The Hindu Business Line : Not power-packed enough

The requirement of additional generation capacity of 66000 MW for the Eleventh Plan would entail investments of over Rs 3,00,000 crore. This necessitates measures for attracting investments and enabling low-cost financing in the power sector. The Budget has announced the following two measures for enhancing credit flows to the infrastructure sectors:

Permitting mutual funds to launch and operate dedicated infrastructure funds.

IIFCL (India Infrastructure Finance Company Ltd) will tap into the RBI's foreign exchange reserves as well as National Small Savings Fund and lend for infrastructure projects. One hopes that the guidelines for IIFCL to lend to infrastructure companies, when finalized, will provide competitive financing to meet the huge investments requirements. However, one feels that both these measures ought to have been backed by further measures in view of the large quantum of investments required in the power sector.

Expansion of the APDRP (Accelerated Power Development Reforms Programme) scheme to district headquarters and towns with a population above 50,000 is a step in the right direction.

The higher allocation to RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojna) would enable acceleration of the village electrification programme. However, this needed to be accompanied by measures to ensure that the electrification benefits reach the targeted people.

At present, a large segment of the rural population cannot afford to take connections and pay tariffs. Electrification and supplying power to consumers are in the domain of the state. With annual commercial losses running to around Rs 26,000 crore, distribution utilities may shy away from supplying power to rural consumers unless the Central/State governments have a policy to reimburse losses incurred on increased supply to rural areas.

The Budget should have extended Section 80 IA (which provides income-tax benefits for infrastructure investments), which lapses in 2010, as this would have created a favourable climate for attracting long-term investments in the sector.

The Budget does not provide any specific measures addressing the issue of cost reduction. For instance, fiscal measures, such as Section 80 IA benefits to mine developers, and policy measures on coal sector reforms, could have lowered the operational costs of utilities.

(The author is Principal Consultant, PricewaterhouseCoopers.)