After being held up for over four months, the government will finally approve a proposal to levy import duty on power equipment to protect the interest of domestic engineering firms such as Bhel and L&T from an onslaught of cheap imports from China. The Prime Minister’s Office (PMO) on Wednesday asked the power ministry to float a new Cabinet note to levy duty on power equipment and put it up for fast-track clearance.
?The power ministry will move a new note for the Cabinet seeking higher duty on imported power equipment. The proposal would be taken up for approval in the next 20 days,? said an official who attended the meeting on the issue convened by the PMO. The meeting was chaired by principal secretary in the PMO, Pulok Chatterjee and attended by officials of the ministries of finance, power and heavy industries.
The official did not specify whether the new note would propose higher level of duty than what was approved in the earlier cabinet note. A source, however, said that power ministry could just move the same proposal with minor change to effect to 2% rise in excise duty in this year’s budget.
A note proposing 19% duty (revision expected to 21% due to increase in excise duty from 10% to 12% in this year’s budget) on foreign equipment was moved by the power ministry in February but ever since then it has failed to get approval of the Cabinet due to inter-ministerial differences and strong opposition from the power sector companies. The power companies feel that depreciation of rupee has also added up the cost of import, thereby negating the need to levy 5% basic customs duty.
Currently, power equipment attract 5% customs duty for projects of less than 1,000 MW capacity, while those above this threshold is exempt from the levy under a mega power policy that was announced to promote larger sized projects. If the government clears proposal on duty levy, mega power policy will cease to exist.
While power and commerce is in favour of total 19% duty, the heavy industry ministry has recommended a duty of 14%. The three ministries also differ on the quantum of basic customs duty that can be slapped on overseas power equipment. While the power ministry has pitched for 5% customs duty, commerce and heavy industry ministries are seeking 15% and 10%, respectively.
A committee headed by Planning Commission Member Arun Maira in its report had suggested imposition of 14% levy ? with a customs duty of 10 %. ?The proposal to levy duty is completely irrational and defeats the goal of providing cheap power to consumers.A national interest should not be compromised to favour couple of power sector companies operating in the domestic market,? Association of Power Producers? director general Ashok Khurana said.
He added that imported equipment were not only cheap but were coming with cheaper funding by banks in the exporting country and were also being delivered quickly allowing power projects to commission projects on time. Against a delivery time of 48-50 months required by domestic equipment maker such as Bhel, Chinese equipment were being delivered in 37-38 months. APP has also written PMO, power and finance ministries pressing for withdrawal of the proposal.
The government had proposed the levy to counter the surge in imported equipment, particularly from China, which after implementation is expected to provide a level playing field to domestic players.