Indian Ministry Proposes 5% Tariff on Chinese Equipment

Another heavy industries ministry official said the ministry broadly agrees with the draft note, but is yet to discuss it in detail. A power ministry official said the proposal is not meant for orders already placed. "One can't have a change in policy with retrospective effect, but only prospectively," he said on condition of anonymity.

Domestic firms including Bharat Heavy Electricals Ltd and Larsen and Toubro Ltd have been lobbying with the government to limit imports of cheap equipment from China. Heavy industries minister Patel, after a meeting on 3 November with representatives of various ministries and these companies to discuss the matter, said, "Everybody agreed that there is a disadvantage to local manufacturers. We are proposing its (custom levies) roll-out in 2012."

At present, a 5% duty is levied on equipment imported for power projects with capacities less than 1,000 megawatts (MW). Equipment imports under the mega power policy for thermal projects of 1,000MW and above attract zero duty.

The power ministry was not in favour of such a move until after the start of the 12th Five-Year Plan period (2012-17).

The CoS last year agreed to impose the tariffs, but could not get a final clearance from the government.

On 8 November, commerce secretary Rahul Khullar said a compromise formula had to be worked out as there were differences among departments on the issue.

Sambitosh Mohapatra, executive director, PricewaterhouseCoopers, said the government has to strike a balance between its objective of achieving 75,000-100,000MW power generation capacity in the 12th Plan and the concerns of domestic manufacturers. "The government has to look at its larger objective of power generation capacity," he said. "While it beefs up the domestic manufacturing capacity, it still has to depend on imports to meet the 12th Plan target. So the increase in import duty can be done in a phased manner."

Power utilities place orders overseas 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 the demand of products.

India's move to curb Chinese 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. Indian exports to China were valued at $19.6 billion in 2010-11 and imports from that country $43.5 billion.