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THE ENERGY AND RESOURCES INSTITUTE TERI Budget 2016/17: An Analysis from the Lens of Sustainable Development TERI analyses the Indian budget 2016-17 with focus on power sector, renewable energy and sustainability areas Union Budget 2016/17 made a clear shift in emphasis from manufacturing based economic growth to rural development with a focus on farmers and the vulnerable. Before getting into sector specific analyses, two general points are worth highlighting. First, the focus on the poor naturally brings in the issue of subsidies. The Budget has announced a package of subsidized LPG connections to BPL families. While this is essential, the deficiencies in the targeting and delivery of subsidies are well known. It is important that objective criteria are identified for rationalizing subsidies. Initiatives such as the Socio-economic Caste Census (SECC), 2011 of the Ministry of Rural Development that captures multiple dimensions of deprivations can be used for arriving at entitlements that rural households will receive under various programmes. Second, a number of basic services and environment-related subjects, including soil conservation, water and waste management, social and farm forestry were devolved to local bodies by the 73rd and 74th Constitutional Amendment Act of 1991. Thus, the budget allocation of Rs 2.87 lakh crore as Grant in Aid to Gram Panchayats and Municipalities as per the recommendations of the 14th Finance Commission is a welcome step. However, there is an urgent need to develop cutting edge capacity in local bodies, including addressing issues of critical size and clustering of local bodies for optimal planning and delivery of services. Below is a more resource/sector specific analysis of Budget 2016/17. Oil and Gas The Union Budget for 2016-17 did not address some of the key concerns regarding the oil and gas sector even as it announced a new scheme to encourage the adoption of LPG for cooking in rural India among below poverty line (BPL) households. With a focus on reducing indoor air pollution, the Finance Minister announced that 1.5 crore households will benefit from the Rs. 2000 crore allocation in 2016-17 to increase uptake of LPG cylinders. However, TERI studies show that considerable impediments remain in transitions from biomass to LPG, including the inefficiency of the supply chain and the unavailability of banking facilities that impacts the direct transfer of the subsidy and the adoption of LPG in rural India. This programme will therefore have to be complemented with a redressal of such issues in order to ensure success. Further, a recent TERI study found that 91% of rural households in India that have an LPG connection continue to use biomass alongside. Therefore, the problem of indoor air pollution will not be fully addressed by this LPG scheme alone. Further, the Minister announced that to promote India’s “self-sufficiency” in hydrocarbons, the government will put in place a premium on prices on natural gas extracted from High Temperature, High Pressure fields. However, this policy decision has been announced in the past by the Ministry of Petroleum and Natural Gas, but the quantum of the premium has not yet been announced. Additionally, there was no announcement made on either the next round of NELP auctions, or whether NELP would be replaced by a unified licensing framework. The 10th round of NELP has been due since 2014. We need a policy that clearly incentivizes exploration for oil and gas. The Minister did reiterate an earlier announcement of market linked prices for marginal fields, which is a positive move. Coal The Union Budget 2016-17 spelled out very few reforms intended for the coal sector directly. The Budget stated that coal production has seen a huge jump. The Coal Mines (Special Provisions) Act, 2015 had revised clauses that allowed for private mining of coal and it was expected that the government would set a timeline to establish guidelines and processes related to this. Private coal mining is expected to add 500 MT of coal to the overall production and help the government meet its target of 1.5 BT by 2020. What was also missed was removing import duty on coking coal imports which might have helped the domestic steel industry. The Clean Energy Cess has been renamed to Clean Environmental Cess and has been doubled up to INR 400/tn from the present INR 200/tn. Renaming the cess could lead to its utilization for a variety of purposes and not just for renewable energy projects. However, the impact of this cess on the cost of power production needs to be assessed in greater detail, considering that discoms are unlikely to be able to pass on the potential higher cost of power to the consumers. Renewables As a part of the tax proposals, Government announced Accelerated Depreciation provided under the IT Act to be limited to a maximum of 40% from April 1, 2017, which currently is 80 % in the first year. This might impact the profitability of renewable energy projects which are dependent on Accelerated Depreciation as a tax saving instrument. It was announced that new manufacturing companies incorporated on or after 1.3.2016 are to be given an option to be taxed at 25% + surcharge and cess RENEWABLE ENERGY 34 energética INDIA · MAR | APR16


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