Budget 2022. Domestic Manufacturers Smile, Rest Stay With Wait And Watch

Finance Minister Nirmala Sitharaman’s Budget 2022 announcements for the renewable sector might have seemed relatively few beyond the key announcement of an additional Rs 19500 crore the PLI scheme, but industry players have focused on the many positives beyond that.

Vineet Mittal, Chairman, Avaada Group, besides highlighting the PLI move and the announcement of green bonds as a big positive, welcomed the move to focus on energy conservation through the ESCO model that will  encourage additional investment in the Renewable energy sector. ” We thank the government of India for echoing its confidence in the solar energy sector, as the industry was eagerly waiting for these reforms to increase its competitiveness and take the growth of the sector to the next level and become self-reliant in renewable energy ” he said.

Calling the budget a “Futuristic, Pragmatic Road Map for Indian energy sector”, Sanjeev Aggarwal, MD and CEO, Amplus Solar  welcomed the key moves, while adding that “the government proposal to raise funding from sovereign green bonds is a well-timed one that can help in reducing the cost of borrowings. Similarly, allowing states to have an additional 0.5% fiscal deficit to power sector reforms will go a long way in strengthening the ailing distribution sector”.

SK Gupta, Executive Director and CFO at AMP Energy  echoed the sentiments of other leaders on key initiatives include the move on storage solutions. “Making grid stage battery solutions as part of Infrastructure projects will give further impetus to seamless integration of renewable generation and distribution systems with improved grid stability.” However, he stuck a note of disappointment on the lack of any move GST rollback to the old rates (5%) or any relief/delay on the custom hike on cells and modules, terming it “a little unexpected”.

Gyanesh Chaudhary, Vice Chairman & Managing Director at Vikram Solar had much to smile about, especially with the budget seemingly putting a seal of approval on the start of customs duties on solar imports from April 1. While welcoming the additional funds on PLI scheme, he added that ” The Union Budget 2022-23 is visionary and action oriented. The key measures announced in the budget towards enabling ease of doing business, climate action, digital economy, strengthening the start-up ecosystem, job creation and supporting industrial growth, will propel a strong growth momentum”.

The huge 35% plus hike on capital expenditure and focus on logistics found support outside the solar sector too, as Anil G Verma, Executive Director, and President, Godrej and Boyce exemplified.  “The focus on the logistics sector through the PM Gati Shakti plan will give a fillip to the economy. Logistics costs in India count among the highest in the world. Creation of infrastructure is the best way to reduce the costs and introduce competitiveness in the economy to serve both the domestic market and exports. The PLI scheme outlay for solar modules will support the solar power generation projects which are currently facing steep cost increases and supply constraints. Support for domestic manufacture of capital equipment by doing away with duty exemptions is also a welcome step.

Reforms in customs administration will no doubt support both the SEZs as well as other manufacturers in the domestic tariff area. Our SEZs are vulnerable to both disruptions in the global supply chain and also the emphasis on domestic sourcing that we increasingly see overseas. Permission to sell part of the capacity in DTA while maintaining a level playing field with domestic manufacturers will enhance scale and competitiveness whilst reducing reduce vulnerability.”

Interestingly, Vibhuti Garg, Energy Economist, Lead India, IEEFA stuck a note of caution, pointing out that “the announcements look to have fallen short of promoting clean energy in an accelerated manner.”. Thus, she stressed, even as higher capex will boost growth at a macro level, “however, not much additional budgetary support or tax incentives have been provided to clean energy both grid and off-grid including solar rooftop, storage technologies and green hydrogen. This is despite the big expectation that support will be provided to these new technologies to improve its commercial viability.”
Stressing that newer technologies across the storage, hydrogen and other clean technologies will require support, she added that “the Government should have provided a budget allocation and reduction of duties to allow the deployment of rooftop solar, storage, off-shore wind, green hydrogen etc. Further, the Budget didn’t include any mention of support for the closure of inefficient fossil fuel plants, nor did it deal with increasing air pollution problems.”

These views, repeated in many other Budget 2022 reactions we have received from industry, represent what we believe is the total sum of the reactions to it from the renewable energy sector. Considering the fact that as a relatively ‘young’ sector, the government has not been averse to making policy tweaks or changes from time to time based on feedback from industry, we believe many of the issues raised will be taken up, even as the execution on the measures announced, like the PLI scheme and plan for distributed projects in some villages, moves ahead.  No one disputes the country’s commitment, or the need to take the 500 GW renewable target seriously, or the key role of solar in meeting those numbers.  That should lead to some optimism that the government will try its best to keep all stakeholders happy and act on the missing parts as soon as it can. Passage of the Electricity Amendment Bill will probably be a great starting point.

The key thing is that climate action is on top, or on the ‘to do’ list of the government for good. Or as Ulka Kelkar, Director, Climate Programme, WRI India puts it “By referring to climate action as a sunrise sector and employment generator, Budget 2022 has sent an important signal to markets, financial institutions and the workforce. We now need the power of government incentives, aggregation and
de-risking for clean energy to be complemented by standards for low-carbon materials, skilling for battery recycling, and consultative processes for green infrastructure projects”.