The Union budget is silent on economy’s transition to interlinked and clean energy needs

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By Dr Anandajit Goswami*

The latest Union Budget created the hope of shining India which is going to be a $3 trillion economy by end of the year, and aspiring to be reaching to a $5 trillion economy by 2024-25. An economy which is showing sluggishness can only recover and set its course in this path with strong demand measures injected into the economy.

Indeed, The Union Budget  does recognise the role of boosting up housing, transportation and consumer demand to sustain economic growth. This has been balanced by setting a target of achieving a fiscal deficit target of 3.3% of the GDP through progressive income tax measures, which include a 3% surcharge hike on an income of INR 2 crore and a 7% surcharge on an income of INR 5 crore and above.

It is expected that the housing demand would boost up by offering an increase in the deduction that can be claimed for interest paid on loans, taken for affordable housing by Rs 1.5 lakh to Rs 3.5 lakh per annum for houses valued up to Rs 45 lakh.

The current government in the budget has also declared to infuse INR 70,000 crore capital for PSU banks, which can enhance the money supply within the economy and can also boost the demand and bring the economy back to recovery.

The resultant inflation is still expected to be low from these demand-injection measures within the economy. The government has shown the conviction to borrow in foreign currency and inject money into the economy to create a recovery path. The money from the banks is also expected to be invested in the infrastructure sector like Railways till 2030. An investment of INR 50 lakh crore is envisaged to be made in the Railways sector over the next two decades.

Additionally, the creation of domestic manufacturing, operational and repair industry along with national highways are going to create an impetus of new demand creation.

Schemes like Bharatmala, Sagarmala and UDAN (or Ude Desh Ka Aam Nagrik) are envisaged to minimise the rural urban divide and improve transport infrastructure. This investment push is also complemented by a disinvestment policy of the government where the government will modify the present policy of retaining 51% stake in PSUs.

An introspection

So far so good; but this new demand push in the economy is also going to create a massive incremental energy demand. So, the larger question is – “Will the country be able to meet its new energy demand from renewable energy complemented by efficient energy demand management policies and measures?”

It is over here that the budget looks a little less promising. Reduction of tax rate on electric vehicles from 12% to 5% through the GST council is expected to promote the application of electric vehicles in the transportation sector. The new building facilities, metro transition points and other infrastructure and housing facilities have been planned through the new banking loans.

But what about the supply of energy to the domestic manufacturing, repairing and operations industry? The budget could have mentioned about the role of renewable, clean energy supply to these industries and the mechanism to assure it by taking  energy conservation and demand management measures.

However, it stays silent on this issue. It is true that after the budget declaration, electric vehicles can be now majorly promoted in the proposed upcoming 17 iconic world class tourist sites with the support of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles or FAME-II scheme by encouraging faster adoption of electric vehicles through the right incentives and charging infrastructure.

But what about the supply of natural gas to the domestic manufacturing, repairing and operations industries in future?

The low hanging fruit

The Union Budget allocates INR 1,035 crore to the Power System Development Fund to revive gas based power units for ensuring a sustained long term supply of gas to various infrastructure and industrial sectors of the economy in order to sustain the growth path. The allocated fund will also be used as a subsidy for state-owned power distribution companies’ or DISCOMs’ purchase of electricity from stranded gas run power plants.

This is expected to revive the economy by addressing the challenge of the stranded assets which are stuck in the sector. For the economy to grow, the problem of stranded assets and NPAs (non-performing assets) of banks associated with the power sector needs to be resolved.

Currently, out of the 24,150 MW gas-based power generation capacity 14,305 MW has no supply of domestic gas, leading to almost about INR 60,000 crore of non-performing assets and decline of average plant load factor to just about 22%.

It has been envisaged to invest of around INR 40,000 crore in the remaining more than 9,000 MW power generation plants that are running at a sub-optimal level.

In 2016, a reverse auction process was initiated for power plants to avail subsidy for buying costly imported gas and regasified LNG. However, after four rounds of reverse auction between June 2015 to September 2016, the process was discontinued. Now the government has come back with the allocation of subsidy for the DISCOMs to buy power from stranded units.

In the meantime, it is also true that while the Gas Authority of India Ltd (GAIL) is sourcing the imported gas, the Gujarat State Petronet has suffered a loss of 50% of its transmission rate, apart from 75% of its marketing margin, while supplying imported regasified LNG to sustain the clean energy demand of the industry sector.

Indeed, while on the economy side, the budget comes up with clear measures, on the aspect of an interlinked, growing clean energy needs and the economy’s transition for that, the budget was silent, and has left room for more thoughts for future to address systemic issues of the Indian economy and the energy sector.

*Fellow, Management Development Programme, Coordinator, TERI School of Advanced Studies and Adjunct Visiting Fellow, Impact and Policy Research Institute (IMPRI), New Delhi.  Views are personal


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