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Budget Expectations | Refuelling And Powering The Economy

At the present level of crude price, upstream oil companies are not in a position to absorb the applicable Oil Industries Development (OID) Cess and are in the hope that the Cess may be levied at ad-valorem basis, say at 8 per cent to 10 per cent on realised price.

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"We forget just how painfully dim the world was before electricity. A candle, a good candle, provides barely a hundredth of the illumination of a single 100 watt light bulb."- Bill Bryson

The above phrase reemphasises the importance of the power sector in any economy. With the Goods and Services Tax (GST) legislation stuck in the political issues surrounding it, the NDA government looks determined to resolve a host of other pending issues and other big bang reforms to ensure that the growth trajectory is maintained. The upcoming Union Budget would try to iron out other pending issues pertaining to key sectors relevant for growth of the economy.

Infrastructure sector, including the power and oil and gas sector, should be a focus area in the upcoming budget.

Government should attempt to revive stalled infrastructure projects by providing single window clearances (which has been a long standing demand from the industry) and announce measures for revival of stranded and under-utilized power generation capacities.

Since the growth of the Indian economy, to a great extent, depends on the nation's openness and adaptability to energy security, one can also expect some innovative financing model / interesting proposals, to help revive power sector and investments in the sector. Companies are hopeful that the Modi government would allow the energy developers (not availing accelerated depreciation) to issue tax free bonds to ensure level playing field.

For the renewable sector, the expectation is a lot more now, spurred by the Government's enthusiasm and conviction to turn around the still-budding sector into a full-blown industry. India's revision of renewable energy target from 72 GW to 200 GW in solar and wind alone speaks enormously about the shift in balance from conventional to renewable. Government intends to invest more than INR 6 trillion in power sector alone by 2022. Solar power can contribute to the long term energy security of India, and reduce dependence on fossil fuels that put a strain on foreign reserves and the ecology as well.

With the government intending to meet its obligations under climate change, it is important that renewable energy sector is given a boost. The government could also explore exempting the income from sale of carbon credit should be exempted.

"The good Lord put oil and gas there for us to find and use, and we'd better do it".- Red Adair

At the present level of crude price, upstream oil companies are not in a position to absorb the applicable Oil Industries Development (OID) Cess and are in the hope that the Cess may be levied at ad-valorem basis, say at 8 per cent to 10 per cent on realised price.

India's dependency on the imported crude is an accepted fact. The government can incentivize the exploration companies and exempt such companies from levy of MAT. This will promote exploration companies in India and may help reduce India's dependency on imported crude. This will help the government plan for the future when the crude prices go up. The government may also look at re-imposing custom duty on crude oil to create a level playing field for domestic producers. Services in relation to Survey and exploration of mineral, Oil and Gas service were brought in the service tax net. As the operators and their associates in Exploration and Production (E&P) sector do not provide any taxable output service, they are not able to absorb service tax paid and have to absorb the cost. After the advent of concept of negative list, the burden of input stage tax has further increased on E&P sector. Hence, it is possible that services required for E&P sector may be included in negative list of services to reduce the cost. It will incentivize investment in E&P sector by way of reduction in capital cost.

With inputs from Jimit Devani , Director and Archita Modi, manager Deloitte Haskins & Sells LLP

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Budget 2016-17 deloitte nda government gst bill

Hemal Zobalia

The author is Partner, Deloitte Haskins & Sells LLP

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