Union budget 2010: Solar, UIDs all the way!

As expected, solar photovoltaics (PV) is the largest beneficiary of the UPA government’s union budget 2010, which was presented today by India’s Union Finance minister, Pranab Mukherjee. On India’s growth, he said that a 10 percent GDP growth rate is likely in the future.

Late last week, I had said that it would be a great surprise if solar/PV was not part of the budget, given the NSM. Well, it now has a major role, as do UIDs. However, as I expected, there is hardly anything for the semiconductor/VLSI industry segments, and definitely not what the industry had proposed. Apparently, semiconductor/VLSI is not yet a critical sector, and will need to wait for its time. Therefore, I am not surprised! It didn’t happen last year, and well, no change this year either!

Key budget highlights
* The plan outay for new and renewable energy has been increased by 61 percent from Rs. 620 crores to Rs. 1,000 crores. This is following the Jawaharlal Nehru National Solar Mission (NSM) announced last year, which aims for 20GW by 2022.
* Proposal to establish national clean energy fund.
* There are proposals for setting up solar and wind power projects in Ladakh region as well.
* Allocation for power sector doubled to Rs. 5,120 crores.
* Allocation of Rs. 1,900 crores for UAID scheme (UID projects).
* UID numbers are ready for take off. UID authority has been constituted, and it will issue the first set of UIDs by the end of this year.
* Smart cards extended to NREGA.
* The Unique Identification Authority of India to get an allocation of Rs. 1,900 crores.
*  An effective tax administration and financial governance system calls for creation of IT projects which are reliable, secure and efficient. IT projects like Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network, Goods and Service Tax, are in different stages of roll out. To look into various technological and systemic issues, the minister proposes to set up a Technology Advisory Group for Unique Projects (TAGUP) under the Chairmanship of Nandan Nilekani.
* The budget proposed to further simplify FDI.

New and Renewable Energy
* The Finance Minster proposed to increase the Plan Outlay for the Ministry of New and Renewable Energy by 61 percent  from  Rs. 620 crores  in 2009-10 to  Rs. 1,000 crores in 2010-11.
* To address the problem of energy deficiency in the Ladakh region of Jammu & Kashmir which faces extremely hard climate, the government proposes to set up solar, small hydro and micro power projects at a cost of Rs.500 crores.
* The Ministry of new and Renewable Energy (MNRE), which aims to develop and utilise new and renewable sources of energy fur supplementing energy requirements of the country in an eco-friendly and sustainable manner, has got a total Plan Outlay of Rs. 1,950 crores, which includes Rs.950 crores as IEBR in the annual plan for the year.  The following physical targets/activities have been set during the financial year:
* 2972 MW Grid-Interactive Power capacity addition from Wind, Small Hydro, Biomass, Power/Cogeneration, Urban & Industrial Waste to Energy and Solar Power; 142 MW eq. Off grid / Distributed Renewable Power Systems.
* Provision of basic electricity/lighting facility through SPV/other RE systems and devices, including DRPS in 1500 remote villages/hamlets; and Family type Biogass Plants of capacity of 0.30 million m2 (1.5 lakhs nos.).
* Deployment of Solar Water Heating Systems of 1.00 million m2; Promotion of Energy – efficient Buildings (1 million sqm. Floor area) and Development of Solar Cities.
* R&D activities on different aspects of new and renewable energy technologies; support to MNRE Centres /institutions and Standard and Testing; Renewable Energy Resource Assessment.
* Information, Publicity and Extension (IPE) of Renewable Energy systems; International  Relations; Administration and Monitoring including HRD and Training; Support to States, Public Enterprises and Industry  including HRD and training activities to be undertaken under Solar Mission.

Tax proposals
* GST to be rolled out by April 2011.
* Rs 1133 crores outlay for launch of GST.
* SARAL – II form for individuals ready for the coming year in a simple format in only two pages.
* Computerisation of commecial tax collection in states.
* Automation of central excise and service tax already rolled out.

Direct taxes
* Corporate tax hiked; MAT increased from 15 percent to 18 percent
* Current income tax slabs extended as follow:
Rs 1.6 lacs — nil
Rs. 1.6 lacs – Rs. 5 lacs – 10 percent
Rs. 5 lacs – Rs 8 lacs – 20 percent
Above Rs 8 lacs — 30 percent

Indirect taxes
* Under the NSM — concessional customs duty to machinery, equipment, applicances etc., required for setting up PV and thermal power units.
* Wind energy generators exempted from central excise duty.
* LED lights — central exicse duty reduced from 8 percent to 4 percent.
* To waive excise duty and solar and PV panels.
* Concessional 5 percent duty on set up of solar power unit.
* Excise duty on CFL halved to 4 percent.
* 4 percent duty on electric cars and vehicles.
* Mobile phone domestic production picking up. To encourage manufaturers of accessories, exemptions extended.
* Tax exemptions have been announced for equipment used in solar systems and wind energy system, LED lights, electric cars, cycle rickshaw, mobile phone components and certain medical equipment.

In detail, some of them are as follow:
* In pursuance of Government’s resolve to implement the National Solar Mission, there is a proposal to provide a concessional customs duty of 5 percent to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units. I also propose to exempt them from Central Excise duty. Similarly, ground source heat pumps used to tap geo-thermal energy would be exempt from basic customs duty and special additional duty.

* Wind energy has shown promising growth in the country in recent years. As a measure of further relief, it is proposed to exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.

* LED lights are staging a debut as a highly energy-efficient source of lighting for streets, homes and offices. Central Excise duty on these is being reduced from 8 per cent to 4 percent at par with Compact Fluorescent Lamps (CFLs).

* Full exemption from Central Excise duty was provided to electric cars and vehicles that offer an eco-friendly alternative to petrol or diesel vehicles. The manufacturers of such vehicles have expressed difficulty in neutralising the duty paid on their inputs and components. It is proposed to remedy this by imposing a nominal duty of 4 percent on such vehicles. It is also proposed to exempt some critical parts or sub-assemblies of such vehicles from basic customs duty and special additional duty subject to actual user condition. These parts would also enjoy a concessional CVD of 4 percent.

* With the subscriber base growing at 14 million per month, India is one of the fastest growing markets for mobile phone connections in the world. Domestic production of mobile phones is now picking up in view of exemptions from basic, CVD and special additional duties granted to their parts, components and accessories. To encourage the domestic manufacture of accessories, these exemptions are now being extended to parts of battery chargers and handsfree headphones. Also, the validity of the exemption from special additional duty is being extended till March 31, 2011.

* Medical equipment, instruments and appliances are subjected to a very complex import duty regime based on several long lists that describe individual items. Multiple rates coupled with descriptions not aligned with tariff lines, result in disputes and at times prevent state-of-art equipment from getting the benefit of exemption. It is proposed to prescribe a uniform, concessional basic duty of 5 percent, CVD of 4 percent with full exemption from special additional duty on all medical equipment. A concessional basic duty of 5 percent is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty. Full exemption currently available to medical equipment and devices such as assistive devices, rehabilitation aids etc. is being retained. The concession available to Government hospitals or hospitals set up under a statute is also being retained.

* The manufacturers of orthopaedic implants have represented that their inputs attract a higher rate of duty than the finished product. I propose to exempt specified inputs for the manufacture of such implants from import duty.

* Cable transmission of infotainment is undergoing a transformation with the adoption of digital technology. The multi-service operators need to invest in “Digital Head End” equipment. To enable this, it is proposed to provide project import status at a concessional customs duty of 5 percent with full exemption from special additional duty to the initial setting up of such projects.

Service tax
* Export of services, especially in the area of Information Technology and Business Process Outsourcing, generates substantial employment and brings in foreign exchange. It is proposed to ease the process of refund of accumulated credit to exporters of services by making necessary changes in the definition of export of services and procedures.

Nothing for semicon/VLSI, components or electronics manufacturing!
There you have it! The union budget 2010 has lots of good news for new and renewable energy, solar PV and UIDs — all on expected lines. Perhaps, these are on the national agenda, as is telecom, and hence, they have rightly bagged pride of place in the budget document. One hopes the players in the solar PV field do not have much to complain after this!

However, there is no place for semiconductors/VLSI, components, electronics manufacturing, as of now, which is a bit of a surprise. At least, some thought should have been given to electronic components and electronics manufacturing, as these are the need of the hour as well. The budget has been quiet on these fronts! But, no point in pointing fingers at the budget — it has simply taken care of what’s critical and top priority in the national agenda! On that count alone, the budget scores 100/100! If there is no place for the other segments, it is simply because we don’t have enough success stories, nor a good track record, at least, not so far!

Is it because we lack a proper ministry for semiconductors and electronics? Partly, yes! Unlike these two segments, telecom, MNRE, IT, etc., have proper, functioning ministries. The IT and telecom industry segments have also been around much, much longer, and definitely have strong leaders. However, the MNRE is perhaps, more recent, but well, it has a clear national agenda in the NSM!

There will be a need to build a solid ecosystem around solar PV. I hope that happens, now that so many goodies have been allocated to the sector.  However, one wishes that a wee bit more could have been done for boosting local manufacturing of LEDs in India.

In fact, barring solar/PV and UIDs, which are on the national agenda, there is hardly anything else! Those, who may feel that these measures would be adequate to trigger electronics manufacturing in the country and help the country, could be in for a surprise. And well, solar PV NEVER was and is semiconductors, hence, it would be unwise to tag it so!

A few questions: How many Indian manufacturers will really benefit from these proposals? Okay, how many MCUs are being produced in India, by Indian companies, for smart cards? Is this really enough to increase the consumption of electronics in the country? Is the excise duty on LEDs enough to boost its manufacturing? How many Indian companies are currently producing LEDs? And, at end of the day, are, we as a nation, serious enough to consider electronics manufacturing important and nurture such companies?

These are all tough questions, for now, and there are many others. One hopes, and continues to live in hopes, that these questions would be answered adequately in the years ahead. But, before the budget answers these, the Indian industry itself needs to find solutions first to these questions, and then expect answers from any budget.

Overall, a good budget from the solar/PV and energy perspectives, but really down on electronics manufacturing, for now. Perhaps, we have to wait for some other time to see this segment get a real boost!

The verdict: those who wish to invest in India’s new and renewable energy sector, and especially, solar PV, the time is now!