New Delhi: To discourage the purchase of cheap power equipment from China and to provide a level playing field to domestic manufacturers, the power ministry has proposed a 5% tariff on such imports from the neighbour.

The plan may face flak from key ministries.

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“It is not a good proposal," said a commerce ministry official. “They are going back to what the committee of secretaries (CoS) said last July... We are not agreeing to the structure of their proposal."

An official in the department of heavy industries, too, said the draft note favours the CoS’ recommendations and not the suggestions of the Arun Maira committee. Heavy industries minister Praful Patel earlier this month said the ministry supported “the recommendations of the Maira committee".

Planning Commission member Arun Maira had recommended a 10% customs duty and a 4% special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production.

The CoS recommended a 5% import duty on power equipment imports from China apart from a 10% countervailing duty and a 4% special additional duty. But under this plan, importers would have to pay only a 9% duty in most cases as the countervailing duty (CVD) would not be applicable.

“CVD is to counter excise duty on power equipment. But as minimal excise duty is imposed on power equipment, hence, this virtually means CVD is not applicable on such imports," the heavy industries ministry official said, adding that the government plans to implement the CoS’ proposal before the Union budget for the next fiscal year.

“The power ministry in the draft has also said that it will be applicable from the day the cabinet passes the proposal," said the official. “The draft should go to the cabinet in a month’s time."

Another heavy industries ministry official said the ministry broadly agrees with the draft note, but is yet to discuss it in detail. A power ministry official said the proposal is not meant for orders already placed. “One can’t have a change in policy with retrospective effect, but only prospectively," he said on condition of anonymity.

Domestic firms including Bharat Heavy Electricals Ltd and Larsen and Toubro Ltd have been lobbying with the government to limit imports of cheap equipment from China. Heavy industries minister Patel, after a meeting on 3 November with representatives of various ministries and these companies to discuss the matter, said, “Everybody agreed that there is a disadvantage to local manufacturers. We are proposing its (custom levies) roll-out in 2012."

At present, a 5% duty is levied on equipment imported for power projects with capacities less than 1,000 megawatts (MW). Equipment imports under the mega power policy for thermal projects of 1,000MW and above attract zero duty.

The power ministry was not in favour of such a move until after the start of the 12th Five-Year Plan period (2012-17).

The CoS last year agreed to impose the tariffs, but could not get a final clearance from the government.

On 8 November, commerce secretary Rahul Khullar said a compromise formula had to be worked out as there were differences among departments on the issue.

Sambitosh Mohapatra, executive director, PricewaterhouseCoopers, said the government has to strike a balance between its objective of achieving 75,000-100,000MW power generation capacity in the 12th Plan and the concerns of domestic manufacturers. “The government has to look at its larger objective of power generation capacity," he said. “While it beefs up the domestic manufacturing capacity, it still has to depend on imports to meet the 12th Plan target. So the increase in import duty can be done in a phased manner."

Power utilities place orders overseas largely because of the inability of local manufacturers to meet growing demand.

Chinese imports are relatively cheaper because equipment makers from that country benefit from low interest rates and an undervalued currency. Undervaluing the currency makes exports cheaper and increases the demand of products.

India’s move to curb Chinese imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China’s favour. Indian exports to China were valued at $19.6 billion in 2010-11 and imports from that country $43.5 billion.

Utpal Bhaskar contributed to this story.