Approach Cabinet: PMO to PowerMin

The Prime Minister’s Office today asked the power ministry to take up the contentious issue of import duty on power equipment with the Union Cabinet again. Fearing loss of market share to cheaper imports, especially from China, domestic equipment manufacturers have demanded imposition of additional duties on imports.

Today’s decision was taken at a meeting chaired by prime minister’s Principal Secretary Pulok Chaterji and attended by senior officials from the ministries of power, heavy industries, commerce and industry and finance.In May, the Union Cabinet had deferred a decision on the matter.

“The power ministry has been asked to prepare a Cabinet note on the duty structure for equipment imports. We had already taken this matter to the Cabinet in February. The proposal would be renewed,” said Power Secretary P Uma Shankar. In February, the power ministry had proposed a 19 per cent duty on imports. Though he declined to divulge the details of the duty structure to be proposed in the new Cabinet note, an official said 21 per cent import duty — five per cent customs duty, four per cent additional import duty and 12 per cent countervailing duty — would be proposed in the Cabinet note.

The move to impose additional duty is significant, as about a half of the fresh capacities being set up in the current Plan period would be based on imported equipment. Currently, the import of power equipment for use in plants with capacities less than 1,000 Mw attracts five per cent basic customs duty, while plants with capacities of more than 1,000 Mw are exempted.

Earlier, a committee set up under Planning Commission member Arun Maira had proposed imposing 14 per cent duty on imports.

The power, commerce and industry, heavy industries and finance ministries have different views on the basic customs duty to be imposed. While the power ministry has pitched for five per cent customs duty, the commerce and industry ministry has proposed a duty of 15 per cent and the heavy industries ministry has asked for 10 per cent customs duty.

Domestic power producers are already up in arms against the proposal to raise the duty on equipment imports, arguing the move would raise input costs for at a time when lack of fuel is already threatening new capacity addition and leading to a rise in power rates.

“Any step at this stage that would additionally increase the cost of power generation and delay capacity addition would be detrimental to the sector, and the economy as a whole,” Ashok Khurana, director-general of the Association of Power Producers wrote in a letter to Shankar on Tuesday. Imposition of fresh duties would also add to the rise in input costs, owing to the depreciation in the rupee against the yuan, Khurana added.