The domestic power equipment manufacturers are dismayed over the finance ministry?s refusal to impose a customs duty on power equipment to give them a level-playing field against cheaper Chinese imports.
The finance ministry?s argument?forwarded during inter-ministerial consultations for the preparation of a draft Cabinet note on the issue?was that any import duty will raise the electricity purchase cost for state electricity boards whose combined commercial losses have gone up to Rs 70,000 crore in 2009-10. Another contention was that the comparative cost disadvantage of local equipment manufacturers was because of the country’s poor infrastructure, and if the government tries to offset this disadvantage through taxation, other sectors also might raise a similar demand.
The power ministry too was opposed to the imposition of an import duty on power equipment on the ground that it could slow the ministry’s capacity addition programme in power generation.
Power project developers were rejoicing over the finance ministry stand. ?We respect the finance ministry?s well-thought out decision not to impose any duty on power equipment imports. This will help us keep the power project cost low,which would translate into lower tariff for electricity consumers,? Harry Dhaul, director-general, Independent Power Producers Association of India (Ippai), told FE.
But equipment suppliers were upset with the finmin stance. ?For a long time, domestic manufacturers have been reeling under the impact of a non-level playing field and this move will further aggravate the problem. Unlike other countries, where domestic industry is offered various concessions, the existing tax structure provides an advantage to foreign manufacturers over the Indian manufacturers, even while competing in India,?a well-placed source in Bhel told FE.
?Local levies such as sales tax and entry-tax are applicable only to supplies from domestic manufacturers and their inputs. In contrast, Chinese suppliers are able to avoid these taxes by taking advantage of the high-seas sale provisions. The Indian manufacturers have to suffer a higher financing cost due to the 6-8% differential in Indian and foreign interest rates. We are also at a disadvantage because of an artificially undervalued Chinese currency,? the Bhel source said.
Private sector equipment makers were equally disappointed. ?The Indian power equipment industry will never grow if uncontrolled imports from China continue,? Ravi Uppal, managing director, L&T Power, said.
?Chinese power equipment suppliers have an unfair cost advantage over Indian manufacturers because of factors like government subsidies, export incentives and controlled currency, which reduces the capital cost for them. There is so much state intervention. Besides, nobody is looking at what is going to be the life-cycle cost of Chinese power equipment. They are only looking at the upfront capital cost,? he said.
He felt that there were serious quality issues with equipment supplied by Chinese manufacturers. ?The average national plant load factor of power plants in China is just 65-70% compared with 95% plus in European countries. ?We are not against import from Korea, Japan or European countries, because their currencies are freely traded unlike China’s. If Chinese power equipment suppliers are so competitive, let them come to India and set up shop here,? Uppal said.
Chinese suppliers are implementing roughly 25% of the 62,000 MW capacity expected to be commissioned under the 11 th Plan. They have also bagged 12 th Plan projects worth 15,430 MW. The ministry has envisaged 100 giga watt capacity addition during the coming Plan period.
The government has exempted power equipment import from customs duty under the mega power policy even though India has agreed to a bound rate of 25% at the WTO. Encouraged by the government?s super-critical policy, private players like Bharat Forge, JSW Energy and BGR Energy, besides L&T, are setting up manufacturing facilities in India in technological collaboration with foreign companies like Alstom, Mitsubishi and Siemens. A total of Rs 10,000 crore investment is expected from these private players.
State-run Bhel is also expanding its manufacturing capacity by 6,000 MW a year to 20,000 MW. The company has 15,000 MW manufacturing capacity already in place, which it expects to expand to 20,000 MW by March 2012.
