Speaking to The Financial Express, a cross section of senior executives from some of the capital goods manufacturing companies supplying equipment to the oil and gas sector including platforms, offshore rigs, seamless tubes and boilers, who spoke on condition of anonymity said the move to extend the facility of duty free imports for non-Nelp projects awarded before April 1 would have a crippling effect on the entire domesticcapital goods manufacturing industry. The facility was hitherto restricted to only designated blocks under the Nelp and subsequently to offshore and onshore project blocks for which petroleum licences or mining leases have been issued or renewed after April 1.

According to industry sources, the domestic manufacturers' serious concern is that if duty structures are further modified as suggested by ONGC, it could result in loss of even more legitimate opportunities for them on account of the unfair advantage bestowed on foreign suppliers. This, in turn, will lead to large sections of domestic capital goods industry "being starved for business rendering them unviable."

Industry sources allege that the public sector oil major, ONGC interpreted the provision of duty free imports of capital goods in the general budget for 1999-2000 as permission for it to import capital goods for all exploration projects including those not under the Nelp. However, hectic efforts by the domestic goods manufacturers resulted inthe Finance Ministry's clarifying that the budget provision was "unintentional." This was followed by an official notification, issued on April 28, which restricted zero duty imports of capital goods to "petroleum operations undertaken under petroleum exploration licences issued or renewed after April 1, 1999 and granted by the Government of India to ONGC/OIL on nomination basis."

Sources explained that what this effectively meant was that zero duty imports would be restricted for offshore exploration projects of ONGC/OIL against licences issued or renewed after April 1 while all other imports would be against normal applicable duty.

However, recently, through a notification issued on August 4, the finance ministry, in direct contravention of the policy, further expanded the scope of the provision of zero duty import of capital goods to onshore exploration projects. To make matters worse for the domestic capital goods manufacturers, a move is also afoot to make ONGC eligible for fiscal incentives underthe NELP for deep-sea blocks awarded to it earlier on nomination basis. Apparently, the proposal has already been cleared by the committee of secretaries and is now awaiting a cabinet nod.

On their part, the domestic manufacturers are alleging that "these gradual though frequent changes in sensitive duty structures are of immense concern to them as the changes are to the obvious benefit of foreign suppliers and to the detriment of the domestic industry."

Said a spokesperson for the domestic industry, "we are pleading with the government that no modifications in the duty structure to give benefit of zero duty imports for purposes other than those included in the budget are merited. This is more so since the finance minister had himself categorically stated in his budget speech that he was averse to zero customs duty."

Not only that, another strong argument against the surreptious changes being affected in import tariffs by the government is that firstly the parliament is not in session and secondly,these are violative of the Election Commission's code of coduct which is currently in force. "Inspite of this, if sensitive amendments are made in import duties this would amount to playing into the hands of the powerful import lobby," alleged an industry source.

Some of the companies which stand to lose heavily by the proposed changes in import structure are Maharashtra Seamless, Kalyani Seamless, India Seamless, L&T and Thermax.