Import duty may be hiked on power generation equipment for projects above 1,000 MW capacity in the coming Budget.
Currently, imported equipment for such projects attract 5 per cent duty.
The Government is reportedly looking at two options: One, bringing all the power projects at par, that is, levying a uniform duty on all power generation equipment, regardless of the project size. In such a situation, the duty may be levied at the current rate of 5 per cent.
Two, imposing a basic import duty at 5 per cent, besides an additional levy of 5 per cent and 4 per cent countervailing duty (imposed in lieu of excise duty for domestic producers), making it a total of 14 per cent.
In either form, the move will benefit local equipment manufacturers such as BHEL, L&T and Bharat Forge. On the other hand, power producers will be affected, as they import machinery, mainly from China.
A senior Government official told Business Line , “The Finance Ministry, the Heavy Industries Ministry and the Planning Commission seem to be in agreement on duty increase. We may see some announcement in the Budget.”
The Government did suggest a duty increase late last year, but did not implement it. Domestic equipment manufacturers allege that there is no level playing field. Foreign machinery is cheaper by up to 14 per cent. A Heavy Industries Ministry official said that if nothing was done now, then BHEL may have idle capacity during the 12{+t}{+h} Plan.
Power producers are expectedly unhappy. A source with a power producer said, “When the requirement is high, margin is thin and power is to be provided at a cheaper rate, any price increase will have to be borne by the end user.”
Ultra mega projects
Meanwhile, any change in import duty will also need a change in the policy for Ultra Mega Power Projects. One of the provisions in the current policy talks about duty exemption on imported machinery.
However, such a provision was made when there were not sufficient domestic capacity to support mega projects, but now things have changed, the official added.