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Solar industry disappointed, expected solar bond fund

business Updated: Feb 28, 2011 21:32 IST

Finance Minister Pranab Mukherjee has embedded a slew of fiscal incentives and budgetary support for green measures in the union budget 2011-12.

He announced the reduction of customs duty on solar lanterns to 5% from the existing 10%, to boost the use of green technologies.

Further, he noted that basic customs duty on a "few more inputs used in the manufacture of solar modules or photo voltaic (PV) cells are being reduced to nil". But the niche industry feels that the government should actually do something to move the needle, literally.

According to the industry experts, reduction of customs duty is not of much use. “Reduction of customs duty will not play a major role because as per the national policy, there are several restrictions on solar imports. So, the manufacturers are not relying entirely on imports,” said Pankaj Sehgal, MD, Sun group.

Moreover, duty has been reduced only on some of the components of solar modules or PV cells. “ Customs duty exemption for toughened glass and silver paste, which are major inputs for the manufacture of solar PV modules, is a welcome step. However, the duty on overall solar components, specifically those required for solar thermal such as mirrors, receivers, and solar turbines, still continues which could have been addressed,” said Rajesh Menon, Senior Director, CII, an industry body.

The increase in the Minimum Alternate Tax (MAT) to 18.5% is, again, a disappointment for a sector still in the infancy stages.

“It only hurts the thin returns of the local manufacturers. We are on the verge of getting recognised as an organised sector but the jump in the tax could hurt our little margins and survival ” added a local manufacturer, Ankur Puranik, CEO, Om Energy Savers.

The industry is echoing the same sentiments, but, is also encouraged by the reduction of tax on returns through the infrastructure bond fund.

The finance ministry is encouraging foreign funds to invest in infrastructure by reducing the tax they would pay on their returns. “In solar, funding large-scale deployment remains a hurdle and such infrastructure bond funds can help,” said James Abraham, CEO, SunBorne Energy.

However, the sector expected to see a facility of debt financing for solar projects coming under the priority sector of national banks.

“Also, industry would have liked the government to set up a solar bond fund for supporting large-scale deployment of solar plants to facilitate debt financing for solar plants” said Menon.