Government to consider levying 14% import duty on power equipments
Shrikant / 04 Nov 2011
Indian heavy engineering companies such as L&T, Thermax, etc., who have witnessed poor order inflows in the September 2011 quarter, have a reason to cheer. The Ministry of Heavy Industries has decided to push the proposal to levy 14% import duty on power equipments to provide level playing field for the domestic power equipment manufactures. This includes 10% customs duty and 4% Special Additional Duty (SAD).
Currently, there is a 5% import duty on the order of equipments below the capacity of 1000 MW. There is no import duty for equipments above 1000 MW, mainly to facilitate the growth of the power sector. This has seen large orders going to foreign equipment manufacturers. It is estimated that total equipment orders of upcoming capacity of about 37626 MW have been placed with the foreign manufacturers, which primarily include Chinese companies. With zero import duty on the equipments, Indian companies have lost the cushion to the foreign companies.
Though this seems like good news for the capital goods sectors, the power sector, which is already facing a vast range of problems, may be further hurt. Companies like NTPC, Lanco Infratech and Reliance Power, who have ordered foreign equipments, will be hurt if this proposal is held by the government. New projects, mainly Mega and Ultra Mega Power Plants will be in the red zone, which will be based on imported equipments. Companies now need get their projections right in order to bid for such projects. Indian power producers are already in trouble due to issues like coal shortage and power tariffs, and will now be fighting on the third front of imported equipments. There seems no respite in their never-ending list of problems.
On the other hand, companies who have good exposure to power sector, like Crompton Greaves, Bajaj Electricals, BHEL, Bharat Forge, Larsen and Toubro, Thermax and BGR Energy, would be the beneficiaries. Companies in the capital goods sector are currently witnessing a slump in their order books due to issues like the slowing of the economy, high interest rates etc. We believe that this proposal will have a good impact on the order books of these companies.
Currently, there is a 5% import duty on the order of equipments below the capacity of 1000 MW. There is no import duty for equipments above 1000 MW, mainly to facilitate the growth of the power sector. This has seen large orders going to foreign equipment manufacturers. It is estimated that total equipment orders of upcoming capacity of about 37626 MW have been placed with the foreign manufacturers, which primarily include Chinese companies. With zero import duty on the equipments, Indian companies have lost the cushion to the foreign companies.
Though this seems like good news for the capital goods sectors, the power sector, which is already facing a vast range of problems, may be further hurt. Companies like NTPC, Lanco Infratech and Reliance Power, who have ordered foreign equipments, will be hurt if this proposal is held by the government. New projects, mainly Mega and Ultra Mega Power Plants will be in the red zone, which will be based on imported equipments. Companies now need get their projections right in order to bid for such projects. Indian power producers are already in trouble due to issues like coal shortage and power tariffs, and will now be fighting on the third front of imported equipments. There seems no respite in their never-ending list of problems.
On the other hand, companies who have good exposure to power sector, like Crompton Greaves, Bajaj Electricals, BHEL, Bharat Forge, Larsen and Toubro, Thermax and BGR Energy, would be the beneficiaries. Companies in the capital goods sector are currently witnessing a slump in their order books due to issues like the slowing of the economy, high interest rates etc. We believe that this proposal will have a good impact on the order books of these companies.
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