Post the Lok Sabha elections, the union Budget for FY 2024-25 is expected to be presented before the parliament in July 2024. Taking into account the fact that the energy and renewables sector have been a key focus area of the present government and the governments across the world, it can be expected that the newly formed NDA government will continue to focus on the energy and renewable sector.

Under the Paris Agreement, 2015, India has a commitment to increase its renewable energy generation capacity to 500 GW by 2030. Due to this commitment, a major boost in the allocation of funds has been observed in the energy sector, during the last few years. However, shockingly, the total generation capacity for renewable energy sources in India is still at 170 GW as of 2023, which means that in order for India to reach anywhere close to its commitment, the pace for development of renewable energy sources will have to be accelerated.

A major concern and hinderance for the fast paced development of renewable energy sources in India, is its dependance on the import of raw materials and components. In FY 2023-24, India incurred Rs. 4.3 Billion approximately in procuring solar panels, an exponential increase of 361% (Rs. 943 Million) when compared FY 2022-23.

Accordingly, a focus of the union Budget for FY 2024-25 should be to allot funds, introduce incenctives and encourage indigenous development, facilitate transfer of technology and most importantly to incentivize local manufacturing of solar panels and other components. This would also be helpful in conserving India’s foreign exchange.

Industry stakeholders have called for various measures to be announced by the Government, such as the reduction in the rate of GST for solar modules. Such revision would have a positive impact in reduction of input costs and enhancing the economic viability of the projects, thereby making such projects more attractive for investments. In addition, the stakeholders have also called for implementation of innovative financing models to ease the financial burdens on the developers and manufacturers of such projects.

Implementation of various steps such as granting an extension in the waiver of ISTS charges (presently valid till June 2025) for a period of few more years, simplifying the process of obtaining regulatory approvals, reduction in tariff charges, improving the fiscal health of DISCOMs (including their payment capacity), investment in the grid with the aim of increasing its capacity, promoting investment in offshore renewable sources of energy etc. will play a vital role in making the energy sector lucrative for investments.

With the focus on developing Green Hydrogen, the Government has allocated Rs. 600 Crore towards the National Green Hydrogen Fund. However, the same should be utilized for implementing measures for reducing production costs of hydrogen by reducing the cost of raw materials and components such as electrolysers. Implementation of measures such as reduction in rates of GST, customs duties etc. will also be a welcome move to make green hydrogen projects more lucrative.

With respect to the automobile sector, the Government allocated Rs. 3,500 crore through a production linked incentive scheme. The allocation is a positive step and should be utilized towards the implementation of favourable policies and increase in support for promoting green mobility while also developing the EV infrastructure including the development of green charging infrastructure and energy storage infrastructure to shift from conventional sources of energy would be a welcome move.

Industry stakeholders have called for a host of incentives for the development of the biogas sector including a demand for a dedicated fund of Rs. 1,40,000 crore towards the ‘Bio-gas Fertilizer Fund’ with the aim of promoting the use of organic fertilizers in order to improve the health of soil and the humans utilizing such fertilizer. Such allocation and implementation of policies will play a pivotal role in accelerating the biogas industry.

For sectors which cater to the conventional sources of energy (i.e., oil and gas, coal etc.), the interim Budget did not make any key allocations or announcements. However, with the upcoming union Budget, stakeholders have called for measures to reform the sector.

Given that fossil fuels such as crude oil, natural gas, high speed diesel etc. continue to be taxed outside the purview of GST, a longstanding ask of the industry stakeholders has been to bring such fossil fuels under the ambit of GST. This will allow for seamless flow of input tax credit in the value chain. However, such revision has thus been opposed by the state governments thus far.

For the union Budget of FY 2024-25, the stakeholders have also called for an exemption from imposition of customs duty on import of Liquified Natural Gas. Given that LNG is considered a clean fuel and heavily used in fertilizer and power sector, its import has been encouraged by the Government. Given the excessive imposition of customs duty on LNG (when compared to the duties imposed for crude oil), an exemption / reduction in imposition of customs duty for LNG would be a welcome move.

To conclude, given that the interim Budget did not include any critical reforms for the energy sector, it is highly anticipated that the complete Budget for FY 2024-25 would see significant reforms, for renewable as well as conventional sources of energy.

This article was originally published in Business Today on 22 July 2024 Written by: Deepto Roy, Partner. Click here for original article

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