The Heavy Industries Ministry has written to the Reserve Bank of India to withdraw the permission for external commercial borrowings (ECBs) denominated in Chinese currency, for power plants.
If approved, such a move will help domestic power generation equipment manufacturers like BHEL, Alstom, L&T besides others, compete against cheaper Chinese imports.
At present, Indian companies, in power and other permitted sectors, can raise ECB up to an equivalent of $1 billion denominated in renminbi (RMB).
“RBI, in July 2012, has permitted External Commercial Borrowings (ECBs) from China in their currency. It is apprehended that availability of long-term, low interest export credit from China will further distort the status in favour of Chinese manufacturers, who have already gained almost 50 per cent share in the Indian power generating equipment market,” Heavy Industries Minister Praful Patel wrote in a letter to RBI Governor D. Subbarao.
He further mentioned that this matter has already been taken up with the Finance Minister.
“I am bringing this to your notice that as the Master Circular No. 12/2012-13, dated July 2, 2012 on this subject has been issued by the Reserve Bank of India. I would request you kindly to look into the matter and consider withdrawal of the aforesaid circular for power plants with immediate effect,” Patel said in his letter to the RBI Governor.
Patel has also suggested providing finance to the domestic industry on the same rates as Chinese export credit, if the ECB circular is not withdrawn.
“This move would level the playing field with respect to the finance cost and will certainly help the domestic players to compete effectively vis-à-vis their foreign counterparts,” he said.
Patel’s Ministry is the nodal one for capital goods industry which includes power generating equipment companies.
Industry sources feel that earlier it was cheaper imports mainly from China and now cheaper finance for Chinese companies are making things very difficult for domestic manufacturing companies. Meanwhile, domestic companies got some relief last year when import duty was raised on imported equipment.
However, the problem has not been solved completely as various companies are either setting up or augmenting capacity for manufacturing steam generators and turbine generators.
For example, public sector giant BHEL has increased its capacity to 20,000 MW from 6,000 MW. Patel said that capacities are already under-utilised and there is a fear that the gap will increase due to sluggish growth of power sector.
“It is apprehended that further investment and the development of the domestic manufacturing capacities would be seriously impeded in the years to come and the country may have to depend upon imports when the demand in the sector again picks up.
“To avoid such a situation, the outflow of orders to foreign suppliers needs to be checked and the domestic capacities need to be adequately utilised,” Patel said.