Power sector want Tax incentives, stimulus packages and Special Tax benefits

 

Feb 14, 2010

 

This Budget needs to come up with measures that 

balance the high inflation and sustainable growth. 

The continuing fiscal problems and revenue deficit 

will force the budget to take stringent revenue 

making measures including looking at introducing 

or extending the stimulus packages to boost revenues,” 

said G Bala Reddy, chairman and managing director, ICSA India.

“Similarly, restructuring, expenditure control measures 

must also be closely looked at to control deficits. 

The balance is a serious challenge during

the times when the country’s growth is pegged 

at 7% plus. Finalizing tax reforms, private sectors 

incentive schemes in priority areas and measures 

to boost exports would have to be watched in this 

budget,” he said. 

“Infrastructure development in a few key sectors of the economy

is the main growth driving force which needs heavy investments t

hat creates sustainability. Such deployments should encourage 

public-private partnerships but with a lot of caution and a clear 

policy demarcation that will benefit the private sector in the medium term,” he added.

 

“Power sector being one of the key sectors of the economy should be 

focused through a combination of incentives and direct benefits. 

India is in dire need for strengthening the power transmission 

and distribution sectors. More so, the distribution sector which 

needs to be strengthened in two ways: a) upgrading existing ailing 

infrastructure & building new infrastructure for expansion in both 

rural and urban sectors; and b) strengthening the distribution by 

introducing technology into the network. 

This should be an ongoing exercise not just limited to

a specific 5 year plan,” Reddy said.

Reddy expects 4 levels of benefits /incentives to boost the sector, as explained below:

a) Special Tax benefits must be provided for companies 

engaged in R&D producing high-end technology and 

offering power technology/solutions, since this ultimately

results in increase in revenues for the government.

b) Tax incentives must be extended not only to companies 

owning the power assets but for companies who are 

directly engaged in creating and deploying those assets.

Only then the entire value chain will be sustainably developed. 

This is essential because infrastructure is a low margin business 

and huge turnaround time coupled with long sales to cash cycles. 

This phenomenon pushes companies to carry huge debts which 

hamper growth. Tax breaks for companies engaged in these 

operations will help grow faster with healthy operations.

c) Similarly, this growth drive will give rise to inorganic 

opportunities like mergers and acquisitions and therefore

the government should consider benefits for companies/

promoter’s who sell off or merge into other entities which 

will help consolidation and boost the sector.

d) Due to the visible gap in target Vs actual capacity 

additions in all 3 sectors of power industry and resultant

investment requirement for the next 7- 10 years, power

sector also needs to be incentivized by giving tax benefits 

for 10 years be it in generation, transmission or in 

distribution much similar to that of IT industry which 

enjoyed 10 yr tax exemptions.

This not only creates 

visibility to existing players but brings in new players 

while opportunity for investors to deploy more capital will be enormous.