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India proposes to triple tax on Chinese power equipment

December 14, 2011

After standing tall against the developed world on the Kyoto Protocol and having brokered peace post the military exchange last week, India threw China a triple whammy yesterday.  In order to protect her domestic industries, New Delhi’s power ministry endorsed a plan to almost triple import duty on generation equipment to help local manufacturers Bharat Heavy Electricals Ltd. and Larsen & Toubro Ltd. compete for orders with Chinese rivals.

India levies a 5 percent tax on imported equipment for most power projects. Imports for large plants–such as coal-based units of 1,000 megawatts and more–and projects located in certain regions are tax free.

A move that has been played before, and which has reverberated badly back to India proposes increasing import duties to 14 percent for all electricity generation equipment. India which is dire need to scale up its power infrastructure, has sought a majority of her power equipment deals from across the Himalaya’s over the past few years. India plans to add about 117 gigawatts of power in the next five-six years to light millions of rural households and help cities fight frequent blackouts.

China offers India large, well priced power equipment that can be installed in a jiffy, bundled with after-sales services and quality grantees. Private Indian players such as Reliance which are a major proponent of Chinese equipment haven’t had any issues with Chinese manufacturers and continue source telecom and power equipment from the Middle Kingdom.

Chinese suppliers won 34 percent of new equipment orders for additional capacity that’s planned in Asia’s second-fastest growing major economy in the five years ending March 31, according to the Ministry of Power. The additional duty may help ease India’s budget deficit, which reached US$59 billion in the seven months to October, or 74.4 percent of the current financial year target.

Bharat Heavy faces competition from Chinese equipment makers such as Shanghai Electric Group Co. and Dongfang Electric Corp Ltd., which want to tap into Prime Minister Manmohan Singh’s $1 trillion infrastructure investment plan, including $400 billion for power.

Orders were placed with Chinese companies for equipment for 21,100 megawatts of the 61,237 megawatts of capacity expected to be added in the five years ending March, junior power minister K.C. Venugopal told parliament in New Delhi on Dec. 9.

“This could be a money-maker for the government, that’s one reason why it may change its mind this time around,” Bhargav Buddhadev, vice president at Ambit Capital Pvt., told Businessweek by telephone. “For Bharat Heavy, this is nothing but a sentimental positive. This doesn’t change our outlook for the company as it won’t deter Chinese companies from competing.”

 

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