08 Feb 2020 15:48 IST

Budget aims to boost power sector, revive consumption demand

Higher allocation to electricity generation, especially renewables, is a big positive

The Union Budget 2020 presented a focussed take on revival of the consumer segment to put consumption demand back on track. The proposals encompass the government’s push towards the creation of robust agricultural infrastructure and aims to revive the MSME sector through local manufacturing and GST simplification, which is expected to lead to an increase in credit flow and upliftment of investment in the economy.

The Budget seeks to strengthen the grassroots of the economy with its positive push towards agriculture infrastructure development, which will propel India's rural sector. Alongside, with the cuts in personal income-tax rates, it seeks to increase disposable income in the hands of the consumers, which will enhance consumption through improved purchasing power. FMCG companies have welcomed the reduction in I-T slabs and agree that the pivotal focus on rural development will push up overall consumption. These two positive budgetary interventions are together expected to drive strong demand growth that will propel the economy, along with a rise in employment generation.

Another aspect that has been emphasised is a crucial core sector of the economy — the power sector. With the Paris Agreement and greater attention being given to renewable sources of energy, the budgeted allocation of ₹22,000 crore for the development of power projects, especially in the renewable sector offers a positive perspective.

Amendments in the Electricity Act, replacement of conventional energy meters with smart prepaid meters in the next three years, and solarisation of agriculture pumps under the KUSUM (Kisan Urja Suraksha evam Utthaan Mahabhiyan) Scheme will surely add to the convenience of consumers and commercial users. The major plight of the power sector is the non-payment of contracted amounts by distribution companies (Discoms) and energy generators. The Budget has taken into account this issue and has revamped the Uday Scheme to revive ailing Discoms and announced the creation of a fund to clear such dues to renewable plants.

The Centre also plans to achieve 175 GW of clean energy installations, giving a boost to the renewable energy players. The MNRE (Ministry of New and Renewable Energy) has received a budgetary allocation that is 48 per cent more than the last fiscal’s. The KUSUM Scheme for farmers will aid the adoption of solar power for agricultural processes and generate revenue from unutilised land.

The current forecast on the consumption side depicts that the Budget has accurately measured the requirements and has taken the necessary steps to revive the consumer segments and MSMEs to a great extent. After all, these segments are proving to be significant contributors to the development of the economy. The optimism is palpable as the Budget aims to activate the rural, financial, entrepreneurship and infrastructure sectors and provide the much-needed thrust to growth drivers. It is hoped this will also result in an improvement in investor and consumer sentiment in the coming fiscal year.

(The writers are in their Second Year PGP at IIM Shillong.)