Level the playing field

A moderate rise in import duty on power equipment is needed

The government’s continued dithering over the key question of raising import duty on power equipment shows policy paralysis has not spared even a critical infrastructure sector like power generation. Almost two years ago, a committee chaired by Planning Commission Member Arun Maira concluded that there was a need for a level playing field for Indian power equipment manufacturers, who were getting edged out of the Indian market as a result of a surge in imports, in particular from China. Significantly enough, the committee had not recommended a blanket ban on imports of power equipment from China or any other country. Instead, it had made a sensible recommendation to levy a 10 to 14 per cent import duty on such power-generating machinery. It is an indictment of the slow pace of government decision making that no final decision on this issue has as yet been taken, even though several rounds of consultations with industry players and within the different central ministries have taken place. Last week, the Prime Minister’s Office asked the power ministry to take up the contentious issue of import duty on power equipment with the Cabinet, but it is anybody’s guess how many more weeks the government will take to make up its mind on this issue.

Meanwhile, the goal of creating a level playing field for the domestic manufacturers of power equipment is nowhere near realisation. Imports have been rising — at a compounded annual growth rate of 28 per cent in the last five years. In 2010-11, power equipment imports were estimated at $11 billion (Rs 62,880 crore at the current exchange rate). Domestic capacity to produce power equipment, too, has risen to 20,000 MW per year, ahead of the annual demand of 17,000 MW, assuming that the government will stick to the 12th Plan target of adding 85,000 MW of fresh capacity. With half a dozen more joint ventures slated to come on stream in the next two years, the total domestic power equipment manufacturing capacity will double to 40,000 MW. The electrical equipment industry accounts for about 11 per cent of the manufacturing sector, providing direct and indirect employment to 1.5 million people. If, as reports suggest, about half the fresh capacities to be set up in the current Plan period are based on imported power equipment, the domestic power equipment manufacturing industry will be severely undermined and the government cannot afford to remain idle.

True, power-generating companies will be opposed to the idea of any increase in import duty on such equipment and are understandably lobbying the government to prevent the imposition of a levy. The fears of a consequent rise in the cost of producing power from such projects may also be genuine. But for the government the choice should be clear. It should not allow its domestic power equipment manufacturing base to be eroded and must prevent any further increase in India’s dependence on imported equipment. Instead, it should move quickly to raise the import duty moderately, so that domestic industry gets a level playing field to compete with imports on even terms. A levy of an additional import duty of four per cent over and above the five per cent customs duty and 12 per cent countervailing duty, as proposed by the power ministry, is a pragmatic move and brooks no further delay.