No signals on energy access

India is poised to enter the last year of the 11th Five-Year Plan period in which we had set ourselves some ambitious targets for strengthening the infrastructure sector, including energy availability. However, it is apparent that we are once again not on the path to meeting the original electricity generation capacity additions by at least 30% if not more.

Imports of coal are slated to go up from 59 million tonnes in 2008-09 to nearly 142 million tonnes by the end of this fiscal. Oil production has stagnated for the last several years while crude oil imports have increased from a 100 million tonnes in 2005-06 to 160 mt in 2009-10. Natural gas has shown a healthy growth but the gas transportation grid in the country still needs huge investments. The signals provided in the current Budget have to be seen in this context.

On the supply side, the finance minister has clearly recognised the challenges faced by the infrastructure sectors, including energy, in raising the magnitude of finances that would be supportive of an aggressive growth plan. To that extent, he has announced several measures to ease this pressure, including: (i) substantially increasing the FII limit for investments in corporate bonds to $40 billion (ii) permitting FIIs to in unlisted bonds of infrastructure SPVs with a minimum lock-in period of three years; (iii) creating special vehicles in the form of notified infrastructure debt funds to attract foreign funds with a substantial reduction on withholding tax rate from 20% to 5% on interest payments and fully exempting the incomes of the fund from tax; (iv) extending the additional deduction of ,000 for investment in long-term infrastructure bonds by another year.

On the energy demand side, too, several positive measures have been announced in the Budget speech. Most significant among these is the move to provide kerosene subsidies in a more targeted fashion directly to intended beneficiaries through direct cash transfers. This was a proposal that Teri has also made nearly five years ago, highlighting the fact that nearly 26-40% of the total kerosene consumed in the country cannot be accounted for and the possible implications this had for adulterating diesel. Teri had, in fact, also pointed out that 76% of the LPG subsidy goes to urban areas and nearly 40% of the LPG subsidy is enjoyed by top 6.75% of the population. One hopes that a similar targeted approach would be taken to LPG pricing as well.

The finance minister has also done well to recognise the emerging role of electric and hybrid vehicles and has announced the setting up of a national mission on the subject. The developments in this area would need to be watched in the coming months. Several other initiatives to facilitate the development of green mobility options: (i) concessional excise duty of 10% on fuel cell/hydrogen driven vehicles; (ii) exemption from basic customs duty and special CVD on parts of hybrid vehicles; and (iii) a concessional rate of excise duty of 5% to incentivise domestic production of hybrid vehicles.

What continues to be disappointing in terms of policy signals is the totally inadequate attention being given to energy access issues. With over 600 million people continuing to be dependent on traditional biomass energy forms for meeting their cooking energy needs and nearly 400 million people having absolutely no access to electricity in their homes, the delivery of inclusive development becomes questionable. The fact that energy must be provided in order to meet the other eight millennium development goals is a universally accepted. Yet, no clear strategy seems to be implicit in any part of the Budget exercise. The only exception being the reduction of basic customs duty on solar lanterns from 10% to 5% and that on a few other inputs used in the manufacture of solar modules/ cells being reduced to nil.

Finally, "a group of ministers has been set up to consider all issues relating to reconciliation of environmental concerns emanating from various departmental activities, including those related to infrastructure and mining. This group will also suggest changes in the existing statutes, rules, regulations and guidelines and make its recommendations in a time-bound manner." For the coal and power sectors, in particular, the recommendations of this committee are going to be crucial. However, in arriving at their recommendations, one can only hope that the committee would undertake a careful evaluation of the longer-term trade-offs involved and would appropriately balance the different - economic, social and environmental - pillars of sustainable development.

Tags: price regulations, LPG subsidy, fuel pricing, 11th Five-Year Plan Period