New duties boon for domestic manufacturers: L&T

Ravi Uppal, President, L&T Power, says that a 10% differential duty would have been more appropriate step taken by the cabinet. However, he says that the imposition of new duties will help domestic manufacturers but the imposition of new duties is not the same to the extent as was expected by the industry. I hope that this notification will cover orders which are in the finalisation stage.

Below is the edited transcript of his interview.

Q: This is certainly good news for you at L&T and BHEL who had been vociferous in demanding the imposition of import duty?

A: It’s definitely a step in the right direction. It was long overdue. The differential that it is going to create it is only to the extent of basic custom duty and the special application duty (SAD) of 5% and 4% respectively. Both combined give a differential of only about 9%.

We have been requesting the government to actually put a duty of about 10% and SAD of 4%. It will help us reduce the extent of disadvantage to local manufacturer’s vis-à-vis foreign suppliers and China, in particular.

Q: Do you believe that with the step taken today you now have a substantial cushion that the plain field has been leveled?

A: It is to the extent that the industry really desired. It is a right thing to do to start with having a differential of 5% and 4%. But we must understand that the countries which are competing against the domestic manufacturers have a huge support from their governments in terms of exchange parity, huge amount of structural subsidies and the incentives which they are given. So, I think this kind of support that needs to be created.

Though today’s decision will only partly meet the difference which exists, but I think it is still a step in the right direction and I am quite pleased about that.

Q: But do you see this having a significant impact as far as companies like BHEL and L&T are concerned because our understanding is that this will not be applicable for the orders already placed, this will be applicable only for orders to be placed?

A: I do not know the full details as to when it will come to application. In the last two years we have been approaching the government time and again requesting them to create a level playing field and in this period orders for equipment between 75,000-80,000MW have been placed with the Chinese vendors.

So that's a huge opportunity which has been lost by the Indian manufacturers who have made huge amount of investment to setup facilities in our country. Let's see what details the notification tells when it comes into force. I hope that it will cover orders which are in the finalisation stage.

Q: What is the situation as far as your order book is concerned because we understand is that the order book is full for the next two years for most domestic equipments companies?

A: The general impression is that, in the last one year there is a drastic fall in amount of orders placed and the companies are generating revenue and production out of the old stock.

First we need to revive the domestic market for power equipment and secondly provide them adequate services, safeguard against very cheap imports from the neighboring country. So I think we need to do are two pronged action so that the complete domestic market for the power equipment can be revived and the local company which as made huge investments they can get back into business.

Q: Overall demand sentiment as far as the power sector is concerned has been fairly muted on account of the lack of fuel supply agreement and so on and so forth. So what's the outlook now going forward?

A: As I said it's a step in the right direction but just imposition of duty by itself is not adequate. We really need to revive the demand for the power equipment. That will happen when we address issues like fuel, fuel availability, environment and host of other issues which have been adversely impacting the whole demand.