The Union power ministry has called upon the finance ministry that contribution to the proposed India Power Fund (IPF) be made fully tax-deductible in line with the pension plan under Section 80 ccc.The power ministry, which has fully supported the IPF concept mooted by the state-run Power Finance Corporation (PFC), has also called for the introduction of a limited voluntary disclosure scheme (VDS) for contribution to IPF.In its memorandum submitted to the finance ministry, the power ministry has pointed out that the estimated equity gap during tenth and eleventh plans would be Rs 6,950 crore. According to the ministry, which has set the target of a capacity addition of 1 lakh MW with an investment of a whopping Rs 900,000 crore by 2012, IPF can provide the much-needed equity to project developers.The power ministry has recommended that the finance ministry should consider announcing the setting up of an IPF with an initial size of Rs 500 crore in the next budget on the lines of the Infrastructure Equity Fund set up by the Infrastructure Development Finance Corporation in 2001.PFC has already made presentations to the power ministry to set up IPF with facilities of a venture capital fund (VCF) or equity fund and an initial size of Rs 500 crore. Ultimately, IPF’s size would be raised to Rs 5,000 crore. The Corporation has, however, dropped its original idea of floating a mutual fund to aid the power sector in view of various restrictions from the Securities and Exchange Board of India (Sebi).PFC is hopeful that IPF would be set up by next fiscal with initial contributions from itself and other central public sector undertakings (CPSUs). Banks and financial institutions would also be tapped thereafter.The Corporation has already requested the Centre that all CPSUs, including itself, be allowed to plough back dividend amount in the proposed fund. However, the Centre has yet to take a decision on this front. In a related development, the power ministry has requested the finance ministry that the provisions of exemption of external commercial borrowings (ECBs) from withholding tax under Section 10 (15) (iv) (a to e) be restored in the next budget. These provisions were withdrawn in the Finance Act 2001 as a result of which the cost of raising funds from external sources has gone up. According to the power ministry, relending by financial intermediaries, such as PFC, is going up. “In order to keep the ultimate power tariff low, tax components, like the withholding tax, should be deferred for sometime,” the ministry said.
