Strategic focus on energy security and infrastructure development

The Union Budget 2024-25 has made significant progress in outlining India’s roadmap towards a robust economic future with a particular focus on energy security and infrastructure development, Dibyanshu, Partner at Khaitan & Co, said in reaction to the budget.

One of the key points of the budget is the strong focus on energy security, which Dibyanshu describes as a key priority for “Viksit Bharat” (Developed India). The budget continues to prioritize energy transformation, recognizing the importance of diversifying energy sources to ensure stable and sustainable supplies.

“The continued emphasis on energy transformation, with nuclear power now a key component of the energy mix, is a welcome development,” Dibyanshu said. The government’s commitment to nuclear power underscores its importance in achieving a low-carbon future and providing a reliable source of energy amid growing energy demand.

In a significant policy shift, the Budget proposes complete exemption from customs duty on 25 key minerals and reduction of Basic Customs Duty (BCD) on two of them. This move aims to secure the supply chain of essential minerals required for energy production and storage, thereby strengthening confidence in India’s path to energy security. In the current geopolitical climate where energy resources are often the focal point of international relations, this policy is a strategic step towards self-sufficiency and resilience.

The Budget also recognises the critical role of private sector investment in achieving India’s ambitious development goals. Recognising that government resources alone are insufficient to meet the massive infrastructure needs, the Budget outlines plans to attract private investment through feasibility gap financing and supportive policies.

Dibyanshu noted: “To promote infrastructure investment, the budget announced plans to provide viability gap financing and enable supportive policies and regulations.”

Feasibility gap financing is a key mechanism that bridges the gap between project costs and the returns expected by private investors. By committing to this financing, the government mitigates the risk for private players, making it more attractive for them to invest in large-scale infrastructure projects. In addition, supporting policies and regulations are expected to streamline processes, reduce bureaucratic hurdles, and ensure a stable investment climate.

Broader implications and industry responses

The emphasis on energy security and infrastructure development is expected to have far-reaching implications for various sectors. The renewable energy sector in particular stands to benefit significantly from policies aimed at facilitating the energy transition. Tariff exemptions for critical minerals are likely to lower costs for renewable energy technology manufacturers, making clean energy solutions more affordable and accessible.

The infrastructure sector is also poised for growth, with increased private sector participation leading to rapid development of transport, logistics and urban infrastructure. This in turn will increase economic activity, create jobs and improve the overall quality of life of citizens.

Industry leaders have largely welcomed the budget, seeing it as a forward-looking and pragmatic approach to addressing some of the country’s most pressing challenges. The focus on energy and infrastructure is seen as essential to sustaining economic growth, improving competitiveness and ensuring long-term sustainability.