Import of power generation equipment from China has been a contentious subject for a while in India. There are fears that cheap equipment from our neighbour has the potential to badly dent domestic equipment manufacturers.
As reported in Mint on Monday, the Union minister for heavy industries, Praful Patel, has called for a review meeting on the subject. The prevailing mood, as the story details, is in favour of imposing an effective tax of anywhere upto 17-18% on power equipment imported from China.
Purely on commercial terms, such a tax is not warranted. What it does is to implicitly tax consumers of power who will have to bear the burden of higher power prices. Further, government should have no role when it comes to choices made by private firms when they decide the kind of power equipment they need and the countries from where they source it. By imposing taxes on imports, the government is imposing its will on these choices. If this is a ground, it should desist from intervention.
Copper bars during the manufacture of dynamo units (File photo Bloomberg)
There is, however, one ground on which the government can legitimately interfere in such decisions—on strategic grounds. There is a wide area for such intervention. At one extreme, strategic choices can involve efforts to ensure that domestic industries don’t die because of unbearable competition from foreign firms. Seen from this perspective, there is little difference between strategic choices and the so-called “infant industry” case. Purely from an economic standpoint, this is a discredited argument. A narrower, and more reasonable case, is that of the danger of importing equipment from a country with which one’s political relations are fraught with uncertainty. In that case, issues of supply of parts, upgrade of technology and other factors enter the equation.
The larger question is that of taking a holistic view across sectors. A similar question was raised with respect to telecom equipment some time earlier. What the government needs to clarify is whether it should be undertaking a sector-by-sector review or merely reviewing cases based on expediency. Unless these questions are answered in a transparent manner, it should exercise care in taking such far reaching decisions.
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