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'Power sector must be given incentives, direct benefits'

Last updated on: February 12, 2010 19:17 IST

"This Budget needs to come up with measures that balance the high inflation and sustainable growth. The continuing fiscal problems and revenue deficit will force the budget to take stringent revenue making measures including looking at introducing or extending the stimulus packages to boost revenues," said G Bala Reddy, chairman and managing director, ICSA India.

"Similarly, restructuring, expenditure control measures must also be closely looked at to control deficits. The balance is a serious challenge during the times when the country's growth is pegged at 7% plus. Finalizing tax reforms, private sectors incentive schemes in priority areas and measures to boost exports would have to be watched in this budget," he said.

"Infrastructure development in a few key sectors of the economy is the main growth driving force which needs heavy investments that creates sustainability. Such deployments should encourage public-private partnerships but with a lot of caution and a clear policy demarcation that will benefit the private sector in the medium term," he added.

"Power sector being one of the key sectors of the economy should be focused through a combination of incentives and direct benefits. India is in dire need for strengthening the power transmission and distribution sectors. More so, the distribution sector which needs to be strengthened in two ways: a) upgrading existing ailing infrastructure & building new infrastructure for expansion in both rural and urban sectors; and b) strengthening the distribution by introducing technology into the network. This should be an ongoing exercise not just limited to a specific 5 year plan," Reddy said.

Reddy expects 4 levels of benefits /incentives to boost the sector, as explained below:

a) Special Tax benefits must be provided for companies engaged in R&D producing high-end technology and offering power technology/solutions, since this ultimately results in increase in revenues for the government.

b) Tax incentives must be extended not only to companies owning the power assets but for companies who are directly engaged in creating and deploying those assets. Only then the entire value chain will be sustainably developed. This is essential because infrastructure is a low margin business and huge turnaround time coupled with long sales to cash cycles. This phenomenon pushes companies to carry huge debts which hamper growth. Tax breaks for companies engaged in these operations will help grow faster with healthy operations.

c) Similarly, this growth drive will give rise to inorganic opportunities like mergers and acquisitions and therefore the government should consider benefits for companies/ promoter's who sell off or merge into other entities which will help consolidation and boost the sector.

d) Due to the visible gap in target Vs actual capacity additions in all 3 sectors of power industry and resultant investment requirement for the next 7- 10 years, power sector also needs to be incentivized by giving tax benefits for 10 years be it in generation, transmission or in distribution much similar to that of IT industry which enjoyed 10 yr tax exemptions. This not only creates visibility to existing players but brings in new players while opportunity for investors to deploy more capital will be enormous.

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