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What industry wants?

The fourth of a series on sectoral demands prepared by Pricewaterhouse Coopers

business Updated: Feb 27, 2008 20:26 IST


The coal sector needs reforms and now. The demand for coal is projected at 2.34 billion tonne in 2031-32, which is five-fold the current level of production. For satisfying the burgeoning appetite for energy, the coal sector needs to open up for private investments. Captive mining being the only route for private investments thus far, the results have not been encouraging. The policy permits independent mining companies to apply for coal blocks if they have firm supply contracts with approved end-users. However, this has not yielded the desired results. The end-users with no mining experience have to rely on contractors.

Project implementations have always lagged due to procedural delays. Pakri-Barwadih project of NTPC has been delayed too.

That not only delays planned production but also signals the implementation risks in coal mining sector, which may inhibit investments. The environmental and forest clearance processes should be made time bound and transparent without compromising on the quality of environmental risk mitigations.

Even the captive coal block allocation process has been slow, the last one started in December 2006 still to reach its natural conclusion. This has been primarily due to the scope of subjectivity in the process. Competitive bidding process with objective criteria can certainly help the cause.

The policy also needs to provide fillip to the clean coal and innovative technologies, including coal gasification and liquefaction. Even though such usages are classified as approved end-usage there has not been resources identified for allocation for them.

Pricing and distribution of coal can be made market oriented. Basis of pricing needs to be changed to globally accepted gross calorific values. Coal regulator may help bring in pricing accountability in the transition period from the current state to a state of vibrant markets with dynamic demand and supply forces determining equilibrium prices.

-Dipesh Dipu, Principal Consultant PricewaterhouseCoopers

With estimated investment requirements in excess of $100 billion in the power sector over the next ten years, existing and prospective investors to create a fiscal environment conducive to harness large-scale growth capital keenly await the union budget.

With captive coalmine based power projects being bid out, extension of Section 80 IA benefit to mining industry is necessary. Most competitively bid out generation projects will use imported equipment and will need to secure large-scale foreign currency financing. Relaxing ECB norms for such projects is essential for cost-effective financing.

Threshold capacity for consideration as Mega Power project (with attendant customs and deemed exports benefits), needs to be lowered and has reportedly been proposed by the ministry of power. Introduction of production-linked incentives is essential to improve focus on non-renewable generation, as opposed to mere creation of capacity. Introducing tradability in fiscal incentives has also been a consistent demand of large developers and would benefit the country by encouraging IPP-scale investments in non-conventional generation.

With over 100-giga watt of generation capacity to be added over the next ten years, it is important for India to attract and develop manufacturing setups for main plant equipment to meet this demand cost-effectively. Extending appropriate fiscal incentives for such manufacturing entities would go a long way in encouraging investments.

The franchisee model will increasingly be the way forward for PPP in distribution. The budget needs to provide means for increasing attractiveness of such opportunities for the private sector.


Shubhranshu Patnaik, Executive Director, PricewaterhouseCoopers Education

If India has to reap its "demographic dividend" and pull its people out of poverty, it has to create jobs to over 550 million people that are 25 years or younger and at the same time, match it with skills creation. Sadly, this is one area where we have lagged behind. There is already a shortage of trained manpower in the manufacturing sector.

Ramping up the infrastructure for delivery of vocational education has assumed critical importance today. If the growth momentum is to be maintained and sustained, the country needs to expand its vocational training infrastructure at all levels. While the up gradation and modernization of ITIs through public-private partnership, is a step in the right direction, the industry needs more clarity regarding the level of autonomy it can enjoy as the private partner. The government must incentivise corporate to come forward to adopt ITIs through tax exemptions and benefits and more administrative powers over staff and curriculum.

The infrastructure for higher infrastructure remains inadequate and the government must seek out partners both, within and abroad, for delivery of quality higher education. While the government's intent to establish more institutes is welcome, it would still fall far short of the demand. A policy environment must be provided which enables more private role in higher education. Perhaps it is time the Government seriously also looked into allowing FDI in education.

-Dhiraj Mathur, Executive Director, PricewaterhouseCoopers

Aviation is a crucial enabler of Indian economic activity. However, be it higher fuel costs, competition, lack of skilled labour or infrastructure bottlenecks - the Indian aviation industry has been bleeding. Air travel is no longer looked upon as the privilege of the fortunate few, and is becoming a widely used mode of transport for the fast moving Indian economy. To give necessary boost to the said sector, following amendments could be considered in the coming budget.

* Introducing the exemption on lease rentals payable to non residents, especially under a sale and lease back scheme on aircrafts.

* Tax rebate/weighted deduction for in-house training institutes for training skilled labour required for the industry.

* Introducing Investment allowance benefit for transfer of profits to reserve for further expansion purpose.

* Service tax exemption for MRO/aerospace related services with a view to bring in better servicing capabilities. A limited tax holiday for such activities may also be considered.

Further, to encourage consolidation in the aviation industry by assistance in Merger and acquisitions, necessary amendments may be made to Section 72A of the Income Tax Act for making mergers and acquisitions completely tax neutral. The above tax concessions could act as a catalyst in generating greater commercial interest in the sector, which is of paramount importance to the Indian economy at large.

-Sanjay Kapadia, Executive Director & Vishal Shah, Senior Manager PricewaterhouseCoopers

Carbon Credits
India accounts for one of the largest share of Clean Development Mechanism (CDM) projects registered with the United Nations under Kyoto Protocol. This clearly is a tribute to the Indian industry's commitment to reducing gas emissions.

The characterization of income and the tax treatment from sale on Carbon credits generated through such CDM projects does, however, lack clarity and needs to be addressed as to whether it is in the nature of business income( considering it as a normal business activity) or in the nature of capital receipt (being a right or property).

The coming Budget could consider a tax exemption for carbon credit proceeds for Indian corporate, in line with the existing exemption under Section 28 (va) of the Income tax Act for a similar eco-friendly UN program under the Montreal Protocol.

Alternatively, it may be clarified that such carbon credits ought to be eligible for the tax holiday benefit, generally, availed for the concerned project. Further, it may also be clarified that no capital gains tax ought to be levied on such proceeds.
-Sanjay Kapadia, Executive Director & Vishal Shah, Senior Manager PricewaterhouseCoopers

The most exciting phase for the Indian retail industry lies ahead. Consumers want quick access to quality products and services, thus increasing demand. On the supply side, India has witnessed a strong resurgence in organised retail, with some of India's most-respected corporate houses investing significantly towards mega-retail initiatives. Several large domestic retailers are expanding into new cities and exploring new retail formats and global retailers are either entering

India through various options or have announced plans once it is fully liberalised.

Currently, besides the franchise model, cash and carry, single-brand retail are the permitted modes of entry into India's retail sector. The growth of modern trade has multiple benefits, such as developing India's food supply chain, reducing wastage and increasing effectiveness. Opening up the retail sector to FDI will catalyze the further growth of modern trade. The entry of new companies in the retail space will also benefit the exchequer, will result in greater employment and will provide the Indian consumers with greater choice and competitive prices. The retail sector can be a great enabler in providing employment across rural/semi-urban/urban segments. It can also break the "qualification barrier" to provide adequate training and career pathing for many Indian citizens.

The retail sector needs to address several obstacles. Most major retailers are paying heightened real estate rentals and high service tax on rentals for immovable properties. Many are plagued by land conversion hurdles, delayed projects and problems with regulatory clearances. India's food supply chain is also characterised by intermediaries, lack of adequate storage, transport systems and inequity in prices. Government has to take adequate measures to overcome these challenges for the sector to reap its potential.

NV Sivakumar, Leader - retail practice, PricewaterhouseCoopers