Budget 2012: Custom duty on foreign gear likely this Budget, says Kotak

Lokesh Garg of Kotak Institutional Equities expects customs duty on foreign equipment likely this Budget.

Currently, equipment imported for projects of less than 1000 MW capacity attract 5% customs duty, while those above that enjoy exemption. The government had earlier deferred a proposal to increase duty on import of power equipment.
Garg says the prospective implementation will limit gains for capital goods companies. "The immediate benefit for equipment contractors may not flow through. But it may also increase costs for the utility companies in terms of setting up of projects, which is not necessarily a positive thing," he told CNBC-TV18 in an interview.
The plan to levy higher duty on overseas power gear is targeted at providing a even playing field for domestic manufacturers which are battling intense competition, mainly from their Chinese counterparts. Below is the edited transcript of Garg's interview. Also watch attached video. Q: Do you think the finance minister will make any announcements either on import duty on power equipment or in terms of setting up or modalities of the National Electricity Fund for the SEBs?
A: In my view, custom duty on equipment would possibly come through. The thought process of the government has been that as the 11th plan ends, custom duty can be imposed on imported power equipment. To what extent it would help, is slightly doubtful. The government is putting on a prospective basis, which means that it will not be applicable to the plants which has already been conceptualized and have made progress in terms of approvals, construction and maybe ordering activities. This is actually a large number and could actually meet near term demand, which I am referring to the 12th plan demand till FY16 or FY17.
This means that immediate benefit for equipment contractor does not flow through. But simultaneously, it will potentially increase cost for the utility companies in terms of setting up a project, which is not necessary a positive.
Also, while import base competition has been an issue in the past, incrementally, domestic competition possibly matters more. There has been much larger change in terms of currency in favour of Indian production versus Chinese currency and that possibly is likely to and is already having impact on the business. Q: What do you expect the Budget to contain then for the infrastructure space? Anything significant in terms of duty or do you think the government will be able to augment its overall outlay on infrastructure significantly given the very constrain nature of fisc at this point?
A: In my view, outlays on infrastructure specified in the Budget don