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Budget 2014-15: Tax holiday may not result in immediate power capacity augmentation

N. Madhavan     July 10, 2014

While infrastructure has been the general thrust area in the Narendra Modi government's maiden budget, extension of the 10-year tax holiday to power projects that are completed by March 31, 2017, is by far the biggest announcement.

But will this move result in a rush for setting up power projects? Will this help bridge the demand-supply gap in the electricity sector?


Experts are not too sure. They welcome the move to extend the 10-year tax holiday and feel that it will draw badly needed long-term funds into the sector. Policy inconsistencies and poor health of state electricity boards had resulted in flow of funds drying up in the past few years. But the budget move will only solve part of the problem, they point out.

Even if the funding comes, problems involving coal linkages -- another bane in setting up a power project in India - remain. 


Finance Minister Arun Jaitley did make some noise about improving coal mining and ensuring that adequate quantity of the commodity is made available to the users. But his budget did not give any firm proposals as to how he plans to do it and was also silent on the long-pending demand of opening up coal mining to the private sector. Unless coal availability is improved, power projects will not fructify.

The budget also had some measures like allocation of funds for feeder separation for supplying power to the agriculture sector and thrust on use of solar-powered pumps. This will help regulate supply of power to the agriculture sector and manage demand better. The focus on wind energy and solar power, in due course of time, should increase generation of renewable energy. But with India predominantly dependent on thermal power, a solution to the coal linkage issue is critical for Jaitley to achieve his dream of delivering 24-hour uninterrupted power supply to every household in the country. {blurb}


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