rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Capital Goods: Boost from ultra mega power projects

Capital Goods: Boost from ultra mega power projects

March 01, 2015 14:33 IST

Union Budget 2015-16 have put out broad milestones/goals to be achieved by 2022 and this may translate into greater opportunity for the sector but it was silent on how the hurdles on the path will be removed and how it will be achieved. 

Budget proposals

Government is working on a mission to achieve electrification of remaining 20,000 villages by 2020 including by off-grid solar power generation as well as 24 hour power supply to each house by 2022.  

Propose to set up 5 new Ultra Mega Power Projects of 4000 MW each at an investment of about Rs 100000 crore in the plug-and-play mode.  All clearances and linkages will be in place before the project is awarded by a transparent auction system.   Similar plug-and-play projects in other infrastructure projects such as roads, ports, rail lines, airports etc will also be considered.

To establish a National Investment and Infrastructure Fund (NIIF) with annual cash funding/flow of Rs 20000 crore to it.  This will enable the Trust to raise debt, and in turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB.  The infrastructure finance companies can then leverage this extra equity, many fold. 

To permit tax free infrastructure bonds for the projects in the rail, road and irrigation sectors. 

The PPP mode of infrastructure development has to be revisited, and revitalized.  The major issue involved is rebalancing of risk. In infrastructure projects, the sovereign will have to bear a major part of the risk without, of course, absorbing it entirely. 

The Ministry of New Renewable Energy has revised its target of renewable energy capacity to 175000 MW till 2022, comprising 100000 MW of Solar, 60000 MW of Wind, 10000 MW of Biomass and 5000 MW of Small HydroCentral Excise Duty increased from 12.36% to 12.5% 

Service tax is increased from current 12.36% (12% + Education cess) to 14%. The education cess and secondary and higher education cess shall be subsumed in the revised rate of service tax.  Further a Swachh Bharat Cess on all/any of the taxable services at a rate of 2% of the value of such taxable services.  The new service tax and Swachh Bharat Cess will come into effect from a date notified. 

Rate of corporate tax will be reduced from 30% to 25% over the next 4 years. But the budget has increased the surcharge by 2%  to 7% and 12% for companies whose total income is in the 1-10 crore and above Rs 10 crore respectively.

Rationalised the capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs, subject to payment of Securities Transaction Tax (STT).

 ‘Housing for all’ by 2022 would require construction of 2 crore houses in urban areas and 4 crore houses in rural areas. 

Connecting each of the 178000 unconnected habitations by all weather roads by 2022.  This will require completing 100000 km of roads currently under construction plus sanctioning and building another 100000 km of road. 

A sum of Rs 5300 crore is allotted to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana

Excise duty on pig iron (SG Grade) and Ferro Silicon-magnesium for manufacture of cast components of wind operated electricity generators is being fully exempted, subject to certification by MNRE in this regard.

Excise duty on round copper wire and tin alloys for manufacture of Solar PV ribbon for manufacture of solar PV cells is being fully exempted subject to certification by Department of Electronics and Information Technology (DeitY).

Service Tax exemption presently available on specified services of construction, repair of civil structures, etc. when provided to Government shall be restricted only to,-  a)a historical monument, archaeological site ; b) canal, dam or other irrigation work;  c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

Service Tax exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn.

Allocation of Rs 22407 crore for housing and urban development

Customs tariff on iron & steel and articles of iron or steel increased from 10% to 15%. However, there is no change in the existing effective rates of basic customs duty on these goods

Goods imported for setting up a Mega Power Project specified in List No. 32A of the Notification [S.No. 507 of Notification No. 12/2012-Customs dated 17-3-2012] attracts Nil BCD and NIL CVD.  In case of imports for a project for which the certificate regarding Mega Power Project status is provisional, the exemption is, inter alia, subject to condition that importer furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more. This condition is being amended to prescribe furnishing of bank guarantee or fixed deposit receipt for a period of 66 months. 

Goods for setting up Ultra Mega Power Project specified in List No. 10 of the said Notification [S. No. 337 of Notification No. 12/2012-CE dated 17-3-2012] attracts Nil excise duty.  In case of goods for a Project for which certificate regarding Ultra Mega Power Project status is provisional, the exemption is subject interalia to condition that the Chief Executive Officer of the Project furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more. This condition is being amended to prescribe furnishing of bank guarantee or fixed deposit receipts for a period of 42 months.

Goods for setting up Mega Power Project specified in List No. 11 of the said Notification [S. No. 338 of Notification No. 12/2012-CE dated17-3-2012] attracts nil excise duty.  In case of goods for a Project for which certificate regarding Mega Power Project status is provisional, the exemption is subject interalia to condition that the Chief Executive Officer of the Project furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more. This condition is being amended to prescribe furnishing of bank guarantee or fixed deposit receipts for a period of 66 months.

Goods manufactured domestically and supplied against International Competitive Bidding are eligible for full excise duty exemption provided that such goods when imported attract Nil Basic Customs Duty and Nil CVD [S.No.336 of notification No.12/2012-CE dated 17.03.2012 read with Condition No.41]. The condition is being amended so as to provide that if imported goods are eligible for Nil Basic Customs Duty and Nil CVD subject to certain conditions, then the said conditions shall also apply mutatis mutandis to such goods when manufactured domestically and supplied against International Competitive Bidding for the purposes of availing of the said excise duty exemption.

Stocks to watch

BHEL, L&T, IRB Infra and Suzlon

Outlook

Plug and play projects in core infrastructure sectors and to start with 5 UMPP projects will be good for capital goods industry that is hurt by subdued order finalization in domestic market. Further the goal for 24X7 power supply to every house and electrification to all by 2022 is expected to increase investment in power sector which translate into increased opportunity for the domestic capital goods sector. Similarly the realization of reviewing the current PPP model and fixing the issues will improve the private investor confidence and revive the infrastructure investment.

Similarly the addition of 60000MW of wind power in next 7 years works out to about 8000 MW a year and this is huge leap in domestic market for WTG and will augur well for domestic WTG manufacturers such as Suzlon. Similarly the high revised target for solar and biomass capacity as well as small hydro are expected to have a positive cascading impact for the domestic capital goods sector.

However the increase in customs duty on steel is bound to put pressure on margin as significant steel products are still imported and the industry players such as BHEL, L&T often resort to opportunistic sourcing of steels globally depending on price both at local and certain global markets.

Budget 2015: Complete Coverage

Powered by