Mandatory sourcing clause for UMPPs likely to violate WTO norms: Commerce ministry

'Procurement by government if not for commercial sale is not in violation of WTO rules'

The recent decision by an empowered group of ministers (EGoM), headed by Defence Minister A K Antony, to make sourcing power equipment from domestic manufacturers mandatory might be in violation of global trading norms under the World Trade Organization (WTO).

“The proposal of mandatory sourcing of equipment from domestic manufacturers is likely to violate the provisions given under the WTO Agreement on Trade Related Investment Measures (TRIMS),” a senior commerce ministry official told Business Standard.

According to the new standard bidding documents (SBDs), approved by the EGoM, for 4,000-Mw capacity ultra mega power projects (UMPPs), the government has made it mandatory for power producers to purchase equipment from domestic manufacturers. But according to WTO norms, this is considered anti-competition, amounting to violation of India’s commitment to global trading rules.

Such a move is expected to benefit Bharat Heavy Electricals Ltd, Larsen & Toubro and Bharat Forge, among others. At present, Reliance Power, which has floated three UMPPs in Madhya Pradesh, Andhra Pradesh and Jharkhand, is buying equipment from China’s Shanghai Electric.

The directorate-general (Safeguards) can temporarily restrict import of products by imposition of additional duty or quantitative restrictions (QRs) if Indian industry is “seriously injured or threatened with injury” caused by a “surge” in imports. This is an action in accordance with the WTO agreements on safeguards. This applies to import from China also, the official said.

The government has been implementing various schemes to increase the competitiveness of domestic industry to compete with cheaper imports from China and other countries. Some of these schemes include the National Manufacturing Competitiveness Programme (NMCP), the Credit Guarantee Scheme, the Credit-Linked Capital Subsidy Scheme, the Cluster Development Programme, the Market Development Assistance Scheme and the Vendor Development Programme for Ancillarisation.

There is also a caveat, says Abhijit Das, head, Centre for WTO Studies at the Indian Institute of Foreign Trade. “If the procurement is done by the government and it is not for commercial sale, then it is not in violation of WTO rules.”

Interestingly, the private power producers have also said the provision of mandatory sourcing of equipment was “retrograde and anti-competition” and that it only favours a few players. The proposal was originally mooted by heavy industries minister Praful Patel for kick-starting the UMPPs.

According to Ashok Khurana, director general, Association of Power Producers: “Any action to impose mandatory domestic equipment sourcing is impractical and not in the interest of the country's power consumers.”

TRADE BARRIER

* Mandatory sourcing clause for UMPPs likely to violate WTO norms

* New standard bidding documents approved by empowered group of ministers headed by Defence Minister A K Antony made domestic purchasing mandatory

* This will benefit Bhel, L&T and Bharat Forge

* Reliance Power only firm to float ultra mega power project

* Government taking steps to restrict Chinese imports