India eyes sugar import tax to aid farmers, mills

Source:

Reuters India (16 Apr 2010): India eyes sugar import tax to aid farmers, mills

Livemint/WSJ (6 Jan 2010): Govt may defer sugar exports for 14 months

India could slap an import tax on sugar before the start of its 2010-11 season in October, to protect farmers and millers from a flood of foreign supplies as global prices crash and the rupee hovers at a 19-month peak. India's sugar cycle is also set to flip to a surplus, from the sharp deficit that boosted New York prices, as farmers have planted more cane in response to higher prices last year.

Last year India permitted duty-free sugar imports and set limits on stocks as output fell sharply and prices soared. Now, millers want the government to prop up falling prices. A tax by the world's top sugar consumer would discourage the imports India needs to build up stocks and put more pressure on New York raw sugar futures, which crashed to an 11-month low in April from a 29-year peak two months ago.

However at a time when the Indian Government is struggling to contain food inflation, it may simultaneously choose to impose a ban on sugar exports (as between June 2006 and January 2007 when the country reaped a bumper crop) or defer sugar exports by a few months. This temporary abolition of the export obligation will, however, come at a price. Sugar companies that had imported sugar earlier will have to pay a custom duty that could be as high as 60%.

This could result in a windfall gain for sugar refineries functioning as SEZ units (e.g. Silk Road Sugar Ltd - the JV between EID Parry and Cargill at the Kakinada SEZ, and the proposed refinery by Shree Renuka Sugars at the Mundra SEZ in Gujarat) as they are exempt from duties on imported raw materials under the SEZ Act of 2005 and put them in an advantageous position vis-à-vis refineries operating from the DTA. This may force the Government to look at ways to level the playing field, such as duties on sales to DTA as in the case of SEZ based power generating units earlier this year.

No plans for new import duty on power equipment

Sources:

Economic Times (22 Apr 2010): No plans for new import duty on power equipment: Govt

FT (23 Mar 2010): China suspends India power projects

No new duty will be imposed on imports of Chinese power equipment, the government informed Parliament today. 

The combination of a shortage of power generation capacity and a dearth of practising engineers makes India an attractive market for Chinese power equipment manufacturers. Moreover Indian manufacturers are unable to match, at least for the moment, the pricing of Chinese equipment and the project execution capability brought in by these companies, thus leading to a one-sided contest. By some estimates Chinese equipment accounts for approximately 25% of newly installed capacity.

BHEL is the country's largest public sector power equipment player and manufactures units that can generate 10,000 MW of power annually. The company plans to take this capacity upward to 15,000 MW by the end of the current financial year. It is therefore no surprise that BHEL was demanding a 10 per cent customs duty on import of equipment for projects awarded through the international competitive bidding route and mega power plants. At present, 5 per cent customs duty is imposed on equipment imported for projects awarded through the ICB process, while there is no duty on power equipment sourced for mega projects with a capacity of 1,000 MW and above. 

While financing institutions have recently been nudging power producers towards installation of  Indian or Japanese equipment citing quality concerns and lower operational life, the significant cost advantages of Chinese equipment ensure that there is no change in this trend at least for the time being.