Budget fails to take note of stressed assets: Experts

Jaitley said the country was well on its way to achieving 100 per cent village electrification by May 1, 2018, and proposed an increased allocation of Rs 4,814 crore under the Deendayal Upadhyaya Gram Jyoti Yojana in 2017-18. 

“The progress towards 100 per cent rural electrification target by May 2018, as announced in the budget for the previous financial year, is on track and thus a higher level of funding support in the current budget is likely to gradually improve the energy demand, and the PLF (Plant Load Factor) levels for power generation entities to some extent,” Sabyasachi Majumdar, Group Head, Corporate Sector Ratings at ICRA, said. 

The government has sustained its focus on infrastructure spending, which is budgeted at Rs 3.96 trillion ($59 billion) in 2017-18, an increase of 10.5 per cent over the previous fiscal. Allocations for power in the latest budget shows an increase of 51 percent, while that for road transport, railways and shipping have gone up by 31 per cent, 19 per cent and 16 per cent, respectively. These measures are expected to trigger higher industrial activity, thus translating into greater demand for industrial power. 

“Moreover, an increased allocation for the infrastructure segment is likely to result in an increase in energy demand from the industrial sector, which has shown subdued demand in the past two-three years,” he added. However, according to a report prepared by ratings agency Crisil, overall infrastructure investments will take longer to pick up, especially given the private sector’s inability to invest due to below-expectation performance. 

“Investments have been steadily falling – to 29 percent of GDP in fiscal 2016-17 from 34 per cent in fiscal 2011-12,” the report said. Interestingly, no specific measures have been highlighted in the budget to address the issue of stressed power assets. “We would have been heartened to see a direct head-on tackling of stressed power assets. The latest Economic Survey ignited hopes by talking about a very innovative solution by creating a Public Asset Rehabilitation Agency (PARA). 

“However, while the Finance Minister talked about recapitalising the banks to the tune of Rs 10,000 crore, the Budget was silent about a direct measure to address this big challenge facing the (power) sector. Maybe, we may see a post-budget follow-on around PARA,” KPMG (India) Partner and Head of Energy and Natural Resources Manish Aggarwal said. 

On the positive side, halving of the basic customs duty on LNG from five per cent to 2.5 per cent would support stranded gas power plants. It would also help ease FDI regulations with the proposed abolition of the Foreign Investment Promotion Board and extension of concessional withholding tax on ECBs (external commercial borrowings), enabling foreign investors to pump money into the energy sector, he said.