Extension of tax holiday, MAT exemption in power sector's Budget wishlist

Bats for long term policy for domestic and imported fuels

The power sector players and analysts expect a slew of sops in the maiden budget by the BJP led NDA government for the speedy revival. Their wishlist includes extension of tax holiday, exemption in minimum alternate tax, reduction in cost of borrowings, increase in banks' sectoral limits from 15% to 25%, incentives for PPP models to restore the health of distribution and review of exemption from customs duty for imported goods to protect domestic manufacturers. Further, the industry players in particular press for a long-term policy on fuels - conventional (both domestic and imported) and non-conventional.

Tata Power managing director Anil Sardana hopes restructuring financial packages for ailing and deserving operating units and increasing tenor of loan to avoid liquidity issues would help attract future investors into the sector. ''The sector also needs for increasing banks' sectoral limits (15% to 25%) while also encouraging external commercial borrowings (ECBs) by hedging mechanism to manage forex exposure; and relaxing RBI guidelines on usage of ECB funds. Most importantly, the power sector should be kept outside the purview of MAT to enable it to truly receive benefit of the tax exemptions under 80IA and sustain itself. In addition, to avoid unnecessary litigation, there is need for clarifying / inserting the definition of "initial assessment year" in section 80IA. ''

MahaVitaran official, who did not want to be named, pitches for cut in interest rate for utilities. ''The rate of interest is 12% which needs to be lowered. The higher rate of borrowings will adversely impact the much needed investments to strengthen power infrastructure,'' he adds.

Further, JSPL MD and group CEO Ravi Uppal bats for the revival of state electricity boards (SEBs) which supply 85 per cent of power He suggests that the government should end the practice of cross subsidies. He insists that the private sector and the PPP in distribution need to be incentivised to restore the health of distribution. "The move has spawned financially robust power distribution companies in cities like Mumbai, Kolkatta, Delhi, Ahmedabad and Surat,'' he notes. According to Uppal, the government needs to de-centralize coal mining and thereby reduce the Forex burden.

Santosh Kamath, Partner, Infrastructure & Government Services, KPMG in India expects extension of tax holiday for the power sector. ''Revival of demand for domestic equipment manufacturing is important and that means urgent revival of investment cycle by encouraging new projects by Government sector PSUs and new private investments. A package should be worked out for state PSUs encouraging them to shut down old inefficient plants and contract with newer plants.''

Moreover, Arun Singh, Senior Economist, Dun & Bradstreet, India shares Kamath's views and hopes that Union Budget may continue tax concessions under sec 80-IA up to the end of the 12th Five Year Plan. ''Indian manufacturers of capital goods compete with imported goods which are either exempt from customs duty or subject to customs duty as low as 0-5%. To enable domestic manufacturers compete with their foreign counterparts, deemed export status could be accorded to the former. Further, exemption from customs duty for imported goods could be reviewed to protect domestic manufacturers,'' he suggests.