No duty on foreign power equipment

In a major setback to domestic power equipment manufacturers such as Bharat Heavy Electrical Ltd (Bhel) and Larson & Toubro (L&T), the ministry of finance has rejected the proposal of
levying duty on the import of foreign equipment.

The domestic capital goods manufacturers were lobbying hard with the government to get this proposal passed for over 2 years.
The proposal was approved by a committee of secretaries (CoS), based on the recommendations made by a committee headed by Planning Commission member Arun Maira.

The CoS, in its July 12 meeting, had approved a duty structure of 5% customs duty, countervailing duty 10% and 4% special additional duty, on the import of foreign power equipment.

In January this year, Arun Maira had recommended a 14% import duty on power generation equipment to strike a balance between protecting local manufacturers and the need to import equipment to boost power production.

However, the finance ministry’s decision takes into account the view that domestic manufacturers are not able to plug the demand-supply gap for power equipment.

“More than 50% of the total orders have been placed with Bhel. The performance of Bhel has never been entirely satisfactory, with the actual achievement against targets having never gone beyond 70% in the immediate preceding years,” said an internal note of the finance ministry.

The ministry of Power was also against levying of any import duty as it could have resulted in shortfall in capacity addition target for the 11th Plan.

The finance ministry has also said that levying of import duty will result in increase in power tarrifs to the tune of 15-20 paisa per unit.

Indian power companies have placed orders for overseas equipment to generate 26,000 mw annually because of the slow delivery cycle of local manufacturers to meet growing demand. Imported power plants from China are relatively cheaper.

While the per-mw cost of completion of a thermal power project using Chinese equipment is around Rs3.5 crore to Rs4 crore, it works out to Rs4 crore to Rs5.5 crore for projects using equipment from elsewhere.

Taking note of the Maira committee’s recommendations, the ministry of finance has called the problems faced by the Indian manufacturers “generic”.

This analysis (Maira committe’s) does not factor in the related advantages of India as a manufacturing base; ignores the fact that the extent of imported element in ingenious manufacture is only about 30% and seeks to address infrastructure related disadvantages through taxation measures.

Maira expressed his disappointment with the remarks of the finance ministry, saying, “Both domestic and foreign manufacturers should get a level playing field. Otherwise you will handicap the domestic sector. Even the exchange rate scenario in the country will give added advantage to foreign manufacturers, as imports will get cheaper.”