Indian Govt to Impose 5% Customs Duty on Power Equipment

India will shortly impose a 5% import duty on power generation equipment in a move that will benefit domestic firms including Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) that have been lobbying with the government to limit imports.

In addition, the government will also impose a 10% countervailing duty (CVD), a sort of equalization levy to make up for the excise on local products, and 4% special additional duty (SAD), taking the total to 19%, according to two government officials aware of the development who requested anonymity.

That duty structure will apply only to the so-called mega projects, or those generating at least 1,000 megawatts (MW).

For non-mega projects, the overall duty will increase to 21%—5% import duty, 10% CVD, 2% excise duty and 4% SAD.

The contentious move, which has been in the works since 2010, will affect 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, and their Indian customers—power companies such as Reliance Power Ltd, Lanco Infratech Ltd and Adani Power Ltd. Any rise in the cost of the equipment may also lead to higher power tariffs.

"The decision has been taken. We will be floating a cabinet note shortly," said a power ministry official who did not want to be identified.

The consensus was reached after a meeting chaired by Pulok Chatterjee, principal secretary in the Prime Minister's Office (PMO), and was attended by representatives of the ministries of finance, power and heavy industries. The power ministry has been asked to float a fresh cabinet note within a week's time and a tentative date of 28 June has been finalized for the cabinet meeting to be chaired by Prime Minister Manmohan Singh depending upon his availability.