"The budget benefits will result in reduction of tariff by almost 5 to 6 paise" - Views on News from Equitymaster

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  • Mar 1, 2001 - "The budget benefits will result in reduction of tariff by almost 5 to 6 paise"

"The budget benefits will result in reduction of tariff by almost 5 to 6 paise"

Mar 1, 2001

Mr. R. K. Kanga is a Senior General Manager with the Tata Power Company Limited. We caught up with him to take his views on the Budget 2002. EQM: What’s your view of Budget 2002?

Mr. Kanga:  The budget is wonderful. It encourages a lot of infrastructure build up for the country, which is very essential. For the last 2 budgets there was not much of encouragement for the infrastructure sector, but this budget certainly took care of that. The biggest plus of this budget is that interest rates have been reduced and this means funds will be cheaply available now for infrastructure development. Following the budget signals, the RBI has again cut interest rates. So funds will be cheaply available for infrastructure development.

There was a lot of stress by the finance minister on development of roads for rural sector. He has given out Rs 7.5 bn for rural electrification, which is very positive. There is a higher outlay for the power sector in this budget, indicating that the government wants to upgrade, renovate and spend on maintenance of government owned state electricity boards (SEBs). It will improve the plant load factor of government owned power stations.

He has also extended the benefit u/s 80 IA, which is meant for power companies’ transmission and distribution upto 2003, which has now been extended to 2006. The II-tier benefit of 100%, which was available u/s 80 IA for only the first five years and was reduced from then on, has been changed. Now, the benefit is 100% for the entire block of 10 years. It is a really positive sign. If you go by the income tax method then you may take charge depreciation in the first five years itself, and normally end up in losses and not pay tax. But from the sixth year onwards you pay tax. So, the current budget proposal will change all that.

Another important issue was that 80 IA benefit for the telecommunications sector was not available earlier. It was stopped from the year 2000 onwards. But in this budget it has been given a retrospective effect upto 2003. This is very beneficial for new telecom companies, which have set up operations from 2001 onwards.

Pegging the fiscal deficit at 5.1%, and targeting to reduce this to 4.7% in the next year is very commendable, considering the tightrope the finance minister has to walk. Overall it was a good job by the finance minister.

EQM: What kind of signal does the budget send out to Tata Power?

Mr. Kanga:  It sends out a very positive signal. It clearly shows that the country needs power and the FM is very keen for development of the power sector in India. He has in fact said that the power reforms bill will be introduced in the current session of parliament, which underlines the government’s determination for pushing reforms.

The benefits of extension of 80 IA till 2006 will also accrue to Tata Power, especially to the new power plants we are setting up in Belgaum, Jojobera and Wadi. The extension of section 80 IA benefits to telecommunications will also help Tata Power, considering our bandwidth and telecommunication plans.

Reduction in the corporate and the dividend taxes will not really benefit the shareholders directly but the benefits will be passed onto our customers in the form of lower tariffs. We have worked out that the combined benefit of lower dividend and corporate tax will result in a reduction of tariff by almost 5 to 6 paise.

EQM: What are the issues that should have been addressed in this budget?

Mr. Kanga:  We were looking out for Minimum Alternate Tax (MAT) to be removed for infrastructure companies. This is because it really doesn’t make sense that on the one hand you give tax benefits u/s 80 IA, where we don’t have to pay any tax, and on the other hand to charge us MAT.

Secondly, we wanted the LNG sector to be recognised as an infrastructure industry. But he has reduced the countervailing duty on LNG from 16% to 0.

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