April 2015 | Vol 2 | Issue 6

inside

03

Focus: Why India is

focusing on renewables

07

Viewnder:
Land Acquisition Bill

08

Viewnder:
Insurance Bill

09

Analysis:
Public
Round-up
How
GST Affairs
can boost
Indias retail sector

VIEWPOINT
Why renewable energy? Why now?
Ashraf Engineer
Vice-President Content & Insights, MSLGROUP in India

What does the dependence on a single natural resource

for energy generation mean for India? The answer: The
difference between a functioning, robust economy and a
struggling one.
Just over half of Indias energy is generated by coal-fired
plants. With energy demand likely to rise from 700 million
tons of oil equivalent (mtoe) to 1500 mtoe by 2030, and coal
supply proving to be erratic, India is staring at an energy
crisis.
Recognising this, the government has stepped on the gas to
diversify the source base and establish a renewable energy
paradigm. Roughly 400 million Indians dont have access
to electricity and the countrys plants are not operating
even close to full capacity. With climate change being an
additional worry, the push for renewables couldnt have
come sooner.
With solar power prices falling, it is clearly the focus of the
push. Wind is another priority area. Ambitious targets have
been set but the plan has its flaws. Critics point out that
innovative funding models are required, so are tax incentives.
However, there is neither a roadmap for financing this task
nor investment and manufacturing incentives other than
some excise reductions. Clearly, India has a way to go.

e ashraf.engineer@mslgroup.com

It is this national priority that the latest edition of this

newsletter shines a light on.
To get growth back on track, there are two other landmark
legislations that the government has on the front burner
the controversial Land Acquisition Bill and the Insurance
Bill. Both have been the subject of intense debate. While
industry has lauded both of them, critics say the bills would
have an adverse social and economic impact.
Similarly, the Goods and Services Tax (GST) finds itself at
the centre of a political storm. A consensus among the states
on it was elusive even as the government committed to
implementing it next year.
We put these three landmark legislative pushes under the
microscope.
What will they mean for India and will they help achieve the
economic resurrection the country needs? Read on to know
what our experts think.

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Public Affairs Round-up

FOCUS
Why India is focusing on renewables
Nirav Khatri
Manager - Research & Insights, MSLGROUP in India

e nirav.khatri@mslgroup.com

Indias energy security is more of an imperative than ever before,

especially given the uncertainty around coal production. A little
over half of Indias energy supply comes from coal-fired plants.
The McKinsey report India Towards Energy Independence 2030
estimated that energy demand is likely to rise from 700 million
tons of oil equivalent (mtoe) to 1500 mtoe by 2030. However, the
struggle to increase coal supplies to meet the growing need is
worsening the fuel crisis in India the third largest emitter of
greenhouse gases, after China and the US.
India, therefore, needs a thrust on power through renewables,
which currently contribute a meagre 13% of the total 259 GW of
installed capacity. Debasish Mishra, senior director, consulting,
Deloitte Touche Tohmatsu India, told LiveMint.com: Given an
ever-growing demand for energy and over-reliance on coal-based
thermal power, any other alternative source of energy helps India.

Why renewables?
The Make in India initiative is a precursor to the push for
renewables. This ambitious project cannot be successful
without 24x7 power supply to industrial units across the
country, which looks dubious at the moment due to the
below-normal capacity utilisation of thermal power plants.
Energy availability could be make or break for manufacturing
and employment creation for the 13 million youths entering
the job market every year.
The government also realises that foreign investors will stay
away unless infrastructure bottlenecks are not resolved
energy being the prime one.
Apart from the erratic supply, roughly 400 million Indians
have no access to electricity. Focus on energy generation
through renewables is vital to diversify the supply base,
reach every household and reduce dependence on coal.
Traditional power plants spew billions of tons of climatechanging carbon dioxide into the atmosphere. A recent study
of 47 coal-based thermal plants by the Centre for Science
and Environment found that not only are Indias power units
are among the most inefficient in the world, they operate at
an average of only 60%-70% of their installed capacity.

Despite international pressure, there was no emissions cut

target for India, unlike China. India insisted on managing
climate change through clean and renewable energy using
efficient technology.
Total renewable installed capacity (December 2014)

Source

Capacity (in GW)

Wind

22.46

Solar

3.06

Small hydro

3.99

Biomass

1.36

Bagasse cogeneration

2.8

Waste to power

0.1

Total

33.77

Source: Ministry of New and Renewable Energy

Public Affairs Round-up

FOCUS

Focus on solar and wind

Solar radiation is an important input for power generation
and, though India gets twice as much sunshine as many
European countries that use solar power, solar contributes
just 1% to its energy mix. The time is ripe to harness this
abundant free resource also because equipment costs are
falling the US solar cell price fell to $0.6/watt in 2014 from
$0.75/watt in 2013, with Chinese models available at $0.5/
watt.
Though the cost of generating power using photovoltaic
cells has come down from Rs 20 per unit to Rs 5.50, it needs
to be reduced further for large-scale implementation.
The initial target of 22 GW of installed solar power
capacity has now been revised to 100 GW by 2022; India is
envisaging ultra-mega solar power projects with a capacity
of up to 4 GW.
Prime Minister Narendra Modi was an early proponent of
this initiative in his home state, Gujarat. The state became
the first to announce a solar policy in 2009. Modis home
turf with an installed capacity of 929 MW of the total 3.06
GW remains the undisputed leader among Indian states,
followed by Rajasthan and Madhya Pradesh. Naturally, Modi
wants to extend this to the rest of the country. Consequently,
solar equipment manufacturers said they were willing to
commit $200 billion to kickstart Indias renewable energy
push.
With an installed capacity of 22.4 GW, India is the fifth
largest wind power producer in the world after China, US,
Germany and Spain. However, its significance has been
overshadowed by solar projects in recent years. Wind energy
generation suffered a setback in new installation capacity
after the benefits of accelerated depreciation were ended in
2012-13.

Taking note of this, immediately after coming to power,

the Modi government restored the benefits. Clubbed with
generation-based incentives, wind power is getting a serious
boost. However, the plant load factor which measures
average capacity utilisation is a worry due to the uncertain
wind velocity.

Road ahead is no cakewalk

Expanded targets to be achieved by 2022

Source

Capacity (in GW)

Solar power

100

Wind power

60

Bio-fuel plants

10

Small hydro power

Total

175

Beginning this year, the ministry announced plans to

add 175 GW of renewable energy by 2022. This includes
100 GW of solar at a cost of $100 billion, 60 GW of wind
energy, 10 GW through bio-fuel plants and the rest in small
hydel. These ambitious targets have made India a fastgrowing market for photovoltaics with demand for solar
power reaching 3.2 GW this year. However, experts feel that
this is aspirational and achieving 100 GW will require a
compounded annual growth rate of over 50% over the next
eight years, overtaking market leader Germanys industry
growth and maturity a tall order.
However, there is neither an explicit roadmap for the
financing of this task nor investment and manufacturing
incentives other than excise reduction on round copper
alloys and tin alloys for photovoltaic ribbons.

Public Affairs Round-up

FOCUS
Speaking to Forbes India, Anish De, partner - infrastructure
and government services, KPMG in India, said: Unlike
rail and roads, tax-free bonds have not been specifically
proposed for renewable energy.

Typically, evacuation is a major challenge for wind project

developers due to the unavailability of the grid around farm
sites in remote areas. The green energy corridor aims
at synchronising electricity from renewable sources with
conventional power stations in the grid.

There are indirect benefits in the form of doubling

of coal cess from Rs 100 to Rs 200 for every ton
of coal mined or imported, the proceeds of which
will fund renewable energy projects through
the National Clean Energy Fund. It is expected
that coal cess can amass Rs 14,000 crore in
2015-16 and Rs 20,000 crore by 2019-2020 not
enough to finance the ambitious targets. India
needs to emulate the US and China to make
this programme successful. For example, these
nations have issued green bonds to lower interest
rates to finance renewable energy projects.

Another obstruction is non-availability of water for

generation of solar power using photovaltiac (PV)
technology. Non-availability of water mainly due to the
unpredictable monsoon or lack of irrigation can impede the
development of colossal solar PV parks in arid regions.

Blame the constricted transmission system for the fractured

capacity during peak demand. The grid faces difficulty in
absorbing renewable electricity because of varying voltage
and supply. The expanding renewable capacities will
demand an equal and unhindered evacuation of power to
regional and national grids.

India must also explore the possibility of sourcing renewable

energy through tidal currents using undersea turbines. They
operate similarly to wind turbines; however, unlike the wind,
tides are more predictable and the power input is constant.
Technically, a marine turbine blade needs to be only a third
of a wind generator and is capable of producing three times
as much power.
Though the Budget addressed the issue of continuity the
doubling of clean energy cess is a step in the right direction
more clarity is needed on incentivising manufacturing of
renewable energy components. This is a modest beginning,
but more follow-up action is required to make it impactful.

Public Affairs Round-up

INFOGRAPHIC
India needs renewable energy

$300 billion

Rs 5.50

Estimated energy import bill by 2030.

Crude oil, natural gas account for 80%
and 18% respectively of import
requirements

Cost per solar power unit.

Decline from Rs.20 per unit
convinced government solar
energy was viable

50%

Compounded annual growth rate

needed over 8 years to achieve
100 GW of solar energy generation,
up from 3 GW now

` 43,000
crore

Why does
India need to shift
to renewables?
Power demand outpacing supply. Most of
Indias energy comes from conventional
resources coal, petroleum, natural gas. Shift
to renewables will reduce dependence on them

India needs to
reduce its energy
import bill

Draw up roadmap for financing

to encourage private investment
in the sector
Manufacturing and investment
incentives will propel fabrication of
equipment, parts

How viable are

green sources?
Fixed cost of setting up a solar plant of one
megawatt capacity, as per Gujarat Energy
Research and Management Institute, is Rs 3.5
crore; it used to be Rs 15 crore

Harnessing abundant
inputs like solar radiation
and wind will help achieve
energy security

What should
India do now?

Investment in green energy

corridor to facilitate flow of
renewable energy into
national grid

Cost per solar power unit fell

from Rs 20 to Rs 5.5. Further
reduction possible

How would
India benefit?

400 million without electricity today; they could

be brought within the power umbrella
Huge savings due to reduced import bill;
fiscal deficit would shrink
Make in India would be a success,
providing jobs and boosting economy

Public Affairs Round-up

VIEWFINDER
Land Acquisition Bill all is not well
Nirav Khatri
Manager - Research & Insights, MSLGROUP in India

e nirav.khatri@mslgroup.com

The central government was grappling to get the Right to

Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill (Amendment) Bill
2015, popularly known as the Land Bill, passed in the
upper house of Parliament. The Opposition was simply
unwilling to relent on the consent and social impact
assessment (SIA) clauses in the amended version at the
time of writing.

Why is this bill so important?

Consequences

Hurdles related to land acquisition environment clearances,

red-tapism and other bureaucratic procedures are serious
systemic issues that have hurt the business climate, often
keeping investors away. Through this law, the government is
trying to simplify procedures and underscore its pro-industry
image.

An SIA is a barometer of whether the proposed acquisition

serves a public purpose, it projects the number of families
affected and provides alternatives to the displaced. Without
an SIA, only the land owner would be compensated since
the mechanism used to track the dependence of others on
the land ceases to exist. It may also endanger food security
as fertile land could be acquired.

Without the clauses

The ordinance expanded the list of projects exempted
from the two clauses to include five new categories
national security, defence, rural infrastructure (including
electrification), industrial corridors and housing for the poor.
This means that the mandatory 80% consent clause in those
five sectors will no longer be applicable on land acquired by
the government or public/private enterprises.
This has not found favor with the Opposition. Bypassing the
SIA provisions, it claims, destroys the roadmap for effective
resettlement and rehabilitation. Stakeholders argue that the
transaction cannot be equitable as the ordinance aims to
expropriate land rather than acquire it. The Campaign for
Survival and Dignity, a national platform of tribal and forest
dwellers organisations in 10 states, alleged that the bill has
many loopholes favouring industrialists and commercial
interests.

Outrage
Experts slammed the government for failing to address
stakeholders farmers and farm labourers concerns. When
the government realised that resistance to the ordinance
was real, it decided to connect directly with farmers. Other
stakeholders, such as labourers and other affected families,
were not allowed to participate in the process.

Flipside
The government has tried to maintain equilibrium by
including 13 thus far excluded laws under the Land
Acquisition Act. This includes the Coal Bearing Areas
Acquisition and Development Act (1957), the National
Highways Act (1956), the Land Acquisition (Mines) Act
(1885), the Atomic Energy Act (1962), the Indian Tramways
Act (1886) and the Railways Act (1989). With this,
rehabilitation, resettlement and compensation provisions
will be applicable for the 13 existing central pieces of
legislation. So far, land could be acquired under these acts
and there was no uniform central policy for rehabilitation
and resettlement.

Public Affairs Round-up

VIEWFINDER
What the new insurance Bill means for you
Amrita Choudhary
Associate Director Content, MSLGROUP in India

Recently, the Rajya Sabha passed the Insurance Laws

(Amendment) Bill 2015, raising the limit on foreign direct
investment in Indian insurance companies to 49% from
26%. The industry cheered the move, but it is important to
note that the Bill has implications for policyholders as well.
For the Narendra Modi government, this is in keeping with
its agenda of pushing hard for economic reform.
Ironically, the Bill had been pending in Parliament since
2008, opposed by Modis own Bharatiya Janata Party when
the United Progressive Alliance was in power.
Indias insurance market is growing exponentially but has
a long way to go in terms of reach. A vast majority of the
population is outside its ambit. With more players coming in
and investments being pumped into the system, the industry
could undergo a significant transformation.
The Bill is likely to benefit several foreign players, such as
Prudential, Metlife, Allianz and Standard Life. They could
now look at not only expanding their businesses, but also
getting better returns on investments. Some Indian firms
like Max India, Religare and HDFC Standard Life Insurance
could expect to draw funds and widen their reach.
It would be interesting to see how Life Insurance Corporation
(LIC) of India which controls more than 65% of the
market copes with the change. Once the market gets more
aggressive, LIC and other state-run insurance companies
could feel the heat. However, some experts believe that in a
sector like this people like to play it safe and stick to the tried
and tested.

e amrita.choudhary@mslgroup.com

The insurance sector is expanding in several segments like

health, directors and officers liability, and reinsurance.
However, the current Insurance Act, 1938, does not cover
these directly. It is time for a relook at the regulatory
mechanism.
Theres a lot in it for consumers as well. Greater investment
from global firms would bring in advanced products,
improved technology and a marked difference in service. The
new Bill ensures greater transparency, facilitating informed
choice. It also offers greater accessibility to consumers
by giving them options to pay premiums in installments
and makes legal recourse more accessible. Currently, the
collection of premiums in installments is restricted to health
insurance. Extending this to other sectors would spawn
diverse products, making it a win-win situation for both
stakeholders.
The Bill also proposes an independent grievance redressal
authority that would have powers on par with that of a
civil court. Composed of judicial and technical members,
it is bound to strengthen the redressal of policyholders
complaints.
By introducing a cap on agents commissions, the Bill
ensures that there is a check on misselling. As of now,
agents benefit through a host of perks including
international trips offered by insurance companies to sell
more. This drives them to push products that consumers
dont need.
Critics, however, believe the government cracked under
pressure from industry to open up the market. Unfortunately,
the global economy is not at its healthiest so whether foreign
players hurry to pump in money is far from certain.

Public Affairs Round-up

ANALYSIS
How GST can boost Indias retail sector
Daylon DCruz
Associate Account Director, MSLGROUP in India

e daylon.dcruz@mslgroup.com

As Finance Minister Arun Jaitley presented the Union

Budget, kickstarting the rebuilding process, retailers
watched keenly. They were looking for a pro-growth
Budget that would promote the Make in India initiative,
facilitate skills development and tease the demand
dividend out of consumers.
India, with more than 12 million retail outlets employing
over 33 million people, could do with the speedy
introduction of the much-delayed Goods and Services
Tax (GST). The GST is a uniform tax applied nationally,
replacing all indirect levies of central and state
governments on goods and services.

Role of GST

Transforming supply chains

Under the present system, taxes on services cannot be offset

against taxes on goods. Retail being a service industry has
to pay service tax, despite paying taxes the manufacture
of the goods it sells. GST is expected to not only solve the
problem of service tax, but also reduce other tax-related
complexities through a uniform State GST.

Besides simplifying the system and lowering the cost of

business, GST calls for a fundamental redesign of supply
chains. It will affect how companies operate, presenting
significant opportunities for long-term revenue and margin
improvement.

It would impact retail positively by reducing payments on

services, real estate rents and other service-related activities.
The benefits will percolate upstream to manufacturers as
well. GST can help retailers reduce the snowballing impact
of taxes.
Depending on the final GST base and rate, there will
be a significant redistribution of tax across goods and
services. Goods currently subject to both central and state
taxes should see a net reduction in tax and an increase in
consumer demand.

For instance, under the current tax structure, supply chains

are designed to minimise the burden of Central Sales
Tax (CST) through distribution centres in states where
consumers are located. They are sub-optimal from a strategic
and economic perspective. The elimination of CST will lead
to the optimisation of supply chains, enabling companies
to reevaluate procurement patterns, distribution and
warehousing.
Retail apart, according to the National Council of Applied
Economic Research, implementing GST would boost Indias
economy by 0.9% to 1.7%. At a time when growth has taken
a hit, experts said a simplified tax structure could be the fuel
required to put it back on track.
A well-designed GST would make India a true common
market, giving manufacturing the required boost,
encouraging local production thus tying in to the Make in
India agenda and limiting the scope for corruption.

Public Affairs Round-up

ANALYSIS
Impact
A unified GST is an economically efficient solution even
for multinationals, which have to compete with companies
in the unorganised sector, as it simplifies the indirect tax
structure to one general rate to be paid by all companies.
Under the GST structure, every company gets a deduction
on taxes already paid by suppliers. That results in every
buyer ensuring that his/her supplier has paid up.
To put things in perspective, let us assume there is a cloth
manufacturer that procures raw materials at Rs 5 crore per
batch. The manufacturer keeps his operating profits at Rs 1
crore and encumbers a processing cost of Rs 50 lakh. The
flow would look something like this:

Calculation based on tax @10% for easy computing

550+50
+100 =
700 lakhs

100
lakhs

Selling
Price*

50
lakhs
500
lakhs +
10%Tax

With GST, the total tax the producer pays is Rs 70 lakh.

How?
The producer had initially paid an input tax of Rs 50 lakh.
Now when he sells his batch for Rs 7 crore, he gets a tax
credit of Rs 50 lakh. Thus, he pays Rs 20 lakh in the form
of taxes for the final transaction. This adds up to just Rs 70
lakh for the producer.
The GST, hence, reduces the tax burden on producers. The
biggest benefit of such a system is that it would contain
various indirect taxes currently levied on various participants
of the supply chain. Reducing such taxes would lower overall
production cost and increase the output of the economy in
the long run.
GST would be one of the most significant fiscal reforms
of independent India. It is expected to result in a major
rationalisation and simplification of the consumption tax
structure at the central and state levels.

Profit
margin
Processing
costs
lu
Va

Procurement
of Raw
materials
lue
Va

10

*Sum of the
total value of the
product and
profit margin

If we calculate the total tax that the manufacturer has

to pay currently, it would be Rs 1.2 crore (Rs 50 lakh on
procurement and Rs 70 lakh on sale).

eo

e
f th

Pro

du

ct

uc

of

rod
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th

Public Affairs Round-up

BACK OF THE BOOK

Rs 171,000 crore
Finance from state-run banks to set up green energy
projects over the next five years

Twitter board

116
Indias position in the global internet speed rankings,
according to an Akamai Technologies report for Q4
of 2014. The average connection speed in India is
2MBPS; Chinas is 3.4 MBPS

Rs 110,000 crore

Piyush Goyal@PiyushGoyal
We truly believe in cooperative federalism in
letter and spirit. Meeting aspirations of states
has been our foremost priority.
View conversation

Amount fetched for the biggest telecom spectrum

auction in four bands

$5.18
New price of natural gas per million British thermal
units effective from April 1 till September 30 on net
calorific value basis. It was $5.61 earlier

Rajnath Singh@BJPRajnathSingh
I made an appeal to all countries to reaffirm
their commitment to pursue effective
disaster risk reduction through international
cooperation.
View conversation

$300 million
Loan extended by the Asian Development Bank for
improving road connectivity, and increasing domestic
and regional trade along the North Bengal and North
Eastern regions

2 million
The number of jobs leading e-commerce company
Flipkart hopes to create directly or indirectly through
its marketplace and ancillary services in 2015.

Devendra Fadnavis@Dev_Fadnavis
Convergence of schemes, ideas and
approaches will take us to effective
implementation of Drought-free Maharashtra
2019 mission.
View conversation

17

APJ Abdul Kalam@APJAbdulKalam

The number of mega food parks sanctioned by

the Centre. The parks are expected to attract an
investment of Rs 6,000 crore, provide employment to
80,000 people and benefit 500,000 farmers directly or
indirectly when functional

21st century is not just about experience and

knowing, it is about unlearning, relearning
and flexible learning!
View conversation

Arvind Kejriwal@AamAadmiParty
Section 66A scrapped. A big day for freedom
of speech n expression.
View conversation

11

Public Affairs Round-up

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