The government may increase import duties on foreign power generation equipment to 14%. This is being done particularly to prevent dumping from China.
The changes are expected in the coming Union Budget (March 2010). This could make equipment from Chinese firms such as Shanghai Electric Group Co. Ltd, Don Fang Electric Corp. and Harbin Power Equipment Co. Ltd expensive. At the same time such a decision will favour state-owned BHEL, private engineering firm L&T, and local JVs of Toshiba Corp.and JSW Group, Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd, and Alstom SA of France and Bharat Forge Ltd. All these firms are looking to start manufacturing power equipment in the country.
Currently, no duty is levied on import of foreign equipment for so-called mega power projects (1,000MW and above for thermal & 500MW for Hydro). A 5% duty is levied on imports for smaller projects. A mega project is entitled to fiscal incentives, including a waiver of customs duty on equipment imports and a 10-year tax holiday.
A government report says there is no level playing field for domestic manufacturers. FICCI survey found 13-14% disadvantage to domestic manufacture on account of low import duty. Cost disadvantage for Indian manufacturers vis-à-vis Chinese suppliers comes to around 8-9%. To offset these disadvantages, government will consider compensating the domestic manufacturers at least 13-14%.
Indian power firms have placed orders for equipment to generate 26,000MW with Chinese firms, largely because of the inability of local manufacturers to meet growing demand. Chinese equipment is also relatively inexpensive and readily available.
These are economic skirmishes. The Chinese will not be able to produce at the same cost points if they manufacture outside China.
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