Implications of ending the concessional regime of Mega Policy

An analysis of the likely impact of the government`s move to do away with the fiscal benefits allowed to large scale projects classified as Mega-power projects reveals the following:The incentive to develop larger projects would be reduced, although not eliminated entirely, since the economies of scale would still emanate to commercial power generators. In addition, the 10-year tax holiday will still be applicable. We might, however, see a larger number of smaller projects, bucking recent trends. 

BHEL and other equipment majors that have set up domestic manufacturing facilities will benefit in the form of augmented order books, as cost differentials between foreign and domestic manufacture would disappear with the imposition of duty across the board.Domestic manufacturers, in the face of reduced competition, are less likely to innovate.This, however, may be rendered moot, over time, by more foreign manufacturers setting up shop in India, attracted by the immense potential of the Indian power sector. Input costs for power projects are likely to go up, in proportion to applicable duties, translating into higher overall tariffs.

The ongoing capacity addition programme and projects in the pipeline are unlikely to be affected, since the government is expected to communicate a pertinent exemption clause.Overall, in the medium to long run, the Ministry of Power`s `Power for All` programme is likely to be affected negatively, due to increased costs and less affordable power.