Heavy Industries Minister Praful Patel appears to be running with the hares and hunting with the hounds.
After making a pitch for increased protection for the domestic power equipment sector, and even getting the Reserve Bank of India to withdraw external commercial borrowing facilities in Yuan to help stop the flood of cheap China-made power generating equipment, he has now switched tracks.
He wants the Government to now decrease the total import duty on power equipment to 14 per cent from 21 per cent. As a sop to local manufacturers – dominated by Government-owned companies which actually fall under his Ministry – he has also sought full ‘deemed export’ benefits to be extended to domestic power equipment manufacturers.
Patel’s latest views, contained in a letter sent to the Prime Minister last week, are contrary to his earlier stand, when the Heavy Industries Ministry sought higher duty on imports, keeping in the mind the problems faced by the domestic producers.
But the turnaround may have been dictated by what transpired after that. Last July, the Union Cabinet did approve the duty hike, but the notification, issued in September, exempted as many as 111 projects from the increased duty.
These projects had already placed orders for power equipment on overseas suppliers, and together accounted for a bulk of the power generation capacity to be added during the 12{+t}{+h} Plan period. This appears to be reason for the Ministry for seeking the revising duty.
At the same time, it is also believed to be seeking inclusion of all the exempted projects within the proposed ‘easier’ duty regime.
In his letter, Patel has urged the implementation of the Arun Maira Committee’s recommendations “immediately.” This request has come almost 11 months after the Finance Ministry notified the new duty regime for power equipment.
Patel highlighted exemption given to 111 projects, “which will continue to be covered under zero duty. Besides, no deemed export benefit has been granted to domestic manufacturers. In this situation, power projects will be subjected to higher duty without any benefit to the domestic power equipment manufacturers,” he has argued.
The Maira committee suggested basic customs duty be levied at 10 per cent, which is double the present duty.
It also favoured special additional duty of four per cent which is same in the present regime. However, the committee recommended nil counter countervailing duty (CVD) which is levied in lieu of excise duty imposed on the same goods produced domestically. Currently, the CVD is 12 per cent. Apart from all these, an education cess will also be levied.
Patel has written that against the coal-based power addition target of 70,000 MW (out of the total target of 1 lakh MW) for the 12th Plan period, domestic manufacturing capacity for boilers and turbines to the tune of 1.60 lakh MW for five years is being set up in the country. Out of this, 85,000 MW is already in operation. This has provided employment to around one lakh persons.
“There is a serious threat to Indian industry because it suffers from disadvantage of around 14 per cent of the unit cost due to the incidence of higher local taxes and duties as well as export support provided by the foreign Governments to their manufacturers by way of financial and other incentives,” the Minister said.
This is further exacerbated by Indian infrastructure inadequacies. This has resulted in the ordering of power plant equipment, corresponding to 71,725 MW capacity, by various Indian power producers, from foreign suppliers.
In addition, MoUs have been signed for another 34,320 MWs with foreign suppliers, Patel wrote.