PINC's Take Proposed Import Duty on Power Equipments in India

Heavy Industry Ministry convened a high level meeting of top bureaucrats and public sector companies on Nov.3, 2011 to consider the demand of domestic equipment manufacturers to curb imports of power equipments. Indian suppliers have been seeking for a 14% duty on imported equipments, particularly from China and Korea, as a cushion against local manufacturing taxes.

We believe any imposition of duty on the import of power equipments would create a level playing field and would narrow down the pricing gap between domestic and imported equipments. Competition from China & Korea is definitely a threat to the domestic equipment suppliers who have lost market share to Chinese & Korean counterparts in the past. However, in the current state of affairs, we believe lack of fuel availability, delay in environment clearances, low merchant tariff, lack of reforms to improve the continuous deteriorating financial health of SEBs and above all higher cost of funds making the new projects unviable are a much bigger threat to the overall growth of the sector," opined PINC Research.

"Any hike in duty would be a negative for the generation companies as it would increase the fixed cost. However, it might have a positive impact on the domestic equipment supplier as it would create a level playing field for all the players. However, we believe the sector is still plagued with concerns on fuel linkages, high cost of funds, delay in environment clearances and lack of reforms to improve the deteriorating financial condition of the SEBs. At the same time domestic players will have to improve their delivery schedules to match their Chinese counterparts in order to be competitive," it said.

"Further, more than 90% of the ordering of equipments pertaining to XIIth Five Year Plan has already been done that might result in drying up of orders in near term. In order to fully utilize the expected domestic capacity addition, India needs to add more than 30GW of power capacity p.a. which in the light of current scenario looks difficult. We have a cautious view on the sector."