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Import duty on power equipment calls for balanced approach

Farrukh Aamir ,  Thursday, January 19, 2012, 14:23 Hrs  [IST]

Farrukh AamirDuring the XI Plan period, thermal capacity of 43,072 mw is envisaged to be commissioned. Out of this, 56 per cent will have BHEL equipment and balance 44 per cent is from foreign suppliers, with approximately 85 per cent from Chinese suppliers. For the XII Plan, approximate 37,626 mw of power capacity of equipment contracts has already been placed with Chinese vendors.

The domestic equipment manufacturers, despite benefiting from deemed export status available for supply of equipment to mega power projects, are required to pay additional duties/ taxes such as sales tax, VAT, entry tax, etc. Such duties/taxes are not applicable to supplies from foreign manufacturers who also enjoy various forms of incentives and subsidies in their host countries.

The domestic industry is at a disadvantage on account of such levies paid to the central/ state governments. Hence, in the absence of a level playing field, competing with foreign suppliers, especially Chinese, threatens the long-term prospects of the domestic industry. Also, dependence on foreign suppliers increases the risks of availability of spares and after-salesservices for the plants using such imported equipment.

BTG_chartThe Planning Commission had constituted Maira Committee to suggest options and modalities for addressing the disadvantages suffered by the domestic power equipment manufacturers. The Committee has recommended imposition of 14 per cent duties on import of power equipment (10 per cent custom and 4 per cent special additional duty (SAD)) for mega projects. The Committee has envisaged an increase of 1-2 per cent in power prices and suggested that the same can be absorbed through improved efficiencies. It is also of the view that the move will help striking a balance between protecting domestic industry and the need to import equipment to boost power production.

A Committee of Secretaries from MHI, MOP and MOC proposed to levy 19 per cent duty (5 per cent customs duty, 10 per cent countervailing duty and a SAD of 4 per cent) on imported power equipment.

IMPACT OF THE PROPOSED DUTY
The planned capacity addition for the XII Plan period is 75,000 - 100,000 mw. This calls for a robust domestic BTG manufacturing capacity compli-mented by strong import arrangements.

Though the news of imposing higher duty on imported power equipment is encouraging for domestic manufacturers, it may put a spanner in the works for IPPs planning to source Chinese equipment.

power equipmentBHEL, the domestic leader in BTG equipment manufacturer, is augmenting its manufacturing capacity from 15,000 mw per year to 20,000 mw per year by March 2012, to meet the increasing demand for power equipment.

In addition, several joint ventures like L&T-MHI, Bharat Forge- Alstom, Jindal-Toshiba etc. have been set up in the country for manufacture of supercritical boilers and turbine generators.

A total manufacturing capacity of about 27,500 mw for boilers and 28,500 mw for turbine generators is expected to be available in the country from the domestic manufacturing industry.

There is a need for balancing the extent of import duty with the objective of meeting target capacity additions. The duty structure as proposed by the Maira Committee is favourable to the domestic BTG industry as it puts in place an upfront barrier of 10 per cent customs duty followed by 4 per cent SAD on BTG imports. However, given the twin requirement of the need of capacity addition to meet the growing power demand and the necessity of protecting the domestic BTG industry, the duty structure as recommended by the Committee of Secretaries offers a way out. It imposed a customs duty of 5 per cent on imports of BTG equipment with additional 10 per cent as CVD and 4 per cent as SAD.
 
                 
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