In blow to China, India Govt Set to OK 19% Duty on Power Equipment Imports

The Indian government is all set to impose up to 19 per cent tariff on imported power equipment with a clear aim to benefit domestic manufacturers who have lost out to cheaper Chinese equipment over the last few years. Also, a mandatory domestic procurement provision will be inserted in all future tenders for ultra mega power plants (UMPPs).

It's learnt that the decision was firmed up on Friday at a IMG (inter-ministerial group) meeting following intervention by the Prime Minister's Office earlier this month. The go-ahead came after the Finance Ministry, a holdout till now, gave its consent to 5 per cent custom duty, 10 per cent countervailing duty and 4 per cent additional duty. Countervailing duties are essentially anti-subsidy duties that are to be applied if the country of import has grossly subsidised the product in question.

The IMG also decided that the Power Ministry will draw up a Cabinet note on this by next week and the matter should be brought before the Cabinet Committee of Economic Affairs by February-end. This move is bound to land a telling blow to imports from China because power equipment account for 25 per cent of these imports.

In fact, the other 25 per cent of the imports are in Telecom sector, where again the ministry is preparing a Cabinet note to insert a mandatory domestic procurement clause in all its tenders. As a result, the government is hoping for some correction in trade imbalance affecting bilateral trade at the moment.

This proposal on power equipment imports acquired momentum after Principal Secretary to PM Pulok Chatterji took up the matter at a high-level meeting of Secretaries on February 6. It was felt that there was case in the arguments being made out by domestic power equipment manufacturers against Chinese power equipment. The Planning Commission Secretary also voiced concerns about the quality of imported power plants and the lack of remedial action in case an equipment is faulty or damaged.

At the end of the meeting, Chatterji felt that a way had to be found by which domestic manufacturers are encouraged while ensuring timely completion of power projects at a reasonable cost. So it was agreed, sources said, to add a condition on domestic procurement in UMPP tenders. To work this out, an official-level committee has been set up to look into WTO-linked issues and submit its report in 10 days.

The issue of imposing duties on power equipment imports has been under consideration for the past two years after the EGOM on UMPPs suggested forming a group under the Panning Commission to look into the matter. This group, led by Arun Maira, Member, Planning Commission had suggested up to 22 per cent duty which was later brought down to 14 per cent. The Finance Ministry had, however, not agreed to imposing this duty until the PMO gave it fresh momentum.