Kathie’s Question: Do you think India is ready to lose its incentives?

indiaIndia’s government has cut tax breaks for its wind industry, Bloomberg reports.  New wind farms are now only allowed to claim “so-called accelerated depreciation at 15% of the cost of equipment, down from 80%.”

Subsidies and how long they should last is the cause of much debate, as we know here in the U.S. They can fuel industries, but aren’t meant to last forever. So the question becomes, when should they be cut?

I don’t think there’s a straight answer, but probably when an industry is mature enough to stand on its own. This, however, can be subjective. I like to think of the government and subsidies like parents and their bank account. Mom and Dad provide you with money until you graduate, get your own job and are able to stand on your two feet. Then when you’re stable and mature enough you get “cut off.” Subsidies also work great in this way to help industries and businesses stand on their own. But when  do you know it’s time to let go?

I’m not an expert in India’s wind industry, but a quick look at the facts doesn’t make me hopeful it could make it without subsidies . Some even say this could cause investment to come to a standstill. Demand for wind turbines this fiscal year may drop by almost 400 MW, or about $540 million of orders. I know dropping subsidies can cause companies to consolidate, which isn’t necessarily a bad thing, but that number still seems a little high. India is the third largest market for turbine producers such as Suzlon and Gamesa, so one could argue this success shows it’s mature enough to stand on its own. However, this is largely a result of the subsidy (The tax break is credited with driving 70% of the nation’s installations in the last fiscal year), which has only been around since 2009. I’d say three years is hardly enough for any industry to gets its footing.

Lastly, recent reports show India’s wind energy potential is actually 30 times greater than previously thought (how did that get so eff’d up?). Without government support, the industry may not be able to tap into that available resource. But if subsidies are continued it’d be like investing in a gold mine which could help the country’s wind industry flourish and finally reach a point where it doesn’t need mom’s car keys.

But I’m open to feedback. What do you think?

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