union Budget 2014-15

Power, Coal and Capital Goods

Virendra Patil
TBWES 11-07-2014
Sunset clause for tax holiday for power generation
extended for 10 years
Assures coal supply to plants commissioning by
March 2015
Allocates Rs 1,000 crore for clean energy schemes
Excise duty exemption on raw materials for
renewable energy equipments
Levies uniform 2.5% custom duty and 2% CVD on
Budget allocation for power sector increases by 11%
Outlay for coal sector up by more than Rs 1,620 crore
at Rs 12,561 crore

Sunset clause for tax holiday for power generation
extended for 10 years
Finance Minister, Arun Jaitely, has set a new trend in his
maiden budget by extending the tax holiday enjoyed by
companies involved in a generation, transmission and
distribution business for a straight ten year period instead of
an annual extension.
Pertinently, an annual extension to this tax holiday had
become a sort of norm in the budget announcements for the
past few years.
Breaking the norm, Jaitely has decided to give the tax
holiday for a longer period of ten years to the companies
who begin generation, transmission or distribution of power
before March 31, 2017.
Justifying his move, the Jaitely noted that stability in policy
is critical as it will help investors plan their investments
To note, this tax holiday is provided to the power sector
under Section 80-IA(4)(iv) of the Income Tax Act
Assures coal supply to plants commissioning by
March 2015
Coal shortage is the biggest problem plaguing the Indian
power sector currently. Even more worrisome is the situation
of those power plants that are likely to come by March, 2015
but have no assured coal linkages with them.
While the Presidential Directive issued in July, 2013 assured
coal supply to 78,000 MW worth of power plants, the Finance
Minister has gone one step forward by assuring coal supply to
all power plants which are already commissioned or will come
up by March, 2015.
The Minister is confident that this move will help unlock dead
Giving his maiden budget speech in the Parliament, the
Finance Minister contended that, "comprehensive measures for
enhancing domestic coal production are being put in place
along with stringent mechanism for quality control and
environmental protection, which includes supply of crushed
coal and setting up of washeries".
He further noted that an exercise to rationalise coal linkages to
optimise transport of coal and reduce cost of power is also

Allocates Rs 1,000 crore for clean energy schemes
According highest priority to renewable energy in his power
sector related schemes in his budget allocations for the
current fiscal, the Finance Minister Arun Jaitely has decided
to allocate Rs 1,000 crore approximately for introducing new
clean energy schemes in the country.
On this account, the Minister has set aside a sum of Rs
500 crore for setting up of ultra mega solar power
projects in Rajasthan, Gujarat, Tamil Nadu, and Ladakh in
Morever, an additional Rs 100 crore is set aside for the
development of 1 MW Solar Parks on the banks of canals.
The Minister has also allocated Rs 400 crore for a scheme
for solar power driven agricultural pump sets and water
pumping stations for energizing one lakh pumps.
Implementation of"Green Energy Corridor Project will be
accelerated in this financial year to facilitate evacuation of
renewable energy across the country", the Minister added.

Excise duty exemption on raw materials for
renewable energy equipments
Furthering his emphasis on development of renewable
energy in the country, Finance Minister, Arun Jaitely has
provided excise duty exemption on critical raw material
used in solar, wind and biomas equipments. These products
and materials that have been exempted are as follows:
EVA sheets and solar back sheets and specified inputs used
in their manufacture
Solar tempered glass used in the manufacture of solar
photovoltaic cells and modules
Flat copper wire for the manufacture of PV ribbons for use
in solar cells and modules
Machinery and equipment required for setting up of a
project for solar energy production
Forged steel rings used in the manufacture of bearings of
wind operated generators
Machinery and equipment required for setting up of
compressed biogas plants (Bio-CNG)

Levies uniform 2.5% custom duty and 2% CVD on coal
As a measure to levelise the custom duty and CVD on
various coal varieties, the Finance Minister has rationalized
the duty structure on all non-agglomerated coal at 2.5
percent basic customs duty and 2 percent CVD.
With this tax rationalization measure in place, anthracite
coal, bituminous coal, coking coal, steam, coal and other
coal will attract the same duty.
Earlier, the custom duties varied depending on the variety of
Now, by levying a uniform custom duty and CVD, Jiately
aims at eliminating all assessment disputes and transaction
costs associated with testing of various parameters of coal.
However, in the current year budget estimates, Jaitely has
increased the duty on metallurgical coke from Nil to 2.5
percent in line with the duty on coking coal

Budget allocation for power sector increases by 11%
Increased the budgetary outlay for the power sector to Rs 60,384
crore for 2014-15, from the revised budget allocation of Rs
53,962.89 in the previous fiscal.
Allocation for investments in public power sector enterprises has also
been increased substantially, to Rs 51,425.84 crore this fiscal, from
the revised allocation of Rs 49,731.90 in 2013-14.
The budgetary support extended for the power ministry's rural
electrification scheme, Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY) has also increased. The scheme now stands to receive Rs
4,850 crore, against the revised budget estimate of Rs 2,868.5 crore
for the previous fiscal.
Further, the budgetary support for research and development
programs has been increased manifold, from Rs 20 crore in the
revised budget estimate for the previous fiscal to Rs 295.53 crore for
the 2014-15 fiscal.
Taking due cognizance of the T&D programs, the lump sum provision
for various schemes has been enhanced to Rs 2,036.36 crore, from
the previous year revised estimates of Rs 566.40 crore. This, it may
be said, signals the urgent impetus that the government has put on
development of T&D infrastructure in the country.

Outlay for coal sector up by more than Rs 1,620 crore
at Rs 12,561 crore
total outlay for the coal sector to Rs 12,561 crore, as against the
revised expenditure estimate of Rs 10,940.14 crore for the previous
fiscal year.
The government has increased its budgetary support to Coal India
Limited (CIL) to Rs 5,225 crore, as against the previous Rs 5,000
It should be noted that the budgetary support of Rs 2,936 crore and
Rs 3,850 crore have been provided to Neyveli Lignite Corporation
Limited and Singareni Colleries Company Limited, respectively.
The contribution to the coal mines pension scheme has increased
from Rs 22 crore to Rs 24 crore. Conversely, the budgetary
provision for conservation and safety of coal mines has remained
the same at Rs 169.83 crore.
Further, the budgetary support for development of road and rail
transport infrastructure in the coalfield areas and research and
development programs has been increased from Rs 86.65 crore in
the previous fiscal to Rs 92.95 crore for the 2014-15 fiscal.

Outlay for MNRE (renewable)pegged at Rs 3,941 crore
Pertinently, the plan outlay for new and renewable sources
has increased to Rs 3,941 crore as against the revised
budget estimates of Rs 3,392.75 crore in previous fiscal.
Allocation for investments in Grid Interactive and Distributed
Renewable Power has been increased substantially, from Rs
1144.83 crore in previous year revised estimates to Rs 1,949
crore this year.
Notably, Indian Renewable Energy Development Agency
(IREDA) and Solar Energy Corporation Of India (SECI) are
the two big players in the new renewable energy market.
Keeping in view the urgency to tap the solar potential of the
country, IREDA has been backed by the government with a
plan outlay of Rs 3,040 crore in the current fiscal, as against
the revised estimates of Rs 3,011 crore for FY14.
Moreover, the planned outlay for SECI has increased from Rs
36 crore in previous year to Rs 55 crore in the current year.

Total plan outlay for nuclear power schemes at Rs 8,213.42 crore
against the revised outlay of Rs 6,073.72 crore for 2013-14.
As per the scheme wise allocation presented in the Union Budget
speech, the outlay for the Rajasthan Atomic Power Station saw a
marginal increase at Rs 84.77 crore against the previous year's
revised outlay of Rs 83.83 crore.
Similarly for the Bhabha Atomic Research Centre and the Indira
Gandhi Centre for Atomic Research, a slight increase in allocation is
seen at Rs 8 crore and Rs 9 crore respectively.
However, budget allocation for neighborhood development project in
Kundankulam is a whooping Rs 150 crore compared to revised
outlay of Rs 20 crore for 2013-14.
Also the allocation for investment in public sector is pegged at Rs
643 crore, more than double of last year's Rs 307.88 crore. Other
major allocation for the nuclear power sector are made for Heavy
water pool management at Rs 950 crore

Nuclear power : Allocation of Rs 8,213 crore
Other highlights
Allocates Rs 500 crore to provide 24x7 power supply: Committed to
provide 24x7 uninterrupted power supply to all homes, the
government in the Budget 2014-15 has noted that Deen Dayal
Upadhyaya Gram Jyoti Yojana for feeder separation will be
launched this fiscal.
This scheme will help augment power supply to the rural areas and
for strengthening sub-transmission and distribution systems.
The Finance Minister has allocated a sum of Rs 500 crore for this
Provides concessional basic custom duty on machinery needed for
bio-gas plants: The Finance Minister has also shown his inclination
to promote bio-gas energy in the country.
To this end, he has proposed a concessional basic customs duty of
5 percent on machinery and equipment required for setting up of
compressed biogas plants (Bio-CNG).
Ensures optimum exploitation of CBM reserves: Keen on fully
utilising the available natural resources of the country, the Finance
Minister in his budget speech has noted his government`s intention
to accelerate production and exploitation of Coal Bed Methane
(CBM) reserves of the country.

Capital Goods
Banks will be permitted to raise long term funds for
infrastructure lending with minimum regulatory pre-
emption such as CRR, SLR & PSL. This would lower the
cost of funds by 100-200 bps
Reduced capex threshold to Rs 250 mn from Rs 1 bn
earlier for availing higher depreciation rate of 15%
Debt facility for urban development raised from Rs 50 bn
to Rs 500 bn for next five years
FDI in Defense raised to 49% from 26%
Subsidies for wind turbine sector not restored
Outlays: Increase in Defense by 20%, Railways budgetary
support hiked by 25%

Thank You
Virendra Patil