9 PM Daily Current Affairs brief – 2 February 2017

The Hindu

Context

In a workmanlike Budget, ArunJaitley maintains fiscal discipline while handing out more to those at the bottom of the pyramid

Various measures taken in the budget have already been covered in the editorial section.

The Hindu

Context
But individuals can give funds by cheque or through digital mode

What has happened?
In the Union Budget 2017-18, there has been proposed a ₹2,000 ceiling on cash donation by any individual to a party. Political parties, however, could receive donations by cheque or digital mode from donors

Further announcements
• Amending the RBI Act: The Reserve Bank of India Act would be amended to facilitate issuance of electoral bonds in line with the scheme that the government would come out
 A donor can purchase bonds from authorized banks against cheque and digital payments
 Bonds shall be redeemable only in the designated account of a registered political party. And, they will be redeemable within the prescribed time limit from issuance of bonds.
• File IT returns within time: The budget also made it mandatory for political parties to file returns within a time limit

Counter to this move
The limit of ₹2,000 on cash donations to political parties is meaningless as such transfers are mostly unreported. In the absence of a limit on corporate funding of political parties and overall limit on election expenditure of political parties, the so-called reform of political funding means nothing

The Hindu

Context

Uniform benefit of ₹12,500 per person for all other categories of taxpayers

What has happened?

In the Union Budget 2017-18, a proposal has been made under which, those earning between 2.5 lakh and ₹5 lakh a year will now have to pay income tax at the rate of 5% instead of the earlier 10%

Further proposals

• Benefits to other categories also: All the other categories of tax payers in the subsequent slabs will also get a uniform benefit of ₹12,500 per person
• Rebate reduced& slab changed: Existing rebate for those earning 5 lakh or less will now be reduced to 2,500 and available only to those earning an income of up to ₹3.5 lakh
• Surcharge to be levied: It has been proposed to levy a surcharge of 10% of tax payable on those whose annual taxable income is between 50 lakh and 1 crore. The existing surcharge of 15% of tax on people earning more than 1 crore will continue

Reduced tax liability

• The combined effect of the reduced tax rate and the rebate of ₹2,500 will mean that those earning up to ₹3 lakh a year will effectively see their tax liability fall to zero (a tax incidence of ₹2,500 at 5% of ₹50,000 minus the rebate of ₹2,500)
• Those earning between ₹3 lakh and ₹3.5 lakh will have a tax liability of 2,500 (a tax incidence of ₹5,000 minus a rebate of 2,500)
  

  ---

The Hindu

Context

The Union budget for 2017-18 has managed a fine balance between growth and equity based on strategic thrust areas

Note: Budget has been discussed at length on the editorial section. So only relevant points which have not been included in the editorial section will be mentioned here.

Budget positives

 Poverty reduction & Alleviation

Measures below combined with a focus on healthcare will help our country to achieve poverty reduction and alleviation

• Enhancing youth skills: The proposal to utilize information technology and launch at least 350 online courses on the Swayam platform will benefit the youth to leverage technology and enhance their skills

 What is Swayam?

SWAYAM is a programme initiated by Government of India and designed to achieve the three prime principles of Education Policy viz., access, equity and quality. Courses delivered through SWAYAM are available free of cost to the learners, however students wanting certifications shall be registered, shall be offered a certificate on successful completion of the course, with a little fee.

Objective: The objective of this effort is to take the best teaching learning resources to all, including the most disadvantaged. SWAYAM seeks to bridge the digital divide for students who have hitherto remained untouched by the digital revolution and have not been able to join the mainstream of the knowledge economy

Modus Operandi: This is done through an indigenous developed IT platform that facilitates hosting of all the courses, taught in classrooms from 9th class till post-graduation to be accessed by anyone, anywhere at any time. All the courses are interactive, prepared by the best teachers in the country and are available, free of cost to the residents in India. More than 1,000 specially chosen faculty and teachers from across the Country have participated in preparing these courses

• Simplifying labor laws: The legislative reforms to simplify, rationalize and combine the existing labour laws into four codes on wages, industrial relations, social security and welfare, and safety and working conditions, is another significant change

Boosting economic activity& employment

The thrust on infrastructure and higher allocation for it in the budget will push economic activities and create employment and generate more income

• Proposed measures: The government has proposed measures like the new Metro Rail policy and the development of coastal roads and airports in Tier-2 cities
• Achievements in roadways:The achievements in roadways have been commendable with the almost doubling of road construction achievement rate for the Pradhan Mantri Gram Sadak Yojana (PMGSY), which has increased from 73 km per day by the end of FY2014 to 133 km per day now.

Cyber Security

Cyber security is critical for safeguarding the integrity and stability of our financial sector

• Establishment of CERT-In team for financial sector: The government has rightly highlighted the establishment of a Computer Emergency Response Team for the Financial Sector
• Contribution of Mudra Yojana:The Pradhan Mantri Mudra Yojana has contributed significantly to helping the unfunded and the underfunded segments
  • Doubling the lending target, priority to weaker sections:Last year, the target of ₹1.22 lakh crore was exceeded and for 2017-18, the government has proposed to double the lending target to ₹2.44 lakh crore. Priority will be given to Dalits, tribals, backward classes, minorities and women

 Promoting digital economy

Post-demonetisation, the government has emphasized the importance of digital economy

• Two new schemes launched: It has proposed to launch two new schemes to promote the usage of the BHIM App and Aadhar Pay. The schemes are referral bonus for consumers and a cash-back scheme for merchants
• Efficient delivery system: To achieve its public services target government has reiterated an efficient service delivery system. Direct Benefit Transfer (DBT) to LPG and kerosene consumers are a few such successful initiatives
  

  ---

The Hindu

Context

As the Budget is a combined one, the Centre can now synergize investments in rail, roads, rivers and civil aviation

Major push to the infrastructure sector

• Higher allocation for infrastructure sector: This sector will see a major rise in allocation from ₹3.4 lakh crore to ₹3.9 crore (BE). Transport (including rail,roads and shipping) accounts for a bulk of the expenditure at ₹2.4 lakh crore
  • Hike in allocation to Highways: The Budget allocation for highways at ₹64,900 crore reflect a 12% hike. 2,000 km of coastal roads had been identified for construction and development, facilitating better connectivity with ports and remote villages
  • The Sagarmala project allocation will see a hike from the ₹450 crore Budget estimates to ₹600 crore
  • Metro projects, an important link in urban transportation has already received allocation hikes in this fiscal and is budgeted to get a further hike

Significance of higher allocation

It will have a multiplier effect and bring about inclusive growth by connecting rural areas. It will further create jobs and spur economic activity

The Hindu

Context

Corpus of ₹1 lakh crore for safety and zero service charge on digital bookings major highlights of rail budget

Highlights of the Rail Budget

Focus Areas: Rail Budget focussed on improving railway safety, pushing digital transactions, listing railway public sector units and setting competitive rail fares. Focus areas of Indian Railways will be,

• Passenger safety
• Capital and development works
• Cleanliness
• Finance and accounting reforms

No New Trains

Budget refrained from announcing any new railway lines and trains in this budget, as demanded by various MPs, as he was constrained by the model code of conduct in force for the Assembly elections in Uttar Pradesh, Uttarakhand, Goa, Punjab and Manipur

Passenger Safety

• For passenger safety, a “Rashtriya Rail Sanraksha Kosh” fund with a corpus of ₹1 lakh crore has been created for five years
  • Support by centre: The Centre has provided a budgetary support of ₹5,000 crore out of the ₹20,000 crore earmarked for the fund in 2017-18. The Railways will arrange the balance fund from its own resources
  • Guidelines soon:The Centre will soon lay down guidelines and timelines for implementing various safety-related works out of the fund
• Unmanned level crossings on broad gauge will be eliminated by 2020

Withdrawal of service charge

Service charge on e-tickets booked through the Indian Railway Catering and Tourism Corporation (IRCTC) has been withdrawn

• Earlier, the IRCTC used to levy a service charge of ₹20 on sleeper class and ₹40 on AC class e-tickets
• Revenues will be hit but no impact on Railway: The service charge waiver may hit the Railways’ revenues by ₹2 crore a day. However, the IRCTC will be able to raise money from the market as Budget announced a plan to list the railway PSU on the stock markets
• PSUs to be listed: 3 railway PSUs will be listed in the stock market (people can buy or sell shares of a company). The 3 PSUs to be listed are,
  • IRCTC (Indian Railway Catering and Tourism Corporation)
  • IRFC (Indian Railway Finance Corporation)
  • IRCON (Indian Railway Construction Company Limited)

Partnering with logistic players

The Railways will enter into partnerships with 18 logistics players to provide an end-to-end integrated transport solution for select commodities. Rail rolling stock will be customised to transport perishable goods, especially agricultural produce

 Differently-abled friendly stations

As many as 500 railway stations will be made differently-abled friendly by providing lifts and escalators

Cleanliness

• Bio-toilets by 2019 on all rail coaches: For cleanliness, all rail coaches will have bio-toilets by 2019
• Plants to be set up:Plants for environment-friendly disposal of solid waste, along with conversion of biodegradable waste to energy, will be set up at the Jaipur and the New Delhi railway stations, along with five more stations

Solar Power

7,000 railway stations would get solar power as per Rail Budget

The Hindu

Context

Centre will review the Payment and Settlement Systems Act, 2007, and bring about amendments

What has happened?

Addressing the concern raised by the RBI in setting up a payments regulatory board, Budget has proposed that it will be set up within RBI’s ambit

RBI’s concerns

RBI had expressed concerns that

Proposal

• Six members: The payment regulatory board will be set up within the RBI which will comprise of six members, of which three will be from RBI, according to the Finance Bill which was tabled in the Parliament on February 1
• Governor of RBI to be the Chairman of the Board:The chairman of the board will be the Governor of RBI
• Deputy governor of RBI to also be a member:The central bank’s Deputy Governor in-charge of payments and settlements will also be a member
• Nomination of 3^rd member:RBI will also nominate a third member
• 3 members to be nominated by centre:The three external members will be nominated by the Centre 

Who recommended that thepayment board should be an independent body?

Watal Committee: The government had set up a Committee on Digital Payments — headed by finance secretary RatanWatal, which recommended the board to be an independent body

• Mandate of Watal Committee: The Watal committee was given the mandate for laying down a medium-term roadmap for digital payments to grow substantially over the next three years from the current level of about 5%t of personal consumption and 20% of all transactions
• Structural reforms: The Committee on Digital Payments has recommended structural reforms in the payment eco system, including amendments to the Payment and Settlement Systems Act, 2007
• Creating a Payment regulatory board: It is proposed to create a Payments Regulatory Board in the RBI by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems
  

  ---

The Hindu

Context

The macroeconomic credentials of the Budget are quite impressive. The highlight is a greater than 25% increase in capital spending and a substantial increase in the transfer to the States

Let us have a look at few terms,

What is capital expenditure?

Capital expenditure is the expenditure incurred by the government which results in the creation of physical or financial assets of the Union government or reduction in financial liabilities of the Union Government. It includes expenditure on buying of land, machinery, building, equipment, expenditure in shares. It also includes loans by the Union government to state and union territories and PSUs.

• An increased focus on Capital expenditure in this budget indicates a desire to stimulate economy in the right direction by creating long-term tangible assets

1. 1. Revenue Receipts: Receipts received which cannot be reclaimed by the government i.e. the government does not have to return these receipts to a body. Revenue receipts includes revenue collected by the Union Government through taxes as well as non-tax sources such as interest, dividends on investments
2. 2. Capital Receipts: Receipts of the Union Government which create liability or reduce the financial assets of the government. Capital receipts include market borrowings, borrowings from the RBI and commercial banks and other financial institutions. It also includes loans received from foreign governments and international organisation and repayment of loans granted by the Union government
3. 3. Revenue Expenditure: Expenditure incurred by the Union Government for purposes other than for creation of physical or financial assets. It includes those expenses incurred for normal functioning of the government departments, interest payments on debt of the Union Government, grants given to state governments and other bodies
4. 4. Revenue Deficit: Revenue deficit is the excess of Union government’s expenditure over revenue receipts.
   Revenue Deficit = Revenue Expenditure – Revenue Receipts
5. 5. Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts, excluding borrowing.

Source: india.com

Relevant points from the article:- 

Author states that the macroeconomic credentials of the budget are quite impressive with highlights being,

• 25% increase in capital expenditure
• A substantial increase in the transfer to the States
• Fiscal deficit target has been set at 3.2 per cent
• Allocation under MGNREGS raised: The allocation of ₹48,000 crore for MGNREGS is the highest in the history of this scheme. Now, only the implementation remains. It is important to ensure that beneficiaries receive their full payment on time and that the expenditure is targeted on asset-building to the extent feasible
• Capping of unknown donations to Rs 2000

 Budget Orientation

Author states that the budget is tilted towards rural population. How? Let us take a look

• Higher sanitation allocation: Allocation for rural sanitation is higher by 18%
• Electrification target: Target of achieving 100% electrification by 2018, the benefits of which shall go disproportionately to rural areas
• Various incentive schemes for the attainment of open-defection-free villages in the form of the supply of arsenic- and fluoride-free piped water to them
• Assistance to PRI: Panchayati Raj institutions are to receive assistance to raise their level of human resource endowment
• Special fund for irrigation: A special fund for irrigation has been created, to be operated by NABARD (National Bank for Agriculture and Rural Development)

Overambitious claims made in the budget

As per author following claims seems a little overambitious,

• Growth rateof 4.1 per cent in agriculture: It is suggested that agriculture will continue to grow by 4.1%. This induces doubt as such a rate has not been consistently attained in the country
• Lifting gram panchayats out of poverty: There is a plan to lift 50,000 gram panchayats out of poverty. We are yet to be told how these will be chosen and what the plan shall be

 What more should have been done?

Author states that following steps could have been taken,

• Revenue deficit: There could have been a greater effort to trim the revenue deficit; at least a statement of the intention of eliminating it altogether in the future

Issues

• Budget unduly tilted towards 20 per cent: While the largest number of Indians do reside in the rural areas, agriculture contributes to less than 20% of the national income. One cannot help but wonder what the government, through this Budget, intends for the remaining 80%.
  

  ---

The Hindu

Context 

The Budget for this fiscal year is a balanced one which takes forward the work done in 2016-2017

Issue: Discussing the Union Budget

Positives

• Lowering of corporate tax rate: While the corporate sector would have liked to see the tax rate lowered across the board to less than the existing rate of 30%, it has been selectively done. There is still the assurance that in course of time the 25% mark would be delivered
• Lowering of income tax:Households should be happy that the income tax rate has come down effectively, which should help in increasing their spending level which was impacted quite decisively by the demonetisation move invoked in November.

Positive impetus should not be overstated

Author positive impetus must not be overstated for two reasons

1. First is that the amounts involved are not very large, and hence while consumption will benefit from more purchasing power in the hands of the public, it would be on an incremental basis and concentrated on specific goods
2. Second, for investment too, a sum of around ₹30,000 crore in incremental terms would be a fraction of the overall GDP of the country and hence while the impact would be positive, it may not be significant

Dominant role by private sector

The private sector has to play a more dominant role in enhancing investment, and this is probably where the Budget could have provided some focused benefits on corporate taxes to spur investment. Until this happens, it is unlikely that capital formation rate will get reversed

Conclusion

Author concludes by terming the budget as balanced in its approach

The Hindu

Context

The fiscal prudence is timely, but the Budget lacks measures to revive the economy

Difficult times

Author states that the Union Budget has been presented in the background of

• Growing protectionism
• Poor investment climate in the country due to the stressed balance sheets of corporate and banking sectors
• Severe distress caused by the demonetisation move
• Slowdown: National Income estimate released by Central Statistical Organisation (CSO) show a slowing down of all sectors except Agriculture and public administration

In the backdrop of the above scenario, it was expected that Budget would initiate measures to revive the economy

 New features

Author states that this year’s budget had a number of new features.

• Advancing of budget presentation: Besides advancing it by a month to complete the process of passing the Budget within the financial year
• Merger of railway budget with Union Budget: The merger of the Railway Budget with the main Budget helps to plan and develop the transport sector as a whole
• Doing away with the distinction b/w plan & non-plan expenditure: The abolition of the Plan and Non-Plan distinction, which in fact was the recommendation of the Expert Committee on Efficient Management of Public Expenditure in 2013, helps to look at each of the sectors in a holistic manner and avoids distortions in allocating resources between maintenance of existing assets and creation of new assets
• Outcome budget:The Budget speech also refers to the Outcome Budget being placed in Parliament. Of course, it remains to be seen to what extent the Outcome Budget provides a link between outlays and outcomes

Read More:What is Outcome Budgeting?

What more should have been done?

• Rationalizing subsidies: Budget has done little to rationalize explicit subsidies which at ₹2.7 lakh crore constitute 1.6% of the GDP. In fact, subsidies claim as much as what has been allocated to defence and are just a little lower than capital expenditures. Food and fertilizer subsidies alone constitute ₹2.4 lakh crore

 Explicit subsidy: This is a type of subsidy wherein government defines budgetary outlays. Explicit agricultural subsidies include such programmes as government purchases of agricultural surpluses and government payments to farmers

Implicit subsidy: This is a type of subsidy wherein government suppresses the supply price. Implicit subsidies include utilization of such techniques as exchange rate manipulation (whereby, for instance, there are official multiple exchange rates applicable to different categories of transactions), price controls, and quantitative restrictions on trade, as well as other methods of manipulating the terms of trade either for or against farmers

 What does rationalization of subsidies mean?

Rationalization of subsidies mean to manage the funds more efficiently. To use the funds for welfare of the poor only instead of wasteful expenditure for the creation of political constituencies and vote banks

Read More: Go to this link to learn more about subsidies, Visit this link to learn more about rationalization of subsidies and why is it necessary?

• No substantial increase in Capital expenditure: Author states that with a slowdown in key economic sectors and the slowing down of private consumption, the sole drive of growth, in lieu of demonetization, it was hoped that Budget would make a substantial increase in capital expenditures. The aggregate capital expenditure in 2017-18 as a ratio of GDP is just about 1.8%, which is the same as in 2016-17 (revised estimate)
• Cutting the excise duty exemption list: On indirect taxes, given that the Goods and Services Tax (GST) is scheduled to be rolled out in July 2017, some rationalization in excise duty could have helped to smoothen the transition. There are 300 commodities exempt from excise duties and the list could have been cut

Mixed picture on tax sops

• 25 per cent reduction in tax rate for companies: Reduction in the rates of tax for companies with less than ₹50-crore turnover to 25% from the existing 30% brings in benefits to 96% of companies
• Reduction in tax on personal income: The reduction in the tax rate to 5% for individuals up to ₹5 lakh income provides some relief. At the same time, the scope of surcharge has now been expanded to people with taxable income of ₹50 lakh to ₹1 crore at 10%; the present 15% surcharge on those earning more than ₹1 crore will continue.

Conclusion

Author concludes by stating that budget is good in parts. The most important positive is the fiscal prudence (reigning the fiscal deficit by judicious use of resources) and perhaps the most disappointing is the lack of measures to revive the economy in the prevailing difficult global and domestic environment

Indian Express

Context

But silence on reforming food and fertiliser subsidies is disappointing

Growth in Agri-GDP

Author states that Agri-GDP growth in FY17 is likely to register a growth of 4.1 per cent, primarily due to normal rainfall

Stress on raising funds for irrigation

The prime minister voiced the slogan of “Harkhetkopani” and “per drop, more crop” to drought-proof agriculture and ensure water use efficiency. This will help augment farmers’ earnings and contribute to the doubling of their incomes in five years, as reiterated by the finance minister

Focus on improving irrigation efficiency & area under irrigation

• Allocation of Rs 20000 Crore to long-term irrigation fund: An enhanced corpus of Rs 20000 crore with NABARD for irrigation, on top of last year’s Rs 20000 crore, takes the total fund size to Rs 40000 Crore which is a very welcome step
• A Dedicated micro irrigation fund: Budget has announced a dedicated micro irrigation fund which will be set up in NABARD to achieve the goal, ‘per drop more crop’, with an initial corpus of Rs 5,000 crore.
• A corpus of Rs 7,160 crore for the schemes under the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY)

Significance: Improving irrigation efficiency is critical for agriculture since we have only 2.4 per cent of the world’s total geographical area and 18 per cent of the world’s population, but only 4 per cent of the world’s total fresh water resources

Charting course for PMFBY

The Pradhan Mantri FasalBima Yojana (PMFBY) crop insurance scheme, which was launched in the year 2016, also finds a special mention in the budget with the finance minister clearly charting out its course; the aim is that in the next two years, the government will cover half of the cropped area under this scheme

Promoting Milk processing

Budget announced setting up of a dairy processing and infrastructure development fund at NABARD with a corpus of Rs 8,000 crore over three years. The fund will start with a corpus of Rs 2,000 crore

Significance: Dairy is critical to bringing sustainability to agriculture. There are millions of examples where farmers have shown their ability to manage inclement weather and market vagaries by investing in dairy as an alternate mode of income

Silence on food & fertilizer subsidy reform

The only disappointment in the budget is that the government is absolutely silent on reforming food and fertiliser subsidies, totaling more than Rs 2,15,000 crore plus pending bills of about Rs 80,000 crore

• This is the biggest resource guzzler with high inefficiency and leakages. Unless these areas are boldly reformed, agriculture will not get wings to take off fully
  

  ---

Live Mint

Context

Author points to several positives in the budget but has specifically two grudges with it – absence of a clear roadmap for corporate tax reduction & setting of fiscal deficit target at 3.2 per cent instead of 3 per cent

A budget of several firsts

Union budget this time had several firsts

• Advanced by nearly a month: The presentation of the budget was advanced by almost a month so that the government could start spending from the beginning of the financial year
• Merger of railway budget: For the first time in the history of independent India, the railway budget was included in the general budget. This will help in better transport planning, which is likely to improve outcomes
• End of plan and non-plan classification: It was also the budget that marked the end of the planning era in the country. As a result, the classification of expenditure has changed to revenue and capital expenditure from Plan and non-Plan expenditure
• Demonetization: It was the budget that was presented in the aftermath of the unprecedented move of demonetization

Three issues worth noting in the budget

Author states that given the backdrop of the currency swap initiative, weakness in economic growth and continued sluggishness in private sector investment, there are at least three broad issues worth noting in the budget.

1. The impact of the demonetization on black money and the economy in general: The government now has an enormous amount of data on bank deposits made after the currency reform was announced

• Mining data without hassling honest taxpayers:The challenge now for the tax department will be to mine the data and be able to check tax evasion in a meaningful way without causing hardship to honest tax payers. Reduction in evasion and improvement in compliance will, over time, reduce the burden on honest taxpayers
• Drive to push digital transactions: Boosting digital transactions will lead to formalization of economic activity that will help economy in number of ways in medium to long term

2. Reform measures to help the economy: The government has taken several reform measures in the budget that will help the economy
   • Increase in capital expenditure: In the light of a weak private investment, government has increased capital expenditure by over 25%, which will help push growth in the coming year
   • The special focus on agriculture and rural India will also benefit the economy. This has been mentioned under the first editorial of The Hindu
   • Increasing foreign investment: The government is also taking steps that will help increase foreign investment, which is already buoyant. The commitment to abolish the Foreign Investment Promotion Board in 2017-18 is a positive
   • Cleaning the political funding: The government has also done well by initiating reforms in political finance which will help reduce the role of cash and lead to greater transparency and accountability. Currently, about 70% of the donations that political parties receive comes in cash. It can be argued that parties can still show donations in cash even with the reduced limits. But the fact that steps have been taken in this direction is a positive. Outcomes can always be reviewed and rules can be adjusted.
   • Disappointment on corporate tax reduction: There is one big disappointment on the reforms front. While the rate of tax for smaller companies has been lowered, the corporate tax rate has not been reduced, as was widely expected by the market. At the least, a clear road map for reduction in the corporate tax rate would have lifted sentiment among investors

3. Fiscal deficit target should have been lower: While the tone of the budget was positive and encouraging, the decision to target the fiscal deficit at 3.2% of the gross domestic product (GDP) is a disappointment even as market borrowing (government borrows to finance the fiscal deficit & it has been fixed at a lower level than previous year) has been fixed at a lower level. In the given circumstances, there was a strong case for adhering to the 3% target. It would have enhanced government credibility a great deal and placed it in a much better position to implement the new fiscal rules.

Conclusion

Author states that the budget has moved in the right direction however there should have been a clear road map on rationalization of corporate tax and adherence to the fiscal deficit target of 3% of GDP

Live Mint

Context

The budget’s real test lay in its approach to mitigating financial risk in the renewable energy, where capital costs are high, payback periods are long and off-taker, construction and foreign exchange risks raise cost of debt

 India’s renewable energy target

India has an ambitious target of 175 gigawatts (GW) of solar, wind and other renewable energy by 2022

Break up

• Solar = 100 GW
• Wind = 60 GW
• Biomass = 10 GW
• Small hydroelectric projects = 5 GW

Author’s contention

India needs to look beyond budgetary outlays and public funds if it is to realize the renewable energy target and should consequently eye the international debt market which is estimated at 95 trillion

• Financial requirements: Solar, alone, would require $100 billion in debt to reach 100 GW

 Outlay to Ministry of New and renewable Energy (MoNRE)

• Budgetary outlay in 2016-17: Rs 5036 Crore
• Budgetary outlay in 2017-18: Rs 5473 Crore. Budgetary split is as follows,
  • Grid-interactive renewable power: 74 per cent of the outlay

 What is grid-interactive renewable energy?

The availability of grid-interactive Photo Voltaic (PV) systems means that energy consumers can tie to the grid when it benefits them and disengage when it does not. Unlike grid-tied systems that are required to disconnect if the grid goes down, grid-interactive systems can continue generating power from their PV modules, battery backup systems and other energy sources such as wind turbines or generators. 

What are the benefits of moving to grid-interactive systems?

Grid-interactive renewable energy systems empower users to embrace renewable energy without risking the outages that sometimes accompany off-grid power generation. Grid-interactive systems generate energy first from renewable sources: solar, wind power or hydro. When those are unavailable, grid-interactive users have the option of switching to the electric utility grid. With two equally available sources of power, grid-interactive energy users get more reliable power and lower costs, while also furthering a more sustainable energy future

• Solar: Rs3,361 Crore
• Wind: Rs 408 Crore
• Indian railways 1 GW solar mission: Budget extends support to this programme wherein 2000 railway stations will be powered via solar energy
• Small hydro & Bio Power: Smaller sums of Rs135 crore and Rs76 crore have been earmarked for small hydro and bio-power, respectively

Observations

• Priority to solar: Government will continue to prioritise solar as the funds earmarked for this sector are considerably more than any other sector

Areas where uncertainty prevails still

• No clarification wrt NEF:One continuing area of uncertainty is the role of the National Environment Fund (NEF).The cess on coal remained unchanged at Rs400/tonne. While the total cess collected (projected up to 31 March 2017) was a mammoth Rs54336 crore, only Rs25810 crore have been transferred to NEF. The budget could have clarified the proportion of the cess that would be transferred to NEF
• Impact of GST on renewables: Researchers at the Council on Energy, Environment and Water (CEEW) find that if solar components were categorized based on current levied tax rates (including exemptions and subsidies), GST would impact solar tariffs minimally. However, if preferential tax benefits to renewable energy were not accounted, then GST could raise utility scale solar tariffs by as much as 9.5%, hampering progress

Capitalizing on market opportunities

Two market opportunities stood to gain significantly from strategic budgetary support

1. Residential rooftop projects could create 15 GW of renewable energy capacity in India by 2022

• No direct support announced: While budgetary support was extended for housing infrastructure, no direct support was announced for rooftop solar

1. Replacing 15% of India’s irrigation pumps with solar pumps could build 20 GW of capacity

• Incentivizing investment in solar pumps: Aiming to double farmer incomes within four years, the budget discusses interlinking Primary Agriculture Credit Societies (PACS) with District Central Cooperative Banks (DCCBs). If this increases access to low-cost loans, the farmers might consider investing in solar pumps which have high upfront costs

Financial risks involved

Solar sector is riddled with following problems which entail financial risk,

• High capital costs
• Long payback periods
• Risks involved raise costs: Off-taker, construction and foreign exchange risks raise cost of debt significantly

 Read More: Off-taker and other risks have been explained here

Issues with the budget wrt renewable energy sector

1. No measure to mitigate risks: Author states that no budgetary support was extended to any agency to address risks.

• Moreover, financial support to the Solar Energy Corporation of India, the nodal agency for commissioning many solar and wind projects, has been halved to Rs50 crore

2. No impetus to technology development: No step has been taken in the budget to boost technology development
   • Poor allocation to R&D:Only Rs144 crore has been budgeted for research and development, nearly half of last year’s allocation
   • No allocation for energy storage technologies: In 2016-17 Rs 20 crore was allocated for developing, testing and deploying energy storage technologies. In 2017-18 there is no allocation for energy storage, which could worsen the challenges with integrating renewable energy into the grid
   • No allowances have been made for electric vehicles or biofuels

Conclusion: An opportunity lost

Author states that while total budgetary outlay to renewable energy marginally increased, there is little to celebrate. This budget is unlikely to spur action or attract any private investment. An opportunity has been lost.