No import levy on power parts: Finmin

In what could help bring down the cost of power from upcoming generation projects, the finance ministry has shot down a proposal to impose import duty on power equipment. The move would essentially help Chinese equipment suppliers to augment their imports to India and expose domestic companies like BHEL and L&T to intense competition.

According to official sources, North Block, which was earlier seen supporting the idea of an import duty, recently conveyed its revised stance to the ministry of power which is preparing a cabinet note on this issue.

The finance ministry has argued that such a duty would raise electricity tariff and put additional financial strain on state electricity boards whose combined losses stood at Rs 70,000 crore in 2009-10. The situation could get worse, given that electricity demand is rising because of an ambitious policy push to rural electrification programmes, the commercially viability of which is suspect.

Last year, Chinese power equipment makers sold goods worth over Rs 20,000 crore in India, thanks to the aggressive capacity expansion in the country.The finance ministry’s decision is despite the fact that a committee of secretaries endorsed a 5% import duty on power equipment. The department of revenue in the ministry too had backed the the proposal earlier. A high-level committee headed by Planning Commission member Arun Maira had earlier proposed a 14% import duty to provide a level-playing field to domestic manufacturers. The CoS had recommended 5% customs duty on power equipment to partially offset the cost disadvantage suffered by domestic manufacturers. Besides, the CoS had also proposed 10% countervailing duty and 4% special additional duty, which if implemented, would have had a net impact of 14.5% on project cost.

The finance ministry reversed its stand after the matter was re-examined by the department of economic affairs.

Most of the manufacturing facilities being set up by private power producers are likely to be ready only by 2012-13 and 2013-14. Slapping duty on power equipment could also lead to a derailment of the power ministry’s capacity addition plan, the ministry felt. The domestic manufacturing capacity is not enough to meet equipment requirement for the envisaged capacity addition. The finance ministry also argued that the route of bulk tendering is open for encouraging domestic manufacturing capacity and that can’t be a reason for putting duty on power equipment.