NEW DELHI: The government has put on hold its plan to levy duty on import of power equipment by all developers to protect the interest of domestic firms, such as BHEL and L&T.
A note proposing a 5% customs duty on electrical equipment imported by mega power projects was moved by the power ministry in February, but it has since failed to get approval of the Cabinet due to inter-ministerial differences and strong opposition from power sector companies.
Meanwhile, the depreciation of rupee has also added to the cost of imports, thereby negating the need to levy 5% basic customs duty.
“The final note proposing the duty has been withdrawn for making a few changes, but it is likely to be kept in abeyance for the time-being,” said a top government source involved in the preparation of the note.
A power ministry official said the proposal would only be pushed when there is a general consensus between the commerce ministry, heavy industry ministry, power ministry, finance ministry and the Planning Commission.
Currently, the duty is there only for non-mega projects.
The delay on its proposal for the power sector, however, is being seen as blessing in disguise. The government had proposed to levy an import duty on imported equipment for mega power projects to help to the crisis-ridden domestic power equipment manufacturing industry. The decision to have an import duty was taken to take away the incentive available to a large number of power generators to source cheap equipment from overseas markets, particularly China.
Sources say as per the power ministry’s proposal, sent to the Cabinet Committee on Economic Affairs for approval, imported power equipment for all power projects will attract 5% basic customs duty, 12% countervailing duty (after the excise hike announced in the budget to 12%) and 4% special additional duty. Cumulatively, this works out to close to 23%.
Of this, the CVD is equivalent to the excise duty for domestic producers (which Bhel and L&T will have to pay) and SAD is in lieu of state VAT. The basic customs duty alone will act as an import tariff.
“The proposal to levy duty on power equipment is completely irrational and defeats the goal of providing cheap power to consumers. National interest should not be compromised to favour a couple of power sector companies operating in the domestic market,” said Association of Power Producers’ director general Ashok Khurana.
He added that imported equipment were not only cheap, but were also coming with cheaper funding by banks in the exporting country and were being delivered quickly, allowing power projects to commission projects on time. Against a delivery time of 48-50 months required by domestic equipment maker such as BHEL, Chinese equipment were being delivered in 37-38 months.
The government has bought this argument and wants to delay the decision on the levy. This is also seen from the recent statements of ministers. Recently, heavy industry minister Praful Patel had said that he was not sure when the duty would be imposed. The commerce department has also given similar statements about the fate of the proposal, while the power ministry, which was earlier not keen on the levy, is not sure when it could be imposed.
The concern is also that once the duty is imposed, the changes will dilute the government’s mega power policy, which offers benefits to thermal power projects of 1,000 MW and above and hydro projects of 500 MW and above by way of a tax holiday for 10 years and customs waiver on equipment imports. At present, a 5% duty is levied on equipment imported for power projects with capacities less than 1,000MW.
It is also understood that a large equipment capacity was being built in the country, which, with competition, could lead to price reduction of domestically produced equipment, negating the disincentive to generators who were importing equipment now.
Chinese equipment is said to be 25-40% cheaper than domestic variants, leading to the country supplying over 40% of total equipment ordered for 12th Plan projects.
The government had proposed the levy to counter the surge in imported equipment, particularly from China, which, after implementation, is expected to provide a level-playing field to domestic equipment manufacturers like Bhel and L&T, who together currently support 18,000 MW of capacity.
