India Considers Expanding Tax on Imported Power Gear

In the latest sign of New Delhi's sensitivity to a flood of Chinese imports, India' Ministry of Power has proposed protecting local manufacturers by expanding the 21% tax on imported generating equipment, two senior ministry officials said.

The proposal was sent to several government departments last week, and the federal cabinet could make a decision this month, the officials said.

India already levies a 21% tax on imports of generating equipment for power projects with a capacity of less than one gigawatt, they said. But equipment for larger projects is exempted as part of a drive to boost the country's generating capacity. The proposed tax would apply to larger projects, but only new ones, the officials said—so large electricity-generation projects already being developed by companies such as Reliance Power Ltd. and Tata Power Co. would not be affected.

The power ministry, after initially resisting extending the tax to equipment for larger projects, now sees it as being in line with the government's plans to protect and promote the local power-equipment industry, the officials said. It is crucial in the long term, they said, for India to be self-reliant in a sector as sensitive as electricity.

Indian power-equipment makers—led by state-run Bharat Heavy Electricals Ltd., as well as Larsen & Toubro Ltd, the country's biggest engineering company by sales—have been calling for higher taxes on imports for several years. They say they have already invested a lot of money to help achieve India's aim of quadrupling the country's annual power equipment manufacturing capacity equivalent to 100 gigawatts by 2017.

The two officials said Indian companies have been narrowing the price difference between their gear and Chinese imports, which has generally been about 30%.