Indian Consensus on Levying Import Duty on Power Generation Equipment

India's ministries of heavy industry and power seem to have arrived at a consensus on the contentious issue of levying an import duty on power generation equipment, a move that may specifically affect Chinese manufacturers of such machinery and Indian power companies that are looking to place orders with them.

The minister for heavy industry, Praful Patel, said a consensus had emerged between his ministry and the power ministry on the issue and that he would be discussing it with Prime Minister Manmohan Singh soon.

Indian equipment makers have been lobbying for a duty on what they say are cheap imports of Chinese equipment but the issue soon became an inter-ministerial one with several differences of opinion.

On 8 November, commerce secretary Rahul Khullar said a compromise formula had to be worked out because of these differences.

"Both the power ministry and my ministry have agreed on the fact that there should be some import duty," Patel said Monday, adding that he had met power minister Sushilkumar Shinde earlier in the day.

"Companies such as Bhel and L&T are at a specific disadvantage. Imports should not be disallowed but there is a case for (the Indian) power industry to have a level-playing field," Patel said.

Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) have been lobbying the government to limit Chinese competition. State-owned Bhel has been facing competition from Chinese power generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, both in domestic and overseas markets.

Mint had reported on 25 November that the power ministry had proposed imposing a 5% tariff on such imports. Planning Commission member Arun Maira had recommended a 10% customs duty and a 4% special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production. A committee of secretaries (CoS) recommended a 5% import duty on power equipment imports from China apart from a 10% countervailing duty and a 4% special additional duty.

Power generation equipment makers having a manufacturing base in India stand to benefit from such a move. They include Bhel, Doosan Heavy Industries and Construction Co. Ltd, and the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. and JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH, and Thermax Ltd and Babcock and Wilcox Co.

Power utilities have placed orders for overseas equipment largely because of the inability of local manufacturers to meet growing demand. Chinese imports are relatively cheaper because equipment makers from that country benefit from low interest rates and an undervalued currency. Undervaluing the currency makes exports cheaper and increases demand for products.

In another development, Patel said that the equipment for ultra mega power projects (UMPPs) should be sourced through international competitive bidding.

Each UMPP has a capacity of 4,000 MW each and it is for the developer to finalize the procurement of equipment. The government wants to set up 16 UMPPs to meet the needs of the world's fastest-growing major economy after China.

India's move to curb Chinese power equipment imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China's favour.