The year 2018 was a tumultuous one for the solar industry. Vague interpretation of the Goods and Services Tax (GST) rates led to a long period of confusion which in turn delayed many projects. Further, the imposition of safeguard duty in the middle of the year led to many legal battles and increased the costs of solar projects. Cancellation of many auctions by state agencies amid such uncertainties also hampered the confidence of solar developers in the government.
On February 1, 2019, the Narendra Modi-led NDA government will present an interim budget (also known as vote on account, which is slightly different from the regular budget). Usually, when the incumbent government is nearing the end of its term and an election is around the corner, it seeks the approval of Parliament to meet the ongoing expenditures of the government for the first four months of the fiscal year. Later, when a new government takes charge, a full budget is presented with revisions. However, the BJP government, which is confident of being reelected into power, is likely to propose a full budget, according to media reports.
With the current state of the market, the upcoming budget can be an opportunity to help restore the confidence in stakeholders, announce further reforms, and steer the solar industry in the right direction to meet the target of 175 GW of renewable energy by 2022 — a goal which was set by the NDA government in the beginning of its five-year term.
“In the 2019-20 Budget, we hope that the solar industry does not see any negative surprises, and taxes and duties remain stable. Additionally, we hope that the government continues to focus on reducing the corporate tax rate to help the country move towards a lower tax regime,” said Nikunj Ghodawat, CFO of CleanMax Solar.
Rationalization of the GST tax structure has been a consistent demand of the industry as the conflicting rulings by state commissions have created confusion for solar developers. However, the GST council recently recommended that 70 percent of the gross value of supply of goods for solar power generating systems would attract a 5 percent tax and the remaining 30 percent, of the aggregate value of the EPC contract would be taxed at 18 percent.
“Currently solar panels are in the 5 percent bracket whereas other balance of system (BOS) components are in the 18 percent bracket. This causes the blockage of funds in reverse tax credit,” Deepak Jain, president of sales at Goldi Solar told Mercom.
He also suggested that the government should focus on policy matters rather than giving complete attention to expenditure targets. “If policy direction is right, the investments made in the solar sector will be stable and prove fruitful for manufacturers, developers and lenders,” he added.
Pranav Mehta, Chairman of the National Solar Energy Federation of India (NSEFI) believes that the GST ratio of 70 percent and 30 percent is too high and the government should use this occasion to make it 90 percent and 10 percent.
As reported previously by Mercom, the 2017-18 budget reduced the accelerated depreciation to 40 percent from the then prevailing 80 percent. But many industry players now want it to be restored to 80 percent.
“The rate of accelerated depreciation on solar power plants had been reduced from 80% before FY 17-18, to 40% in FY 17-18. Last year, the government had reduced the corporate tax rate from the levels of 35% to 25%. This has directly diluted the impact of the time, the value of money and benefits resulting from the 40% depreciation deduction. A balancing reform is required and depreciation allowed on solar assets should be increased so that benefits to the end customer gets restored. This would help in reducing the payback period for Commercial & Industrial customers and would make solar a viable option for them,” said Ashit Maru, co-founder of MYSUN.
What are the budget expectations of the solar inverter industry? Abilash Nair of ABB tells us, “Chinese inverters are being dumped onto the Indian market, which is affecting local manufacturing. The government should introduce a rating system, such as tier 1 and tier 2, based on the technology and efficiency of the inverter. This will greatly benefit Indian manufacturers.”
Here are some of the other expectations of the solar industry from the upcoming budget:
- Measures to announce sops (incentives) for export of solar products (like China)
- Level-playing field for all solar players, boosting healthy competition rather than creating policies to favor manufacturers
- Make it mandatory for all electricity distribution companies (state DISCOMs or private distribution licensees) to synchronize with solar players and treat them as partners and not as competitors
- Draft specific policy for electric vehicles and their charging infrastructure as it would be imperative to shift to EVs in the coming decade
- Provide financial support for research, development, and technological innovations in the solar energy sector
- Higher budget allocation to improvise grid-infrastructure and increase wider penetration of Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) program
- Issue clarifications on imports from China and other countries
- Provide a boost to the backward/forward integration of solar manufacturers, completing the entire value chain
- Non-banking financial companies and banks should provide innovative and tailor-made financing solutions to solar sector
- Rationalization of tax structure – corporate tax, MAT, income tax, etc.
- Ministry of Finance should act on the standing committee recommendations and utilize the funds to promote domestic manufacturing in the sector
- Indigenously manufactured rooftop solar systems to be made compulsory on all government, local bodies and semi-govt buildings
- Solar energy should be given a core sector industry status
Previous budgets have been rather disappointing for the solar industry. No specific incentives, subsidies or grants were announced for the Ministry of New and Renewable Energy (MNRE) in the Union Budget 2018-19. However, it has provided some relief to module importers by abolishing the customs duty on tempered glass.
The 2017-18 Budget also did not include any major subsidies or incentives for the renewable energy sector. A provision of ₹7.45 billion (~$109.86 million) in 2017-18 in incentive programs like Modified Special Incentive Package Scheme and Electronic Development Fund (EDF) was provided to develop India into a global hub ecosystem for electronics manufacturing, including solar manufacturing. But these incentive-based programs never saw the light of the day.
“After last year’s budget, which did not have much for the renewable sector, expectations are very low this year especially considering this is a pre-election budget. The industry is not expecting any subsidy or tax relief in this budget. Anything positive announced will be an unexpected bonus,” said Raj Prabhu, CEO of Mercom Capital Group.