Moneycontrol
Nov 03, 2017 04:52 PM IST | Source: Moneycontrol.com

Comment: Ease of Doing Business cheer? Not so much for India's solar sector

Speaking at the signing of a Joint Financial Partnership Declaration between ISA and European Bank for Reconstruction and Development (EBRD)

Pushing ahead with reforms on solar power Finance Minister Arun Jaitley urged more multilateral banks and global entities to join hands with the International Solar Alliance.

“More multilateral and development banks should come forward and join hands with ISA to help fulfill the objectives of massive and affordable deployment of solar power among 121 ISA member countries,” Jaitley said at the signing of a Joint Financial Partnership Declaration between ISA and European Bank for Reconstruction and Development (EBRD)

India’s finance minister is right in asking development banks to come forward in financing the costly projects. Solar power plants have a long gestation period and generally, require government relief to sustain.

This is especially true in India where companies need support right from land purchase to selling the power generated to reluctant state electricity boards. While operational hiccups need to be addressed internally government is right in tackling the fund issue first.

In order to meet the target of 160 GW of the renewable power, out of which 100 GW will be in solar power by FY22, the government will need around Rs 4.7 lakh crore of investment in the sector. Most of these funds will need to be raised internationally either through the banking system or private equity players as Indian banks are now developing cold feet with the sharp decline in tariff rates.

While the government is working on the alternate source of funds, trouble is brewing for the sector on the operational front. The government will have to find a way of making state electricity boards (SEBs) to buy the power for which they floated the tender rather than going back on their word after a new auction is done by some other SEB at a lower tariff.

Another thing the government needs to do, and on an urgent basis, is getting its act in place, specifically when it comes to taxing imports of the solar panel. Reports say customs officials have blocked more than 900 containers of panel shipments for more than a month by demanding higher import duties. This is causing delays in commissioning of the projects as well as inflating the cost. As a result of which the entire project will undergo a cost overrun with a chance of making it unviable.

The report says tax officials are equating solar panels with motors and demanding taxes at 7.5 percent as compared to nil duties for solar panels. It is only recently that imports of these panels are being blocked.

The government had proudly displayed its sharp improvement is Ease of Doing business ranking recently, but such teething problems on the ground underscore the harsh reality of doing business in India where the goal post keep shifting at the whims and fancies of every government official.
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