The US Government has expressed concern over the proposed duty hike on power equipment imports.
The US Trade Representative, Mr Ron Kirk, has written to the Prime Minister, Dr Manmohan Singh, asking the Centre not to increase duties on import of such equipment, official sources told Business Line .
The 21 per cent duty hike proposed by the Power Ministry — meant mainly to protect local equipment firms such as L&T and BHEL from ‘cheap and low quality’ Chinese imports as well as create a level-playing field — will also hurt American equipment majors such as GE, it is said.
It is learnt that Mr Kirk has written that the duty hike will make power equipment imports more costly and, in turn, result in higher electricity costs for consumers.
Recently, the Association of Power Producers had written to the Power Ministry saying that increasing customs duty on equipment imports would further increase electricity tariffs and also lead to delays in capacity addition. About half of the coal-based capacities are dependent on power equipment imports, it pointed out.
The private power producers’ body also said that financial problems, fuel availability concerns and the distribution utilities being in bad shape had already resulted in higher generation costs. It added that if import duties were hiked at this point, it would adversely affect not only the sector but also the economy.
The Prime Minister’s Office had directed the Power Ministry to circulate a Cabinet note on the proposed duty hike. Currently, the Ministries of Commerce, Finance, Heavy Industries and Power are holding discussions on the issue, the sources said.
As of now, there is a 5 per cent customs duty on equipment imports for below-1,000 MW projects. The proposal to hike duties would also affect ultra mega power projects that are exempted as of now, the sources added.
Differences
Mr Kirk’s letter assumes significance in the backdrop of the recent differences between India and the US on a host of trade and investment issues. The US had already taken India to the World Trade Organisation (WTO) on the ban on poultry imports from the US, while India moved the WTO on US’ ‘high’ visa fee for skilled workers as well as duties on some steel products.
The US Secretary of Commerce, Mr John Bryson, during his visit to India in March, had also raised the issue of India’s “high tariffs” on capital goods such as power-generating equipment, some medical products, grapes, citrus, and other fruits. He had termed these as ‘barriers’ to building US-India economic ties and also said local sourcing requirements in sectors such as solar energy and IT/electronics (telecom) “makes it harder to invest in India.”
The US Ambassador to India, Ms Nancy J. Powell, in April expressed concerned over ‘challenges' to trade and investment in India, including “high tariff and non-tariff barriers, restrictions on foreign investment, lack of transparency, and defence offset requirements”.