Union Budget for Energy Sector

There are several reforms expected in the Union Budget 2021 for energy sector. Among them are reduction in cess duty, reforms to reduce excise duty, exemption in customs duty for LNG imports, developing investments in the solar power industry, etc.

Union Budget 2021 - Energy Sector

According to the Union Budget 2021 that was announced by the Finance Minister Nirmala Sitharaman on 1 February 2021, Rs.3.05 lakh crore will be allocated for the purposes of power distribution over the next five years. The release of funds will depend on the financial position of DISCOMS. Several experts hope that the allocation will help DISCOMS as they have been affected by the coronavirus pandemic. During last year’s budget announcement, the Finance Minister has also advised for the closure of carbon-inefficient power plants.

Union Budget 2019 - Energy Sector

Finance Minister Nirmala Sitharaman has delivered her first budget speech on 5 July 2019. The energy sector is expected to witness a number of reforms as per the Union Budget 2019. These reforms include the overall improvement of the power sector through schemes which will help revive the state distribution companies. This also includes the betterment of the power plants which are dependent on natural gas and are currently facing the lack of fuel. In addition to these, a reform in terms of the structure and the tariff can also be expected. 

These improvements will help the power sector to a large extent as they have been facing stress in terms of finances for quite some time. The main reason for this stress has been the poor condition of the state power distribution companies, the shortage of fuel, and the delay in clearances. 

The reforms which are expected for the energy sector as per the Union Budget 2019 can be summed up as follows: 
  • The total power generation from various sources (which include hydel power, thermal power, and nuclear power) is expected to see a growth of 6.5% for this fiscal year. This rise is almost twice of last year’s growth which stood at 3.5%. 
  • The total power generation of power is expected to cap at around 1,330 billion units for this fiscal year. Almost 85% of the generated power will be sourced through thermal power plants. 
  • The power generated through coal-powered thermal plants will be around 79%. The remaining portion will be covered by natural gas, lignite, and liquid fuel thermal power plants. 
  • Hydel power plants will be responsible for around 10% of the power generation, whereas the nuclear power plants will be responsible for about 3.3% of the power generation. 
  • The Finance Minister has also proposed the unveiling of a new package for the power sector which will make the “One Nation, One Grid” plan a successful one. The “One Nation, One Grid” plan has been introduced for the easy and affordable distribution of power to states. It will also help to take the connectivity infrastructure to the next level. 
  • She further said that all the rural households will have electricity connections and cooking gas connections by 2022. However, she has also mentioned that the assurance in terms of reaching the target is only for the households who are willing to take the connections. 
  • A new scheme has been announced which invites companies from across the globe to set up mega manufacturing plants for different technological areas. These include the likes of solar photovoltaic cells, semi-conductor fabrication, solar electric charging infrastructure, and lithium storage batteries. This will be done through a transparent bidding process wherein all the companies will be taking part. The companies will be eligible for exemptions linked to investments under Section 35 AD of the Income Tax Act. In addition to that, they will also be eligible for certain indirect tax benefits. 
  • The revival scheme for the gas-based power plants and a relevant tariff policy are being drafted and are in the final stage. Once the draft is ready, it will be sent for approval to the Cabinet. 
  • Private businesses who encourage farmers to install solar plates in their fields for the production of solar energy will be supported by the government. As much as Rs.1 lakh can be earned annually from each acre of land. 

The Union Budget 2018 - Energy Sector

The Union Budget 2018 is just around the corner, and speculations are rife. The Finance Minister of India, Mr. Arun Jaitley, will be presenting the Annual Financial Statement, also known as the Union Budget, to the Parliament of India on 1 February 2018. Since the energy sector is one of the most important components of India’s infrastructure and economy, several reforms are expected within this sector in the Union Budget 2018-2019.

Reforms expected in the Energy Sector

  • The cess duty, for oil and gas production and exploration, is expected to be reduced to a figure between 8% - 10%, from the existing 20%.
  • Reforms made in the upcoming budget may comply companies that deal with gas distribution within various Indian cities to reduce the excise duty levied, if not completely exempt them.
  • LNG imports are expected to be exempted from paying customs duty, from the upcoming financial year onwards.
  • Companies that sell kerosene and LPG below current market prices are expected to be provided a subsidy.
  • This year’s budget is also expected to address start-up firms within the renewable energy sector in India. These companies are currently bringing innovations, break-through technologies, and disruptive concepts and ideas, and will likely be given a boost by the government.
  • Since the timely payments from electricity distribution companies in India (DISCOMs) has been an issue that went unaddressed in the previous year’s Union Budget, it is expected that this year’s budget will address this issue.
  • The solar industry, which reported significant growth in the last few years, has recently slowed down as a result of import duties, GST rates, and a sudden increase in module prices. Thus, it is expected that in this year, organised investments in this industry will be focussed upon and will receive a boost.
  • The bio-ethanol industry is expected to receive some financial backing, in the current budget.
  • Last financial year, the government announced that it is targeting an all-electric fleet by the year 2030. In order to achieve this mammoth goal, it is expected that the necessary provisions will be made in the current budget.
  • In order to promote sustainable development, it is expected that the government will use funds that have been generated from the National Clean Energy Fund to finance, at least in part, loans for various clean-energy initiatives.
  • One of the biggest threats to the energy sector is that natural gas, which is an eco-friendly fuel, has not been brought under the domain of the GST. It is expected that reforms will be put in place to bring it under the purview of GST, this coming fiscal year.

The Bottom Line

In the Union Budget 2017, the Finance Minister had announced several initiatives and measures to provide full electrification for thousands of villages and promote clean energy sources. The Union Budget 2016 also saw several measures being set in place to provide subsidies to the oil sector, electrify villages in India, produce gas from areas that are currently not tapped into, etc.

Significant reorganisations and improvements are expected from the upcoming Budget 2018. The government is expected to introduce some long-awaited reforms within the energy sector to encourage investments from existing players within the country and also to attract investments from foreign investors.

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