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Budget 2012: What Can The Energy Sector Expect?

Will Budget 2012 ensure energy security

  • Ahead of the Budget, the importance of energy security has been ironically underscored by geopolitical tensions surrounding Iran, leading to big question marks over India's ability to ride out what is increasingly been touted as a possible crude shock.However, from coal to gas to renewable energy, Indian policy initiatives have been wanting. Will the finance minister finally prioritise energy security in the Budget and can he do that given fiscal space is tight? Bloomberg UTV’s Prashant Mukherjee raises some questions on the issue.

  • At a time when the country’s gas output is falling and crude supplies are increasingly getting uncertain, ensuring the energy security of Asia’s third largest economy is going to be a daunting challenge for Pranab Mukherjee as he prepares to present the crucial policy document, perhaps his last chance at unveiling a Budget that will be relatively free from the political compulsions of a forthcoming general election.The energy sector, crucial for India's energy security has been mired in all sorts of problems. Be it coal, power, oil or gas, availability and pricing have been major issues across the sector. While the prime minister himself stepped in to tackle the situation, the Budget could strengthen the PM’s initiatives with some measures of its own. Some measures could be taken outside the Budget process itself.

  • Some of the expectations are as follows:-

  • -The government may notify natural gas and LNG as declared goods which will attract 5% sales tax as it will bring in uniformity of gas pricing across states.

  •  -It may exempt LNG from 5% import duty to bring down cost of imported natural gas

  • -Extend tax benefits to the upstream sector to incentivize exploration and production activity and encourage new finds

  •  -It may also levy an additional duty of Rs 80,000 on diesel passenger cars to ensure better targeting of diesel subsidies

  • The power sector, which is in the middle of a crisis and is currently facing several hurdles including  environmental clearances and acute shortage of gas and coal for power projects, too have a long wishlist.

  •  -Exemption of Customs/Excise duty on coal mining equipment for integrated power cum mining projects

  • -Exemption of customs duty on imported coal

  • -Benefits under Section 80IA of Income Tax Act to be extended

  • -The companies are also expected to seek permission for diversion of surplus from captive coal blocks

  • The government may find it difficult to oblige the sector with fiscal incentives, but the Budget document may well lay out procedures to iron out clearance issues and bottlenecks that have so far held back this sector from performing to full potential. 

  • The government earlier took a bold step by de-controlling prices of petrol satisfying a long-standing demand of oil marketing companies, but will it be taking a bold step with diesel also? And will it be able to satisfy the needs of the entire energy sector, ensure adequate availability of resources like gas, coal and crude and all at affordable prices? Dada may have some of the answers as he rises to present the budget come March 16.

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