Financial Minister Pranab Mukherjee
India: Financial support for Solar Energy in India’s Union Budget 2010-2011
“Harnessing renewable energy sources to reduce dependency on fossil fuels is recognised as a credible strategy for combating global warming and climate change,” Indian Financial Minister Pranab Mukherjee said in his speech about the Union Budget 2010-2011 at the end of February.
Photo: www. pranabmukherjee.in
Minister Pranab Mukherjee proposed some financial measures in his speech that could help boost the renewable energy sector. The most important of all: The minister plans to increase the funds allocated to the Ministry of New and Renewable Energy by 61 %, increasing them from INR 6.2 billion in 2009/10 to INR 10 billion in 2010/11 (item 63 on the attached speech). The more on funds will mean a better chance of meeting the target recently set under the ambitious National Solar Mission, which foresees 20 million m2 of newly installed collector area between now and the end of 2022. The budget has to pass parliament, so that it can become effective as of the 1st of April, the beginning of India’s financial year.
Other propositions found in the minister’s speech could also push the solar thermal sector:
- A clean energy levy of 50 INR/tonne on nationally extracted, as well as imported coal is to be raised to create a National Clean Energy Fund (NCEF), which is then thought to support research and innovative projects in clean energy technologies (item 154 on the attached speech). According to Coal India Ltd (CIL) Chairman Partha Bhattacharyya, the country is expected to extract about 600 million tonnes of coal in 2010/11 (including imports). A levy would bring in a total of INR 30 billion. Some of the funds will then likely be used to develop clean coal technologies.
- The minister also proposes to extend the tax deduction scheme to new hotels of the two-star category and above anywhere in India (item 132 on the attached document). Investments made for building new two-star hotels will therefore receive tax deduction under Section 35AD of the Income Tax Act – up to 100 percent of the capital expenditure. The Minister’s proposal is thought to support the tourism sector, “which has high employment potential”. The funds will certainly boost the sales of solar water heating systems.
- Moreover, the financial ministry plans to provide some more financial support to private sector banks for expanding their services particularly in semi-urban areas, in which they have not yet been well represented. The minister wants to add an additional INR 12 billion to make sure banks are able to maintain a “comfortable level of capital to risk weighted asset ratio” (see item 39 on the attached document). “Since capital financing is the key driver for market growth of solar water heaters, this will enable families living in semi-urban and rural areas to adopt SWHs by borrowing loan from these private banks that are usually aggressive,” informs Sanjay Jinturkar, Managing Director of the Indian collector manufacturer Sudarshan Saur.
Item 142 on the attached document states that the excise duty on the manufacture of non-petroleum products, such as aluminium, steel and copper is to be raised from 8.3 to 10.3%. According to Tyamagundlu Ananth, CEO of Nuetech Solar, the duty will certainly make the final systems more costly and companies will pass on the hike to consumers.