The capital goods industry wants the Centre to focus on promoting the use of locally-made capital goods along with its drive to step up manufacturing through the ‘Make in India’ campaign.

Doing away with nil import duties on capital goods for certain specific projects, extending excise duty exemption on capital goods to nuclear power projects and extension of nil excise duty to sub-contractors are some of the sector’s key demands for Budget 2015-16.

Tepid growth

Industry associations also suggest that the Comprehensive Economic Partnership Agreements (CEPA) that India has signed with countries such as Japan and South Korea should be studied closely to remove any anomalies that may have crept in, such as inverted duties.

Valued at over ₹5,00,000 crore, the capital goods industry in India posted tepid growth in 2014, hit by the absence of fresh investments and a number of stalled projects.

Major capital goods companies, both in the private and public sectors, have all been performing below their projections this year. Top companies in the sector include L&T, BHEL, Suzlon and Havells.

Weighed down by the Government’s decision not to impose basic Customs duty on specified power projects, ultra mega power projects, nuclear plants, fertiliser units and coal mining, the domestic sector wants such exemptions done away with this year.

“Such duty concessions are an aberration in a tax regime and put the domestic industry at a cost disadvantage, particularly in those cases where full deemed export benefits are not allowed,” points out industry body CII in a report.

Although, the benefit of exemption in the case of mega and ultra mega power projects has been restricted to 113 projects approved before July 19, 2012, it has still left the industry feeling short-changed because of the sheer size of the projects.

Domestic companies want the Government to extend excise exemptions for supplies to nuclear power projects and levy a 4 per cent special additional duty (SAD) of Customs on all imports of capital goods, with certain exceptions.

Excessive imports

“Our local industry has taken a beating because of excessive imports from China, especially in the power sector. The textile sector is also heavily importing capital goods. This needs to be discouraged,” a Government official told BusinessLine .

The industry believes the imposition of a 4 per cent SAD on all capital goods imports will ensure a level-playing field for domestic manufacturers who have to pay local duties. The inverted duty structure, where the import duty on inputs is more than the finished product, is another problem facing some capital goods makers.

According to industry body Ficci, items such as pressure vessels, parts of heat exchangers, parts of nuclear reactors and parts of boilers have been hit because of such inverted duties.

“It has been reported that duty inversion exists in certain cases under the India-Japan CEPA and the India-Korea CEPA,” says a Ficci report on the inverted duty structure.

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