Thursday, 16 February 2017


Union Budget 2017

Image Source: Hindustan Times


With India ratifying the Paris Pact on October 2, 2015, 3 (three) objectives have become amply clear. These are (i) lowering the emissions intensity of GDP between 33 to 35 per cent from 2005 levels;(ii) augmenting contribution of non-fossil fuel based generation to 40% of installed capacity; and (iii) additional carbon sink of 2.5–3 Gt CO2e through forestry and plantations. And all these targets are to be achieved on or before 2030.


As 2030 is quite far, India appears to meet these objectives through interim phases and in this way the current interim target is that of 175 GW of renewable energy capacity by 2022. To this end, India has laid emphasis on diverse areas namely (i) implementation of major programs in the field of solar e.g. Solar Parks, Solar Defense Scheme, installation of solar photovoltaic plants on canal top, solar pump etc. (ii) amendment of National Tariff Policy for electricity requiring (a) compulsory 8% power procurement from solar energy by 2022; (b) bundling of renewable power with power from plants whose PPAs have expired or completed useful life; (c) withdrawal of inter-state transmission charges for solar and wind power; (d) mandatory procurement of 100% power produced from waste-to-energy plants etc; (iii) imposition of “Clean Environment Cess” on coal and utilization of the cess proceeds for solar projects.


The ground result of these transforming steps have been impressive. Based on 2016's data, India has already achieved 4th position in global wind power installed capacity after China, USA and Germany. As on October 31, 2016, India already has 46.3 GW grid-interactive power capacity and small hydro power capacity of 4.3 GW. In terms of capacity addition, 14.30 GW of renewable energy has reportedly been added in the last 2.5 years. In addition, 92305 Solar Pumps were installed and Rs.38,000 crore worth of Green Energy Corridor is being establish to facilitate evacuation of renewable energy.

BUDGET 2017-2018

With GST's potential to increase the cost of delivered energy and at the same time need of augmenting the momentum towards renewable energy, the budget seems to be an effort to maintain sufficient attraction in renewable energy sector.  Below are the greenergy boosters which this budget proposes:

Public Investment

1.  Indian Railways is establishing pilot plants for environment friendly disposal of solid waste and conversion of biodegradable waste to energy at New Delhi and Jaipur railway stations. 5 (Five) more of such solid waste management plants to be established;

2.  It is proposed to feed about 7,000 railway stations with solar power and the project has begun with 300 stations; and

3. Initiating second phase of Solar Park development for additional 20,000 MW capacity.

Solar/Wind/Bio-Energy/Fuel Cell

1. Withdrawal of BCD (Basic Customs Duty) from the current levy of 5% on solar tempered glass used for manufacturing solar cells/panels/modules;

2. Reduction in the CVD (Countervailing Duty) to 6% from the current levy of 12.5% on parts/raw materials used for manufacturing solar tempered glass for use in solar photovoltaic cells/modules, solar power generating equipment or systems, flat plate solar collector, solar photovoltaic module and panel for water pumping and other applications, subject to actual user condition.

3. Reduction of BCD to 5% and withdrawl of CVD and SAD (Special Additional Duty) from the current levy of 7.5%, 12.5% and 4% respectively on Resin and catalyst used for manufacturing cast components for Wind Operated Energy Generators WOEG subject to actual user condition.

4. Reduction of BCD to 5% and CVD to 6% from the existing range of 10%/7.5% and 12.5% respectively on all items of machinery required for fuel cell based power generating systems to be set up in India or for demonstration purposes.

5. Reduction of BCD to 5% and CVD to 6% from the existing range of 10%/7.5% and 12.5%  on all items of machinery required for balance of systems operating on biogas/ biomethane/ by-product hydrogen.

6. Reduction of excise duty to 6% from current levy of 12.5% on all items of machinery required for balance of systems operating on biogas/ biomethane/ by-product hydrogen.

It is expected that with GST coming into force from July 1, 2017, the cost of delivered renewable energy is going to increase. At the same time, keeping Paris commitments in scene, there is no option but to keep renewable energy an attractive sector. The Budget 2017-18 appears to be a serious effort to achieve this balance.


Budget Speech by Hon'ble Finance Minister. Available at

Economic Survey 2016-17,

Sunday, 23 October 2016


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India has set an ambitious target of 175 GW of renewable energy generation on or before 2022 of which 100 GW (i.e. nearly 60%) is allocated for solar. Despite a major chunk of the targeted generation is expected from solar, however, in terms of domestic manufacturing of solar equipment, India’s show is not that impressive. The main reason why domestic manufacturing of solar equipment is being mooted becomes clearer when we increasingly understand that complimentary relationship between India’s energy import and generation infrastructure on one hand and India’s aim of controlling trade deficit on the other hand. 

From USD 43 billion during 2005 – 2006, India’s energy imports have significantly increased to USD 167 billion during 2013-14. These figures clearly spell out the strategic importance of renewable energy in India (especially solar) for which a vast potential exists in India. Solar generated power flowing through the grid has the potential to save USD 20 billion annually by 2030. Further, indigenous manufacturing can save 42 billion in terms of equipment imports by 2030. However, in absence of domestic manufacturing, solar equipment will continue to be imported adding further trade deficit.[1]

The concerns have already reached the government and corridors of PMO, MNRE, Finance and other ministries are already reported to have whispered in support of a policy for encouraging full scale manufacturing of solar equipment like polysilicon, wafers, cells, panels etc. Though the draft of the policy is not yet out in public, however, it’s quite expected that like any other policy, this policy will also specify certain threshold for distributing the incentives and what is in the air is that in order to obtain incentives under the policy manufacturing investment of Rs. 1000 crores may be required[2].

Keeping the policy aside, there will still be a number of domestic entrepreneurs who although not be in a position to satisfy the policy threshold yet continue to engage in micro level solar entrepreneurship. Micro, Small and Medium enterprises (“MSME”) are perhaps the best example which because of their statutory limit cannot exceed plant and machinery investment beyond Rs. 10 crores[3].  One of the most discussed aspect of domestic solar equipment manufacturing is job creation and potential of MSME in job creation is beyond doubt.

Now whether MSME or large scale unit, both will need capital.

1.   EQUITY ROUTE: No, it’s not as easy as receive money, issue shares and forget. When it comes to raising capital, the entrepreneur will have to walk a quite in convincing the investors that if their money remains locked-in for a given years, the entrepreneur will be able to make it attractive for the investor to liquidate with expected returns. The risk in this route is large and inherent for both the investor as well as the entrepreneurs. For investors, the biggest risk is liquidity. Being unlisted companies[4], they will have to stay invested for a given time and quality of exit will depend on the performance of the entrepreneur and the market overall. If everything goes as per expectation, third party buyers will wait in queue to bite the share, if not, then most common scene will be suspicious faces trying to take a ride at lowest possible valuation. But for an entrepreneur, the situation is bit grimmer with his/her potential to manage the show will immediately call for question in a small world.

2.  DEBT ROUTE (TERM LOAN): Term loans are often offered in the form of packages for which the borrower company has less flexibility.

3.  DEBT ROUTE (DEBENTURE): Perhaps the best in class as it allows the borrower the flexibility to structure the instrument including maturity, interest rate etc. Other major advantages of debenture route are private placement and listing them in exchanges.



Easy investing and easy liquidation are perhaps the most powerful parallel driving forces in any investment transaction. While the former allows one to time the investment, the later allows to either make profit or prevent loss. With India giving boost to solar manufacturing, early growth capital will be of high demand. With renewable energy set to dominate the future, potential of a good ROI is also quite high. In a scenario like this, private placement and debt listing perhaps will balance it out well.


Private placement??? It’s certainly not a job placement and has nothing to do with any human recruitment. Once can still say that it’s a process where an entrepreneur recruits financial capital into his/her company. To put it simply, private placement is a privately/confidentially arranged affairs to raise debt/equity fund/capital for a company. 

A private limited company cannot request (in any manner) the public at large to provide capital and hence the alternative method is private placement. Private placement is backed by Companies Act, 2013 read with Companies (Prospectus and Allotment of Securities) Rules, 2014. The process allows an entrepreneur to solicit and receive pre-determined/pre-negotiated funds by following few simplified statutory steps. 

A private placement can be best understood by the following illustration.

Assuming that there is a private limited company ABC Solar Private Limited (“Company”) where X (an experienced engineer) is the managing director and his wife Y is another director (just for statutory sake!!). The entire share capital of the Company is funded by personal savings of X and Y where X is 99% shareholder and Y is 1% shareholder. The Company has about 10 employees and is engaged in consultancy and services related to installation and maintenance of rooftop solar system. However, X has the required technical knowledge and ideas for manufacturing of small solar inverters and to start the operations 10 crores required which X and Y unable to fund from their personal savings.  X prepares a detailed project report regarding the proposed manufacturing of solar inverters and discusses the same with L, M and N who are high net-worth individuals and willing to try their luck.

1. So the process starts with designing the debentures. Designing doesn’t mean finalizing the look and feel of the debenture certificate formats. Designing means calculating the number of debentures the Company will have to issue, the interest payable, the repayment terms etc. According to Companies (Prospectus and Allotment of Securities) Rules, 2014, the face value (paper value/basic value) of such debentures should not be less than Rs. 20,000. Let’s assume that all three L, M and N are willing to fund the Company and it’s decided that Company will issue 5,000 debentures of Rs. 20,000/- (Rupees Twenty Thousand only) each with an interest rate of 10% p.a. It was agreed that L will buy 1500, M will buy 1000 and N will buy 2500 debentures.

2.  In the next step, the Company will have to convene a board meeting to approve the proposal of raising specified capital through private placement of debentures. Since both X and Y are the only directors of the Company, this will be pretty straight forward.

3.  Once the proposal is passed at board level, this will have to be passed at shareholders’ level by way of a special resolution. Since both X and Y are the only shareholders of the Company, this will be pretty straight forward.

4. Once the private placement is authorised at board and shareholders’ level, the immediate next step is to do the following activities (i) preparing invitation letters for L, M and N and maintaining their records in a specified format; (ii) preparing stock – exchange listing application and obtaining in-principle listing approval; (iii) arrange credit rating of the Company by a rating agency registered with SEBI; (iv) enter into an agreement with one SEBI registered depository participant so that the issued debentures are in dematerialized form; (v) an information memorandum containing various financial and operational information about the Company and the issue of debentures[5].

5.  Once records are maintained, then it’s time to send the invitations separately and privately to L, M and N and register the details and offer letter with the Registrar of Companies (“ROC”).

6.   As already agreed, on the given date L, M and N will submit their application form and transfer the respective amount to Company’s bank account on the given date. Normally, the allotment is deemed on the issue closing date itself else the Company will have to complete allotment within 60 (Sixty) days from receiving application money.  Once allotment is completed, the letter of allotment needs to be sent to the securities demat account of L, M and N.

7.   Now the Company will have to proceed for final listing of the debentures by submitting an application to the stock exchange and submit a return of allotment to the ROC. Since the Company has already received in-principle listing approval, final listing will not be difficult.

8.    Once listing is completed, the debentures can be freely traded by L, M and N.

TRADING ADVANTAGES: The biggest disadvantage for any investment into a private limited company is transferability and liquidity. From investor’s perspective, they will have to remain invested unless they find a suitable buyer and the transaction is approved by board off course subject to overall industry or market condition. So, unless the investor has both buyer and board in to confidence, it will not be an easy liquidity scenario. 

Contrary to that when securities are listed then the investor does not need the confidence of board to have liquidity. Willing buyer and willing seller, that’s it, transaction is completed in accordance with the exchange rules through demat and bank accounts. 

So in a falling interest rate scenario L, M and N can sell the debentures to third parties and gain substantially through capital appreciation.

DRAWING FROM EXAMPLE: A Bangalore based company Orb Energy Private Limited has raised capital through secured[6] listed debentures recently. The company is engaged into manufacture and distribution of solar equipment.[7]


[3] Please refer section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.
[4] Practically, listing of inexperienced/new ventures is rarest of rare. They will not be trusted by the market.
[5] As per regulation 21 of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008.
[6] It’s very difficult to gain investor trust with unsecured debentures. So even if regulations allow you to raise money through unsecured debentures, finding the investor is quite a challenge there.
[7] Orb Energy, Information Memorandum for Private Placement of Debt Securities;

Thursday, 23 June 2016



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With India getting ready to roll out GST (Goods And Services Tax), its quite essential to study its impact on India's most attractive sector i.e. Renewable Energy. With India aiming to generate 100 GW of Solar Power by 2022 (including a substantial from Grid Interactive Solar Power System Projects or GISPS), will GST in its proposed structure be an impediment or positive experiment? Answer lies below. 

Currently, the Constitution of India provides for the following structure of indirect taxation in India (i) excise duty on manufacturing of commodities levied by Central Government (source based); (ii) service tax on provision of services levied by Central Government (source based); (iii) central sales tax on inter-state sale of goods levied by Central Government but collected by exporting state government (source based); (iv) state sales tax/VAT on intra-state sale of goods by respective state governments (local jurisdiction base); (v) state tax on entry of goods in the particular state by respective states (destination based); (vi) other minor state taxes like entertainment tax, luxury tax etc.
Given this structure, when a commodity is manufactured, the inputs are already first taxed and the outputs are taxed again. By way of example, excise/customs duty paid at the stage of manufacture is not available for credit for the traders and vice-versa. Further, credit of taxes paid in one state cannot be availed in another state. SO THE INPUT TAX NOT AVAILABLE FOR CREDIT BECOMES PART OF COST WHICH END CONSUMER NEEDS TO BEAR.
Per the draft GST bill, the tax will be imposed in the following manner: (i) CGST[1] (to be collected by Central Government) and SGST[2] (to be collected by State Government) on Intra-State Transactions; (ii) IGST[3] (to be collected by the Central Government) on Inter-State Transactions; (iii) BCD and IGST[4] (to be collected by Central Government) on import transactions.
The main feature of GST is to ensure seamless availability of input tax credit in the supply chain and destination based taxation. For intra-state transactions the following credits will be allowed: (i) input tax credit of CGST for output CGST liability; and (ii) input tax credit of SGST for output SGST liability. Cross utilization of credit is not allowed however. For inter-state transactions, credit will be allowed in the following manner: (i) seller selling goods inter-state will pay IGST after adjusting IGST, CGST and SGST on the inputs; and (ii) the dealer in the receiving state will claim IGST credit while discharging CGST and SGST towards output.


Entry 54, List II, Seventh Schedule of the Constitution of India allows state to levy tax on sale/purchase of goods[1]. The constitutional amendment bill[2] which seeks to bring GST in to life has substituted this entry 54[3]. The same List II also has another entry 53 which is on the tax on consumption of electricity under which state governments impose electricity duty (normally added as a component in our power bill). This entry is not subsumed/substituted under GST.
Currently both solar grid-connected and off-grid projects enjoy a number of benefits through notified exemptions. For example, capital goods required for establishment of solar projects enjoy 5% BCD and no ACD[4]. Solar cells (whether or not assembled in panels) enjoy 0% BCD[5]. Capital goods required for establishment of solar projects enjoy 0% SAD[6]. Capital goods required for establishment of solar projects enjoy 0% Excise Duty[7]. Solar PV panels, inverters enjoy exemption from state VAT/CST (example Karnataka)[8].
Foundations of GST are credit fungibility and removal of exemptions. It is assumed that when GST will kick in, all these exemptions will be taken off. Further, as electricity duty may not be subsumed within the GST, the states will continue to levy the same. So overall there will be increase in the cost of delivered solar electricity.
So let’s draw a comparative table to find out how Grid Interactive Solar Power Systems Projects (GISPS) are going to be impacted after GST comes to place.
Grid Interactive Solar Power System


Proportion in Overall Project

Supply Chain Assumption

Pre-GST Taxation

Post GST Taxation



Photovoltaic Cells


Predominantly imported

No customs duty at all


Increase in CAPEX



Intra-State Leasehold

Service Tax @ 14.5%


Increase in CAPEX

Project establishment engineering and miscellaneous works


Intra-State and Inter-State

Service Tax @ 14.5%


Increase in CAPEX

Escalating Frames



Excise Duty Exempt + Concessional CST


Increase in CAPEX

Power Conditioning Device



Exempted from Excise Duty and State VAT (applicable States)s


Increase in CAPEX

Evacuation Infrastructure (Goods)


Intra-State and Inter-State

Excise Duty Exempt + Concessional CST + Concessional VAT


Increase in CAPEX

Pre-Operational Expenses (Services)


Intra-State and Inter-State

Service Tax @ 14.5%


Increase in CAPEX


Plant Operation And Maintenance


Treated as intra-state works contract

State VAT + Service Tax on 70% of the value


Impact depends on rate of state VAT
In addition to increase in CAPEX and O&M, the continuous imposition of electricity duty will make the delivered cost of energy more expensive.
The GST Model Law is already in the public domain and India has set quite ambitious target in terms of renewable energy. Accordingly, if exemptions are withdrawn due to introduction of GST, the investors are very unlikely to remain attracted to this sector. Accordingly, it is must that the exemptions available under the existing laws are maintained under GST as well to ensure India can achieve its RE target comfortably.

[1] Entry reads “Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I

[2] The Constitution (One Hundred And Twenty-Second Amendment) Bill, 2014

[3] The proposed entry 54 reads “Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods”.

[4] BCD is Basic Customs Duty and ACD is Additional Duty of Customs vide No. 01/2011-Customs, dated 6 January 2011.

[5] Vide No. 24 /2005-Customs,dated 1 March 2005

[6] SAD is Special Additional Duty vide No. 21/2012-Customs, dated 17 March 2012.

[7] Notification no. 15/2010-CE dated 27 February 2010.

[8] Notification No. No. FD 71 CSL 2015 Dated: 1st August, 2015.

[9] Proposed Rate is 20%. BCD is expected to be out of GST so BCD exemption will continue.

[10] Proposed Rates are 10% each for CGST and IGST totaling 20%.

[1] Central Goods And Services Tax.

[2] State Goods And Services Tax.

[3] Integrated Goods And Services Tax.

[4] For Services its only IGST.