Budget Highlights – Energy and Infrastructure

The Union Budget 2024-25 (Budget) has listed infrastructure and energy security as two of its key priority areas. The Budget emphasizes the development of India’s infrastructure sector with a particular focus on clean energy and outlines substantial investments and strategic initiatives in this regard. Key announcements from the Budget are set out below:

Push for Infrastructure

• The Government of India (GoI) has allocatedINR 1.5 lakhcrore for long-term interest free loans to support infrastructure development in the states.
• Investment in infrastructure by the private sector will be promoted through viability gap funding and favorable policies and regulations.
• Additionally, a market-based financing framework will be introduced to support infrastructure projects.

Road Infrastructure

• The GoIhas retained the allocation to National Highways Authority of India at INR 1.68 lakh crore for 2024-25, with an overallhighways sectoroutlay of INR 2.78 lakh crore.
• An investment of INR 26,000 Crore was announced for the highway development in Bihar -specifically, development of road connectivity projects such as: (i) Patna-Purnea Expressway; (ii) Buxar-Bhagalpur Expressway; (iii) Bodhgaya, Rajgir, Vaishali and Darbhanga spurs; and (iv) additional 2-lane bridge over river Ganga at Buxar.
• The government plans to bid out 54 road projects worth over INR 2.2 lakh crore, covering 5200 km on a build-operate-transfer (BOT) model.

Energy Transition

• The GoIplans to release a policy document on energy transition pathways that balance the requirements of employment, growth, and environmental sustainability.
• Allocation to the Ministry of New and Renewable Energy has been increasedto INR 19,100 crore from INR 12,850 Crore, while allocation to the Ministry of Power remains unchanged at INR 20,502 Crore.
• Power plants worth INR 21,400 crore will be installed in Bihar, including a 2400 MW plant in Pirpainti.
• The Pradhan Mantri Surya Ghar Muft Bijli Yojna (PMBY) has been launched to promote rooftop solar installations, providing free electricity for up to 300 units every month to one crore households.The benefits expected from the PMBYwill enable:
• savings up to INR 15,000-18,000 Crore annually for households from free solar electricity and sale of surplus power to distribution companies;
• charging of electric vehicles;
• entrepreneurship opportunities for a large number of vendors for supply and installation; and
• employment opportunities for the youth with technical skills in manufacturing, installation and maintenance.
• To balance the variability of renewable energy and strengthen India’s baseload power capacity, GoI announced plans to set up the country’s first 800 MW advanced ultra supercritical (AUSC) thermal plant based on indigenous technology. The government will provide the required fiscal support to the plant which is proposed to be set up as a joint venture between NTPC and BHEL.

Nuclear Energy

• The GoIintends to promote nuclear energy through the deployment of Small Modular Reactors (SMRs). These are advanced nuclear plants with a capacity of up to 300 MW per unit (which is smaller than conventional reactors). SMRs are not considered as replacements to conventional nuclear plants, which serve as base load plants.SMRs’ design ensures faster construction and deployment with additional advantages including lower capital costs, scalability, and enhanced safety.
• The GoI will partner with the private sector for conducting research and development for new technologies in relation to nuclear energy.

Pumped Hydro Storage

• The GoI will formulate a policy for energy storage focusing on promoting pumped storage projects (a type of hydroelectric energy storage).Pumped hydro storage is a large-scale energy storage technology that uses gravity to generate electricity. During low demand, excess power is used to pump water to an elevated reservoir, when demand peaks, this water is released through turbines to generate electricity. It is considered a supplement to renewables like solar or wind.The energy storage policy is intended to facilitate smooth integration of the growing share of renewable energy with its variable and intermittent nature in the overall energy mix.

Hard to Abate Industries

• The GoI will develop pathways for energy transition along with a roadmap for de-carbonizing hard-to-abate sectors such as refineries and steel making.
• Appropriate regulations for transition of these industries from the current ‘Perform, Achieve, and Trade’ mode to ‘Indian Carbon Market’ mode, will be put in place.
• All polluting industries, such as iron, steel, and aluminium will have to conform to emission targets. An investment-grade energy audit will be facilitated for traditional micro and small industries in 60 clusters, including brass and ceramic.
• Financial support will be provided for shifting these industries to cleaner energy and implement energy efficiency measures. The scheme will be replicated in another 100 clusters in the next phase.

Minerals

• With a view to boosting technology development and creating a skilled workforce, the GoIplans to establish a Critical Mineral Mission (CMM) for domestic production, recycling of critical minerals and overseas acquisition of critical mineral assets.
• The mission aims to reduce India’s reliance on imports amid geopolitical instability, with plans to auction blocks for extracting offshore minerals.

Review of Customs Duty

• The Budget proposes comprehensive rationalization of the tax structure and rates to improve the tax base and support domestic manufacturing.
• Customs duties have been revised to facilitate trade, exempting duties on 25 rare earth minerals and reducing the basic customs duty on two others.
• As a measure for energy transition,the government will expand the list of exempted capital goods for manufacturing solar cells and panels.
• Exemptions for solar glass and tinned copper interconnect will not be extended, given sufficient domestic manufacturing capacity.
• Customs duty on Methylene Diphenyl Diisocyanate (MDI), used in manufacturing spandex yarn, has been reduced from 7.5% to 5%.
• Duties on ferro nickel and blister copper have been removed to reduce production costs for steel and other industries.
• Customs duty on ammonium nitrate has been increased from 7.5% to 10% to support existing and new capacities.
• The Budget proposed a 5% increase in the customs duty of printed circuit board assembly to 15% – this will boost local manufacturing of telecom network gear and make imports costlier.

Authors – Akshay Malhotra, Partner and Kush Saggi, Managing Associate

Disclaimer: These highlights are key points and is not intended to be comprehensive. The contents of these highlights do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (TT&A). No part of these highlights should be considered an advertisement or solicitation of TT&A’s professional services. This communication is confidential and may be privileged or otherwise protected by work product immunity.