My views on Import Duty on Power Equipment

A large volume of power equipment is procured from China and therefore, the impact of this import duty on power equipment imposition will be in the form of higher project costs and likely higher power tariffs. Through my association as consultant with several of the bidders on projects like UMPPs, and other Case 1 and Case 2 tariff based competitive bidding projects, I have had the chance to observe that many players prefer to use Chinese equipment. This preference is not merely because of the price advantage associated with the Chinese equipment, which in any case tend to be substantial and critical for winning bids, but because there are better efficiencies associated with these manufacturers in terms of rare delays. With these companies, if orders are placed for a set of equipments with a certain time frame, it can be reasonably assumed that the Chinese will deliver the order on time. Pricing competitiveness and manufacturing efficiencies therefore have been seen to tilt the scale in favor of the Chinese equipment manufacturers and suppliers. There have been concerns raised on the quality of the Chinese equipment. However, in this context suffice it to say that China provides a large bandwidth of quality equipment and there are quality and pricing options available. Also, another interesting observation is that several global and reputed manufacturers have licensing arrangements with the Chinese suppliers, and under such licenses, the equipment produced may be as good as the one produced elsewhere.


Also, the technology transfer argument may not hold good entirely because several of the large equipment contracts placed with the Chinese manufacturers and suppliers have been observed to include a clause for creation of local facilities in India for manufacturing. This objective of technology transfer may be achieved through such arrangements where the large equipment procurers form alliances and partnerships with foreign OEMs or licensees to develop local facilities in India within a prescribed timeframe.

The prime concern that has been cited in favor of imposition of duties is that the Indian domestic market players, especially the government-owned manufacturers might lose out unless some kind of trade barrier is created. Import duty imposition is one such trade barriers. This import duty is possibly contemplated to be a short term measure which is likely to create a so-called level playing field between Indian and Chinese equipment manufacturers.

However, in principal, it is generally agreed that globalization has had positive impacts on Indian economy and Indian manufacturing sector is being opened up, as several other industries and sectors, for foreign participation and competition. While inviting and enabling private and foreign developers and investors for larger participation in power sector is a stated policy objective, the imposition of trade barriers seems like taking a step back in the equipment sector.