Direct Tax Incentives to Power Sector in India: A Case Study
| Author | Sanjiv Shankar |
| Published date | 01 March 2017 |
| Date | 01 March 2017 |
| DOI | 10.1177/0019556117689847 |
| Subject Matter | Articles |
Article
Indian Journal of Public
Administration
63(1) 104–123
© 2017 IIPA
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0019556117689847
http://ipa.sagepub.com
1 Commissioner of Income Tax, Pune, Maharastra, India.
Corresponding author:
Sanjiv Shankar, Commissioner of Income Tax, Pune, Maharastra, India.
E-mail: ssnajiv.shankar@gmail.com
Direct Tax Incentives
to Power Sector in
India: A Case Study
Sanjiv Shankar1
Abstract
The article examines in detail, as a test case, the impact of direct tax incentives
on the power sector in India. The Indian power sector is regulated and has been
the greatest beneficiary of the various tax incentives. Direct taxes foregone to
the power companies alone are estimated to be `700,000 million during the
fiscal year 2006–2007 to 2014–2015. The power companies in India have enjoyed
profit-linked tax holidays (Section 80 IA), accelerated depreciation (Section 32),
easy accessibility of external commercial borrowings and a low withholding tax
of 5 per cent on overseas borrowing. The study does a ‘three-way examination’
of the impact of the tax incentives by examining: (i) macroeconomic indicators,
(ii) firm level data and (iii) micro-indicators. The findings are that (i) there is
no evidence of any real benefits accruing to the economy either in the form
of increased foreign direct investment (FDI) flows to the sector, gross fixed
capital formation (GFCF) in the sector or commensurate growth in electricity
sector vis-à-vis other sectors of the economy or in the economy as a whole
due to the several decades of direct tax incentives to the power sector in India;
(ii) clearly, the loss of revenue from the tax incentives is real and substantial and
(iii) the financial ratios of the three power companies (National Thermal Power
Corporation [NTPC], Tata Power and Reliance Energy) indicate that they are
capable of raising resources on their own and the theory of market failure may
not apply to them.
Keywords
Tax exemption, tax incentives, tax holidays, power sector reforms, revenues
foregone
Shankar 105
Power Sector in India
Power is critical to the Indian dream of a sustained Y-o-Y GDP growth of
8 per cent for the next two decades. As of now, the total installed capacity is as in
Table 1 (Ministry of Power, Government of India).
The Working Group on Power-12th Plan (2012–2017) has projected a required
capacity addition of 75,715 MW for generation of power in India (Shankar, 2012).
Power sector is on the concurrent list of the Indian Constitution with both
the centre and the states exercising supervision and control. Central government
and state government owned enterprises have dominated the generation of power
in India with National Thermal Power Corporations (NTPC), National Power
Corporation of India Limited (NPCIL)—both public sector undertakings, being
the major players. The Power Grid Corporation (another PSU) and the State
Electricity Boards (SEBs) play dominant role in transmission and distribution.
Private players, such as the Tata Power and Reliance Energy, are increasingly con-
tributing in generation and distribution. Foreign direct investment (FDI), though
scarce, has been in the form of investments by China Light and Power (CLP) and
Marubeni Corporation, which are involved in generation.
Financing the Power Sector in India
The capacity addition of 75,715 MW as projected by the 12th Plan may require a
projected investment of `13,725,800 million during the Plan period 2012–2017
(Table 2 and Figure 1).
Table 1. Installed Capacity of Power in India
Installed Capacity (in MW) Per cent
State 86,343.5 40.77
Central 62,963.63 29.73
Private 62,459 29.49
Source: www.powermin.nic.in
Table 2. Projected 12th Plan Investment in Power in India
Centre State Private
Total Investment
required 2012–2017
(` million)
Generation 2,809,790 806,600 2,769,610 6,386,000
Transmission 1,000,000 550,000 250,000 1,800,000
Distribution 481,910 2,380,820 199,630 3,062,350
R&D 41,680 416,800
HRD 41,080 41,080
DSM & EE 74,820 74,820
Total 4,647,740 3,857,820 3,869,240 12,374,800
Source: Shankar, 2012.
Note: Table ES 16 (in ` million).
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