Govt mulls control order on capital goods imports

Move to protect domestic industry, from surge in inflow of second-hand equipment

A control order on imports is on the cards, at least in the capital goods sector, where the domestic industry is reeling under pressure from cheaper imports.

The proposal is being circulated among the departments concerned. It has already moved ahead from the National Manufacturing Competitiveness Council and the department of heavy industries. Currently, the department of industrial policy and promotion is considering it, officials close to the development told Business Standard.

The proposal is to have a non-tariff measure that would set quality standards for import of capital goods. The aim is to discourage second-hand and sub-standard imports. These standards would also force the domestic industry to improve quality. However, the control order may not tackle import of new equipment, officials said.

The domestic capital goods industry has seen declining growth in production for many months. The growth was a negative 16.5 per cent in December; cumulative growth for the first nine months of this financial year was minus 2.9 per cent, according to government figures.

At present, import prices of second-hand capital goods are on par with or below the fresh ones manufactured here. Also, the import of new equipment, especially in the power sector, has been hurting the domestic industry — primarily the low cost at which Chinese manufacturers provide equipment.

The construction, textile and machine tool sectors are among those where used machinery is imported in large numbers. The Federation of Indian Chambers of Commerce and Industry (Ficci) has given a note on a non-tariff mechanism to check import of used capital goods. It has suggested pre-shipment inspection of used machinery at the port of departure, along with restriction on port of entry. Also, rules to clarify terms like second-hand, used, refurbished, recycled, repaired, etc, used interchangeably.

The note cites an example of mobile telescopic truck cranes to buttress arguments on cheap imports destroying the domestic capital goods industry.

It says sale of the domestic manufactured mobile telescopic truck cranes was just 20-30 units yearly, while sales of used equipment in this category is between 400 and 600 units. Imported used machinery dominates the market of other cranes, too, the note says. On power equipment, the note said import of second-hand machinery should not be encouraged, where indigenous sources are adequately available.

Besides non-tariff measures, Ficci also called for higher customs duty on import of second-hand machinery, by at least 25-30 per cent over that for new machinery. The Cabinet was to consider a proposal on increasing the import duty on even new power equipment to 19 per cent, following protests from domestic power equipment producers against cheap import. A decision was deferred at a recent Cabinet meeting.

Currently, capital goods imported under various schemes of the government get exemption from import duty. Ordinarily, the import duty varies from five to 7.5 per cent.