India to tax imports to offset Chinese cost advantages

February 21, 2012

India’s cabinet may approve a proposal to increase duty on imports of power generation equipment to 19 percent to help local manufacturers Bharat Heavy and Larsen & Toubro Ltd, compete against Chinese suppliers.

The move, announced by a government minister and reported in Bloomberg, follows recent orders being awarded to Chinese suppliers from India’s Reliance Power Ltd and Adani Power Ltd as the country seeks to add 100-GW of generation capacity by 2017.

"There could be some cancellation of orders from Chinese equipment makers, which could flow to Bharat Heavy or any domestic player,” said Rohit Singh, an analyst with IDBI Capital Market Services Ltd. “Chinese equipment is cheaper and the percentage of their discounts comes to 15-20 percent, so this will make private players like Reliance and Adani think twice before ordering from abroad.”

A panel headed by Planning Commission member Arun Maira recommended in 2010 a levy of 14 percent in import duties to “bridge the disadvantage” faced by local manufacturers competing with overseas rivals, especially from China.

India currently imposes a 5 percent duty on import of equipment for projects with less than 1,000-MW capacity.