Government Confidence

Today morning while on my way to work; I came across an interesting article in Economic Times (getting addicted to the trend of mobile internet)  written by Ajay Shah,  a professor. 


The article spoke about lack of confidence that Indian private companies has in India’s government. 

“There is a remarkable loss of optimism in India today. For investment to take place, private decision makers have to feel confident on long time horizons. All too often, a bad faith principle is afoot: the private sector assumes that the government will do harmful things in the future. Addressing this requires deeper reform of laws and public bodies, around three key principles: restrict government meddling to market failures, the rule of law, and accountability of government agencies.”


The Indian solar industry will currently not disagree more. 


The Indian solar industry started moving faster with Gujarat’s two solar phases. Gujarat was called the Mecca of Indian Solar Industry. 


Suddenly it looks like the Gods have got angry or moody:

The Gujarat government, lauded by India Inc for being business friendly, is seeking to back out of the high tariffs contracted for 1,000 MW of solar plants in the State; set under Gujarat State Solar Policy.


The reason being provided is that if the industry can approach the regulator to raise tariffs for plants using imported coal on the ground that input costs rose unexpectedly, the state’s utility companies can also ask for reduction in tariff from 12.54 per unit to 9 on the ground that the cost of these solar power plants were lower than what was envisaged when the tariff was fixed.


Solar developers depend on financing from investors and banks to carry ahead the business of building solar power plants. Unless realty business, where profits from my project can help somewhat finance your next project; in solar the financing of projects mostly comes from outside and not internal accurals; thereby keeping the business a lot depended on outside financing. 


Both the investors and bankers speak about a favorable policy and confidence in the government. 


With this confidence being eroded; the private companies, investors, banks cannot be blamed for a cautious  approach; thereby further slowing the growth of India’s solar industry. 


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One Response to Government Confidence

  1. Pingback: Ultra Projects –Stalemate for Tata Power? | Bharat Vasandani's Blog

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