Power equipment makers the country, which ramped up capacity in anticipation of a surge in demand only to see orders dry up and an influx of cheaper gear from China, may finally get help in the form of import duties in the upcoming Budget.
Indian equipment makers, including the joint ventures of global manufacturers, must pay a host of local taxes on their products while imported gear for projects in excess of 1,000 megawatts can enter the country duty-free.
Despite a crippling shortage of electricity, new power projects in India have been stalled by a lack of coal and gas, delays in government clearances and stretched finances at power companies, making for a dismal 2011 for local equipment makers.
"When India has got manufacturing capacity, given the stress on rupee-dollar, it is criminal to import things which you can make here," said R Shankar Raman, chief financial officer at Larsen & Toubro, referring to the country's worsening current account deficit.
The country's power equipment market was worth about $22 billion in FY11, according to the Indian Electrical and Electronics Manufacturers' Association (IEEMA).
Two years ago, a government panel recommended imposing a 14% duty on all imported power equipment -- a measure opposed by power producers looking for the best deal.
This week, a government panel deferred a decision on duties on imported equipment. However, given broad support within several ministries, manufacturers are hopeful of winning relief in the Budget, to be unveiled on March 16.
Top government economic adviser Pronab Sen gave credence to those hopes on Friday, telling Reuters there may be positive news in Finance Minister Pranab Mukherjee's Budget. "The trade deficit is going very high," he said. "[The] Finance Minister has also to be concerned about that."
Officials in New Delhi have talked about duties ranging from 14 to 24%, media have reported.
"It's a Budget proposal, so I won't be able to reveal more, but all I can say is we want to protect equipment makers because [it is] on our assurance that these manufacturers have come up," Power Minister Sushil Kumar Shinde said last month, referring to foreign manufacturers that set up Indian ventures.
CAPACITY GLUT
Japan's Mitsubishi Heavy Industries, Hitachi, Toshiba Corp, France' Alstom SA and US-based Babcock and Wilcox Co have all set up shop in partnerships with local companies, lifting India's thermal generation equipment manufacturing capacity to about 20,000 MW and putting it on track to reach 35,000 MW in two or three years.
That has created a glut. Barclays Capital forecasts demand from India of just 20,000 MW of thermal gear per year up to 2017.
Despite that, India has been a fertile market for China's big power equipment makers, which in the 12 months through June 2011 generated 30-50% of their orders from the country, according to a report by CLSA.
Chinese companies such as Shanghai Electric, Harbin Electric and Dongfang Electric provided about one-third of the 50,757 MW of new thermal power capacity added since April 2007, government data show.
Indian companies complain that Chinese manufacturers have a currency advantage and the benefit of cheap export financing.
"We want this country to reward the companies that have played the game the right way, by having local content, local qualifications, local competence and local investments," Grégoire Poux-Guillaume, executive vice president of Alstom SA, said on a visit to India in January.
State-backed Bharat Heavy Electricals (BHEL), the top local maker of boilers, turbines and generators, saw its market share shrink to 40% of advance orders booked thus far for the government five-year planning period ending 2017, from 55% in the previous five-year period, brokerage CLSA said in a report. The Chinese share grew to 43% from 31%, it said.
However, CLSA and others expect India to impose import duties of 19%. This would result in a 70-80% drop in orders from India for Chinese producers, CLSA said.
"India seems set to impose duty on import of power equipment in the upcoming budget, with exemptions for a few large projects," it said.
The Association of Power Producers, which represents private producers such as Reliance Power and Tata Power, has asked the government not to levy a duty as it would raise costs, possibly forcing them to raise tariffs, which would hurt capacity addition.
"Any step at this stage which increases the cost of power for consumers and leads to delays in capacity addition would be very detrimental to the sector," the company wrote in a letter to the prime minister's office.
Rajesh Jain, chairman of power gear maker Emco, whose customers include government-run Power Grid and state electricity distributors, many of which are in poor financial shape as tariffs have not kept up with costs, envies his competitors from across the Himalayas.
"I would love to go and sit in that country and export into India, rather than crack my brains every morning: how do I get competitive, how do I get paid by utilities?"
