Budget 2011: Power Over the past few quarters, the power sector has seen hard times given the severe liquidity crunch that hit existing as well as new projects. And as such, the sector once again saw capacity addition that was way below the targets set out as part of the XIth Five Year Plan. While the situation on the funding side has improved considerably since the middle of 2008, companies are stepping up on new projects with utmost caution. This is especially given that linkage for fuel (especially coal and gas) is becoming a tough nut to crack. However, rural electrification continues to get a boost in each passing budget and so is the improvement in the T&D network. Budget 2011 was no different, as it allocated higher funds for the development of the power sector with a view of speeding up the expansion of new generation capacities.

Budget Expectations

	Removal of withholding tax on overseas investments in the sector
	Measures that would help the sector raise long term funds at a fixed price
	As per provision of section 80-IA(4)(iv) of the Act, profit earned by undertaking is exempted if it begins to generate power up to March 31st 2011. The industry wishes to extend this by one more year.

Budget Measures

	Excise duty exemption for UMPP equipments to aid fast-track creation of new large-scale power generation capacities.
	FII limit for investment in corporate bonds issued in infrastructure sector has being raised to enhance flow of funds to the sector.
	Corpus of Rural Infrastructure Development Fund XVII to be raised from Rs 160 bn crore to Rs 180 bn.
	Allocation of Rs 2,140 bn for infrastructure in 2011-12, and increase of around 23% YoY.
	India Infrastructure Finance Co. Ltd. to achieve cumulative disbursement target of Rs 200 bn by March 31, 2011 and Rs 250 bn March 31, 2012.
	To boost infrastructure development, tax free bonds of Rs 300 bn proposed to be issued by Government undertakings during 2011-12.
	Special power cables connecting generators and right up to the transformer within the power generation plant would be eligible for the benefits of the said exemptions.
	Current surcharge of 7.5% on domestic companies proposed to be reduced to 5%.
	Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to 18.5% of book profits.
	Tax incentives extended to attract foreign funds for financing of infrastructure.
	Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.

Budget Impact

	Excise duty exemption for UMPP equipments to aid fast-track creation of new large-scale power generation capacities.
	Higher FII limit for investment in corporate bonds issued by infrastructure companies to provide additional funding to the power sector.
	Higher investment on rural infrastructure to aid development of the rural power distribution network.
	Higher allocation for infrastructure to aid the overall development of the power sector.
	Reduction in surcharge of 7.5% on domestic companies to 5% to aid net profits of power companies.
	Tax incentives on foreign funds for financing of infrastructure to aid the sector’s financing needs.

Company Impact

	Excise duty exemption for UMPP equipments to benefit companies like Tata Power and Reliance Power
	Higher investment on rural infrastructure to benefit power transmission players like Power Grid.
	Reduction in surcharge of 7.5% on domestic companies to 5% to aid net profits of all power companies.
Budget Impact: Power Sector Analysis for 2010  Latest: Performance Of Power Stocks | Power Sector Report

Complete coverage – Budget 2011