Who is responsible for power equipment shortfall?

The government has decided to defer its plan to impose customs duty on power equipment imports despite a strong recommendation from the high-level committee set up under the chairmanship of Arun Maira, member, Planning Commission. Apparently, there is a threat to public sector power equipment manufacturer Bhel from the surge in Chinese imports. But who is really responsible for the slow growth in the country’s power equipment manufacturing capacity that makes it necessary to import from China?

The Indian power sector was a neglected area until 2001-02. At that time, Bhel had an installed capacity to manufacture equipment worth 5,000 mw a year. The orders that the company bagged annually were in the range of 3,000 mw. So the company did not expand its manufacturing capacity. But the sector saw a rush for capacity addition in 2003-04 as the demand-supply gap began widening because of the explosive growth in economic activity. Since there was a huge gap in domestic power equipment capacity and the capacity addition envisaged by the power ministry, Chinese suppliers found an opportunity to enter the Indian market. If Bhel failed to expand its manufacturing capacity on time, it paid the price later. It is possible that Chinese suppliers are benefiting from hidden subsidies like low cost of capital. But they also have the benefit of an integrated power equipment industry. Chinese power equipment manufacturers have all the raw materials available in their country. However, the power ministry’s argument against imposition of import duty on power equipment is equally strong. India needs to accelerate the pace of capacity addition to maintain its growth momentum.

Chinese contractors are implementing about 23% of the 78,000 mw capacity envisaged by the power ministry under the 11th Plan. These projects are already facing delays after the ministry of home affairs imposed visa restrictions on Chinese workers. If the government were to impose duty on power equipment imports, the cost economics of power projects planning to use Chinese power equipment would go haywire.