Election year budgets in India are not really known for fiscal discipline. Unusual are those budgets as well, which are Interim with a large focus on infrastructure augmentation. The interim budget for the fiscal year 2024-25, unveiled on February 1, 2024, qualifies for both the above. Interim Budget at pre-election stems from the confidence of the present Government to return to power for the third time and also being conscious of its defeat in 2004 despitemass hysteria The nature and decision of the Interim Budget are likely to build in-turn confidence with business and economy, which yearns for policy certainty and swift decision making.
In a time, when global geopolitics is facing growing turmoil, increased conflicts, and weakening economies, India needs to seize the moment especially when the next decade is now being touted as India’s decade. A steady and resolute approach to governance, with a clear focus on sustainable development, is the key and we discuss Interim Budget at its core on Infrastructure.
The Finance Minister, through the Interim Budget, has brought focus to infrastructure augmentation through fresh railway corridor to push efficient logistics, port connectivity, renewables, EV, and aviation. Other key aspects of the Interim Budget are extension of sunset dates, maintaining tax rates, and focus on sunrise domain, thereby aligning the ambition of growth and disruption in AI, machine learning, clean mobility and green energy among others. If leading economies are to be studied, robust infrastructure serves as the cornerstone of economic stability.
Conscious effort to further renewable energy takes centre stage to address India’s energy security. The ambitious rooftop solarization program, which aims is to empower 1 Crore households, claims to address substantial savings for households and foster employment. Pivotally, what remains to be seen is its implementation, especially in the wake of similar roof top initiatives not gathering steam in the past. While REC aims to catalyse deployment of roof top projects in the country, lack of awareness and enthusiasm is a key concern and participation rates have been below expectation. What needs to be addressed is the ease of installation, controlling power outages, net metering, subsidy / financing options and awareness campaign. A systemized approach of information dispensation should happen at a consumer level through a load wise pre-estimated financials. Ethanol eagerness and hydrogen hurry is evident. Emergence of neo-middle class has amplified mobility sector and car sales are booming when seen YoY. Flexi-fuel technology through 20% ethanol blending wishes to better its foreign exchange savings when compared to last year (INR 24,300 Cr in Ethanol Supply Year 2022-23). However, Government needs to bear in mind that its road map of ethanol through surplus food grain production / excess stock / central pool stocks is modulated in real time to address concerns such as food security/ climate shocks / unhappy sugar cane farmers and sugar processing industry.
While in the wake of lower sugar cane production (in 2023)/ lower availability of molasses based feed stock among such other factors increases reliance on maize / rice based ethanol as an alternate. However, with sugar cane based ethanol being around 75% of the total ethanol production, rice and maize based ethanol production and its efficiency / sufficiency remains to be seen. Dynamics at play is also sugar pricing in the election year. Similarly, green hydrogen is also the new kid on the block and Government aims to achieve its green energy goals by augmenting its allocation from Rs. 297 Crores to Rs. 600 Crores in the Interim Budget.
Coupled with this, Indian companies like Reliance Industries Limited (RIL), Adani Enterprises, etc. are also leading the green hydrogen revolution, with a mission to adopt the cleanest form of energy in the world. In the wake of this, there is anticipation of dedicated allocations for specialised infrastructure for green hydrogen to reduce costs and enhance accessibility towards India’s transition towards clean energy.
EVs have gathered great momentum in last few years as an alternate to conventional vehicular transport. It is bound to push battery innovation/production and systemize electric vehicle infrastructure. This is in continuation to Fame II Scheme, where the Government had incentivized sale of EVs with subsidies to the tune of 5000 Crore till December 2023. The Government push has resulted in increased consumer confidence as EVs has seen 114% YoY growth between 2022 to 2023. With the Production Linked Incentive (PLI) Scheme for ACC battery storage to enhance India’s manufacturing capabilities and exports, promoting EVs as an effective alternate is a positive step. However, state government linked fast charging station infrastructure across all states (avoiding inter-departmental delays) and viability gap funding / green fund will boost the sector further.
Energy security has seen its fair share of controversy in the last year owing to Ukraine -Russia war, with Europe being the centre of this crisis. Considering that the middle east is now facing a critical conflict in addition to Ukraine-Russia conflict, India needs to have its share secure to in-turn protect its investment in railways, ports, and housing, which needs constant supply of reliable energy. Indian extending its LNG imports (@ USD 78 billion) from Qatar by another 20 years at a reduced tariff / lower price is a significant step. Government informs that this is a saving of USD 6 Billion.
Notably, the FDI inflow in the country has doubled during the period of 2014-2023 and India is likely to gather more momentum in the year 2024 as an output of past and current schemes / incentives. However, such momentum falls when it faces headwinds in the form of Central / State governments not ensuring policy certainty, which formulates the core of reasoned decision making by domestic and foreign businesses / sovereign governments to invest in India. In the recent past, certain state government(s) have acted in absolute contradiction to the central government renewable initiatives, leading to multiple high stake disputes causing anxiety and uncertainty amongst biggest renewable generators in India (including their investors).
Similarly, the central agencies / executive must implement the policy decision with the intended purpose reducing unwarranted disputes. Significant attention of the Government is also required in timely appointments of judicial / financial / technical members in regulatory forums, for lack of it creates institutional vacuums and prolonged contests between parties, which is antithetical to projected growth. Hopefully, we will see the Full Budget dovetail what remains and Government ensuring effective operations of the regulatory forums.
Written by Shri Venkatesh, Managing Partner and Shryeshth Sharma, Partner, SKV Law Offices