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The multilateral lending agency says unexploited renewable energy sources can generate cost-effective power for rural people, increase total supply and minimise losses. Commits $2 billion in funding over three years
A new World Bank report says that generating power locally and distributing it through existing facilities can help to bring electricity to more rural households in India that yet do not have access to power.
The report says that this model should be actively encouraged and implemented in areas where electricity supply is poor and people have to depend on diesel and kerosene. About 56% of rural households, or 400 billion people in the country, do not have access to electricity today.
"Though these kinds of projects are on a small basis, financial institutions and other private players should come forward to support it," said Ashish Khanna, senior energy specialist, South Asia Sustainable Development, World Bank.
The report, titled 'Empowering Rural India: Expanding Electricity Access by Mobilising Local Resources', is based on studies conducted in Maharashtra's Kolhapur district, where the state's unexploited renewable energy sources could harness substantial economic gains, not just for the rural people, but for the state, it said.
For instance, the report explains, an average rural household spends Rs11 per kilowatt hour to meet its lighting needs, which is higher than about Rs4.60/kWh for small hydro, Rs5.70/kWh for biomass and Rs6.10/kWh for wind power. It found that this model would also increase the supply of electricity per day from an average of 8-10 hours to day-long supply.
This decentralised system, which it calls distributed generation and supply (DG&S) franchises, is a cost-effective and feasible way to generate cost-effective energy in rural areas. It can not only increase supply and reduce costs for the consumer, but also reduce losses for the utility company and meet the goal of improving availability of electricity in rural areas.
Explaining the DG&S model, the report said that the DG&S operator invests in a small-scale (typically 1MW to 10MW peak capacity) local generation plant and also becomes a distribution franchisee of the utility for the designated area. Today, small hydro and biomass projects are more feasible in rural areas, whereas solar projects are feasible in urban areas as they contain complicated technologies, Mr Khanna said.
The rural franchisee in addition to distributing power and collecting revenues, also generates power locally and supplies to the franchised area. The local community benefits because certain minimum percentage of the generated power goes to the designated area and the balance is fed into the grid.
Mr Khanna said that the World Bank and the International Finance Corporation (IFC) has decided to provide about $2 billion through loans for renewable energy projects over the next three years. While the World Bank will fund government projects, IFC will finance private efforts.
The 1,500MW Nathpa-Jhakri hydro project in Himachal Pradesh was among the first renewable energy projects in the country that was funded by the Bank. It was developed by Satluj Jal Vidyut Nigam (SJVN), a joint venture of the state and central governments. SJVN is supplying power to nine northern states and aims to commission a second mega hydro project in 2013.
Mr Khanna said the World Bank's loans outstanding to the overall power sector in the country are at $3.4 billion and the IFC's at about $1 billion.
"In the South Asia, many people don't have access to electricity and most of them are in India," said Inger Andersen, vice-president at the World Bank's Sustainable Development Network unit. "Such initiatives drawing on the involvement of the local community leads to socio-economic development in the area, thereby promoting inclusive growth."
The profit margins of the fast moving consumer goods sector have been affected by spiralling input costs recently. These businesses have also been bothered by inconsistent taxation and excise duties
The Union Budget this year is not expected to have anything worthwhile for the market. Already expectations in most sectors are low. For, after a dismal year dominated by high inflation and corruption, there's a lot that the government will have to straighten out.
One of the sectors that have been hit hard by spiralling costs is the fast-moving consumer goods business. But the fourth largest sector in the country by market size has a modest wish list for the finance minister that includes a reduction in the food prices and a viable more simple tax structure.
According to financial brokerage Sharekhan, high food inflation and surging inpurt costs are likely to affect the growth of the Rs130,000-crore business sector in the near term.
"The FMCG sector would expect growth in the coming year, in volume terms," said Milind Sarwate, chief of finance, HR and strategy, Marico Limited. "Chronic inflation will hurt India's growth potential. In addition, if the inflation is because of abnormal or undesirable factors like greedy intermediaries, or avoidable supply-chain bottlenecks, the government should act in time."
Input costs have spiralled due to a hike in prices of vegetable oils and other agri-products. Increasing ad-spends have also deflated margins. In the last quarter, FMCG giant Hindustan Unilever performed poorly despite its aggression and some other prominent names like Dabur, Marico, Emami and GCPL recorded only marginal profits.
While consumption levels and consequently sales for these businesses has gone up, profit margins have suffered. As a result, all these companies have undertaken price hikes. Now there's anxiety over the volumes. Recently, tensions in the Middle East and the North African (MENA) region have compounded the worries for some Indian FMCGs that have acquired units in this growing market in the past couple of years.
Taxes is another important area where the consumer goods sector is also seeking a change through the implementation of the Direct Taxes Code (DTC) and Goods and Services Tax (GST). The inconsistent rates, particularly for excise duties, have been a bother for producers in different parts of the country and companies are hoping that the new codes will streamline taxes and duties are merged with GST.
Adi Godrej, head of the Godrej group, estimates that the implementation of GST and DTC will result in a 10% growth for the sector. He also says, "All surcharges on income-tax should be dropped. The minimum alternate tax and dividend distribution tax rate must be reduced to 10%-12%. Lower rates of taxes will lead to stronger GDP growth rates which in turn would lead to increased tax collections."
But there is a catch in the implementation of GST as some daily-use products like edible oils are not in the excise duty list and hence get concessional VAT in many states. The application of GST in this case will increase the cost of these products and inconvenience customers.
The FMCG sector has been looking more closely at the rural market to expand its business. "Most of India's GDP growth now comes from the urban areas and it is important to de-bottleneck that part," says Mr Sarwate of Marico.
Last year there were ugly spats between big brands like Cadbury and Anchor Foods over copyright infringement. Strengthening the regime on intellectual property rights will help avoid such unnecessary irritations.
While grape growers in the state have suffered destruction of crop due to unseasonal rains recently, wine producers have been troubled by lower sales over the past few years. They are hoping that the chief minister will take up the issues with the Union government at the earliest
Wine producers in Maharashtra have requested the state chief minister for assistance in matters of financing and taxation, at a time when their businesses have suffered due to untimely rains that have destroyed a large part of the grape crop this season.
Representatives of the All India Wine Producers' Association (AIWPA) met with chief minister Prithviraj Chavan recently and discussed with him problems of small and medium-size wineries and grape growers like unpaid loans, high interest rates and crop losses.
Association leaders said that the chief minister had assured them that he would take up their issues with the Centre as soon as possible to find solutions to their problems.
Jagdish Holkar, president, AIWPA, said, "The chief minister said that he recently met the union minister for food processing and discussed the issues of wineries and grape growers with him. He also said that the state and central government would look into these matters and together come up with a solution."
The Association is seeking soft loans amounting to Rs90 crore, as well as interest subvention and loan restructuring option. "The wine industry is a holding industry and interest rate of 14%-15% is unaffordable," Mr Holkar said.
Grape growers are additionally burdened as they have not received payments from wineries for the past two years, resulting in their inability to repay loans. "The farmer is at the losing end as wineries still have to pay their dues for the past two years. There are also loan dues that the farmers are finding hard to repay," said Rajesh Jadhav, secretary, AIWPA.
The grape-crushing season has begun in the Nashik and this year grape production in the region has been down to about 40% of the average annual production. A large part of the grape crop was destroyed by unseasonal rains in the area in November-December. But this is unlikely to impact wine production and supply as wineries have sizeable unsold stocks from previous years.
Mr Jadhav explained that "most of the wineries still have around 50%-60% of unsold wine lying in their tanks due to lower sales over the past three years. This years grape crop will contribute about 20%-30% of the wine production."
Mr Holkar hoped that the government would intervene quickly, to prevent dumping of wines by European producers who have good marketing and distribution channels.