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Germany's KfW shifts focus to urban development

Raises concerns over rapid fall in solar power project bidding prices

Namrata Acharya  |  Frankfurt 

IndAS switch to impact banks' earnings, return on equity

The German government-owned development bank, has churned its strategy. It is phasing out its commitments for the support of the financial sector in and shifting its priorities to sustainable development.

Over the last ten years, had three focus sectors in India: energy, environment and natural resources, and financial systems or sustainable economic development. Last year, there was a shift in focus areas, which will result in an increasing role of sustainable development within Indo-German bilateral development cooperation, according to a senior official at This is in keeping with Prime Minister Narendra Modi's focus on development under the

'We were working a lot with development banks in India, helping them set the banking structures. We were doing a lot of SME support, basically providing credit lines to development banks, which they passed on to the SMEs. We see that Indian banking sector has developed tremendously over the past decades. Basically, it is a matter of setting priorities. The German government, together with Indian government, has come to the conclusion that development is one of the top priorities.' Nils Medenbach, country manager, India, Development Bank to Business Standard.

Over the past ten years, the total commitments of in the sector in have been about 3 billion euros, while that in the financial sector has been around 1.6 billion euros. In the environment and efficient use of resources, the commitments have been about 600 million euros. The commitments under the sector have been lower compared to the other sectors, as the majority of projects under it are grant funded and fully financed by German budget funds. Most commitments in the other sectors are subsidised loans.

In the development vertical, which is a new focus area for KfW, the commitment so far has been about 700 million euros, made almost exclusively in the past two years.

Under the sustainable development, is working on developing climate-friendly transport projects and sustainable infrastructure. The three partner cities of Germany under the are Kochi, Bhubaneswar and Coimbatore.

'Smart City is a very ambitious project. At the same time, we completely share the view that sustainable development is a need in Infrastructure is not keeping pace with growth in the cities. At the same time, we are getting contacted over issues like resettlement. We are getting most requests for projects that we are doing in cities,' said Medenbach.

In the years between 2014 and 2016, has disbursed 1.7 billion euros of promotional funds for development cooperation projects with

Falling bidding prices of panels a concern

Falling prices of power tariffs have come up as a concern for KfW, as rock-bottom prices indicated compromise in quality. The has taken this up with the Indian government is also working with for setting standards in the power sector.

Under the bilateral cooperation framework, will receive 1 billion euros as soft loan from Germany for developing 'Green Corridors'.

'Development in power is very fast, so far it can be rated as success. What perhaps is the danger that given the volume, the quality may be compromised. For example, in recent tenders for parks, there is a system of e-reverse bidding, and these bid prices have continuously gone down over the last 10-15 years. This to a large extent reflects strong decrease in the prices of panel and installation. The bid prices have reached a very low level, and they cannot be met without compromise in quality. This is a danger, and the bidding structure should set clear quality standards. We continuously take this up with the Indian government. The problem is there are no set quality standards for panels. This is one area we are working closely and trying to establish quality standards. We are working with German and Indian institutes to set quality standard,' said Medenbach.

Notably, In May 2017, India's power tariff hit a new low of Rs 2.44 per kilowatt-hour (kWh) at the auction of 500 megawatt (MW) of capacity at the Bhadla park in Rajasthan. The tariffs were around Rs 11 per kWh in 2010.

is also assessing the possibility of work with small finance banks for providing specialized line of credit for rooftop panels and eduction.

'We are assessing if we can work with small finance banks in our priority areas. One very high priority right now is rooftop, apart from education. The lines of credit will be for specific purposes and could be provided with specific conditions. Banks can pass on preferential terms which we are providing to them' said Medenbach.

The Indian Government has also up-scaled the target of renewable capacity to 175 GW by the year 2022 which includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power.

The cumulative capacity of panels was 9.2 GW for the year ended March 31, 2017, according to data from Ministry of New and Renewable (MNRE).

Germany's Energiewende programme, or shift to low carbon supplyis hailed as benchmarks towards transition to clean

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