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BHEL & L&T to benefit: India plans import duty of 20% plus on imported equipment for power

Government owned BHEL and L&T who have developed over 30,000 mw capacity to produce boilers and turbines are in for good times ahead as the government prepares to impose duties of around 21% on imported power equipment. The matter will be given a formal nod in another two weeks time, a senior government official told ET.

The move has been taken in view of the capacity build up by the domestic equipment manufacturers who have been lobbying for some protection against imported equipment from China and Korea that come with special advantages of a soft loan.

Given the estimates drawn out by the planning commission, India will need to add almost 30,000 mw generating capacity annually if growth is maintained at 8% plus. Giving a push to domestic manufacturers becomes important, given the requirement in the long term, the senior government official said.

The protective duty, may give the domestic equipment suppliers a double benefit if the rupee continues to remain depreciated at the current levels. Analysts, however, believe that the rupee would stabilise by the time the duty comes to play for prospective projects. "Most of the current generation capacities including the mega and ultra mega power plants have already placed orders and this duty will not be applicable on them" the senior government official said.

It is estimated that foreign equipment makers account for almost 30% of the total power equipment market in India. The leading foreign equipment makers who have eaten into the domestic market are those from China, Korea and Japan.

Chinese equipment makers have bagged large projects like that of Reliance Power, while the Tatas, builders of another power mega power plant have opted for Korean power equipment maker over domestic companies. In most of these cases, these countries have offered soft loans to buy the equipment that come as an added incentive to the power companies.

According to the Association of power producers, the depreciation of the Rupee against both the US Dollar and the Chinese Yuan (CNY) in the past few months have been significant and may play a spoiler if duties are imposed. For example the average INR/CNY exchange rate for February 2010 was 6.79 while it was 8.70 on 15th June 2012, a depreciation of 28.16%, Mr Ashok Khurana of APPAI says in a letter to the power secretary written recently.