With an eye on China, Budget sets ground for three power gear production zones

The Union budget presented on Monday created a budget head for setting up ‘Manufacturing Zones’ under the Atmanirbhar Bharat package.

The notes on Demands for Grants for 2021-2022 states, “This scheme is for setting up of 3 manufacturing Zones for Power and Renewable equipment to be set up in 3 different States. The manufacturing facilities in the zones shall be based on cutting edge, clean and energy efficient technology for minimizing dependency on import of equipment, critical components, basic raw material, critical spares etc. required for Power sector and renewable.”

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The move to set up dedicated manufacturing zones is primarily aimed at curbing the use of Chinese-made equipment and attracting firms across power generation, distribution and transmission —both in conventional and green energy spaces. Power is a strategically important sector, and the move is part of a wider decoupling exercise from China that has been initiated by the Indian government and will limit Chinese firm from securing orders in a lucrative Indian power sector that has been growing.

Mint reported on 15 December about the plans to set up these zones—one each to be set up in a coastal state, a hill state and a land-locked state—by offering companies incentives such as land and electricity at attractive prices. The government has drawn up a list of equipment that it wants to be manufactured in these zones.

Building these zones is part of India’s campaign to encourage self-reliance and reduce dependence on Chinese power equipment. India imported $2.16 billion worth of solar photovoltaic (PV) cells, panels and modules in 2018-19. And of the ₹71,000 crore of power equipment imports in 2018-19 in the conventional power space, Chinese equipment accounted for nearly one-third or around ₹20,000 crore. The Centre is looking at enabling manufacturing all power sector equipment in India over the next three years.

This comes in the backdrop of a massive troop buildup in eastern Ladakh. The Indian and Chinese troops have been mobilized in an eyeball-to-eyeball deployment, since the 15 June border clashes between the two sides last year that left 20 Indian soldiers dead.

This assumes significance given that India’s per capita power consumption at about 1149 kilowatt-hour (kWh) is among the lowest in the world compared to the world’s per capita consumption of 3,600 kWh. This is expected to grow exponentially with the government is planning to leverage electricity for induction cooking and further improving quality of electricity access.

These zones will have a minimum land area of 300 acres each and will be set up through a competitive challenge among states. The states will be selected on the basis of parameters such as manufacturing incentives and the price of land and electricity offered by them. The Centre will set up common facilities requiring an investment of ₹500 crore each for these zones that are in addition to the government’s production-linked incentive (PLI) scheme.

The power ministry is also working on operationalizing a list of approved manufacturers for government-supported schemes, including projects from where electricity distribution companies procure electricity for supply to their consumers. A similar approved list of modules and manufacturers exists for the clean energy sector.