India's power sector has pitched for restoration of import duty exemption on power equipment for mega projects. Last year, to protect the domestic industry from cheap Chinese imports, the government had slapped a 21 per cent customs duty on power equipment.    

The Association of Power Producers (APP) has suggested to the Finance Ministry that in view of the severe power scarcity in the country and high cost of alternative energy sources, customs exemption should continue for mega power projects till the country achieves sufficient capacity in thermal power.    

Industry observers say that duty imposition will not only increase production cost but also play spoilsport for getting cheap foreign credit. For instance, there are projects that have been funded by Chinese banks for supplying equipment to Indian developers.    

Also, the supply of equipment is quicker by foreign equipment manufacturers, which brings down the implementation timeline, industry trackers said.    

In its its Budget proposals for 2013-14 APP said that due to lack of taxes on the output of power plants and Cenvat credit, power equipment is the most highly taxed among core sectors. Restoration of customs duty exemption to mega power projects is imperative to reduce taxation.    

However, a lot will depend on how the Commerce and Industry Ministry views this. The Commerce Department does not believe there is much weight in the power producers’ argument that import duties on equipment would lead to a significant increase in power prices.