Budget 2018 impact: 10% surcharge on customs duty to pinch power sector

The 10 per cent surcharge on Customs duty for import of all items would hit the power sector. The equipment and generation industry is expecting an increase in cost across the value chain.
 
“Most of these items across the chain are governed by commodity pricing, which in the past few months has already seen an upswing. Items such as aluminum conductors, wires, etc, are procured in bulk at a fixed price and will see increase in cost. These items constitute 60 per cent of the cost of power,” said Harish Agarwal, vice-president, Indian Electrical and Electronics Manufacturers Association.
 
India would lose competitive edge while exporting in a highly fluctuating market, he contended.
 
So, too, for solar power panels, mostly imported. Close to 80 per cent of India’s solar power is based on imported content. Solar panels from last year on have been inviting 7.5 per cent Customs duty. Sector executives said a 10 per cent surcharge over this would escalate the cost and could impact power rates, too.
 
It also happens that the Directorate General of Safeguards Duty has in a preliminary report after investigating charges of dumping in solar cells, has suggested a duty of 70 per cent on import from China. The industry expects a hike of Rs 1-2 per unit in solar power rates if the duty is imposed.
 
Since electricity is not covered in the goods and services tax, there will not be any input tax credit; any change in cost due to surcharge would be passed on to consumers. “This will lead to escalation in cost of power, borne by the consumer,” said A K Khurana, director general, Association of Power Producers.
 
For imported coal-based power plants, it would translate into an increase in fuel cost as well. According to a CRISIL analysis, petcoke and imported non-coking (thermal) coal prices would increase 0.6-0.8 per cent and 0.1-0.2 per cent, respectively.

Dearer Gear

• Close to 80% of solar power is based on imported content
• Solar panels from last year on have been inviting 7.5% Customs duty
• The industry expects a hike of Rs 1-2 per unit in solar power rates if the duty is imposed
• There will not be any input tax credit in electricity
• Any change in cost due to surcharge would be passed on to consumers