Duty Hike On Power Equipments Likely In Budget

According to articles in the media, an import duty on foreign power equipments is most likely to be imposed in the upcoming Union Budget 2012. We have already said in an earlier article  that an import duty of any quantum would not favour the power generators. In yesterday’s meeting, the govt. deferred a decision on the same. We now strongly believe that an import duty will be levied on the foreign power equipments in the budget.

We would like to remind our readers that currently, the various ministries and concerned authorities have differing opinions on imposing import duty on power equipments. The Heavy Industries Ministry wants a duty hike of 19% to fight the low cost foreign equipments. While Committee of Secretaries is in favour of a 19% duty, the Arun Maira Committee has suggested a 14% import duty. The Power Ministry is also proposing a 19% duty on power equipments. The Commerce Ministry is pushing for a 24% duty, while the Cabinet is in favour of a 19% duty.

We can see that all the concerned authorities are in favour of levying a duty, and there is a high probability of the import duty coming in at between 10%-19%. We believe that the govt. will go ahead with the duty hike.

The power companies are facing a litany of woes on various fronts, and slapping a duty will further increase their problems. Companies like Tata Power, Reliance Power and Adani Power, which have exposure to foreign power equipments, may see a drop in their share prices.

Risk inclined investors who would like to gain in short trades may look to buy the shares of power equipments companies like BHEL, Thermax, Siemens, L&T, BGR Energy, etc.