Cabinet to decide on import duty on power equipment, disinvestment

Some big ticket decisions expected at the Cabinet meeting scheduled for Thursday. The Cabinet is expected to take up the Power ministry's proposal to impose 21 per cent duty on imported power equipments. The duty structure likely to be cleared will include 5 per cent import duty, 12 per cent countervailing duty (CVD) and 4 per cent special additional duty (SAD). The move is expected to create a level playing field for domestic power equipment producers like BHEL and L&T.

Projects generating over 1,000 megawatts (MW) of power will have to pay the duty on imported power equipments. These projects are exempted from duties at present.

The move is expected to benefit at least six JVs including L&T-Mitsubishi Heavy Industries, Bharat Forge-Alstom, Ansaldo-GB Power, Toshiba-JSW, Thermax-Babcock and BGR-Hitachi entered into to produce power equipments.

The move, which has been in the works since 2010, will affect Chinese power-generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, and their Indian customers—power companies such as Reliance Power Ltd, Lanco Infratech Ltd and Adani Power Ltd. Any rise in the cost of the equipment may also lead to higher power tariffs.

The Forward Contracts Regulation Act (Amendment) Bill too is back on the Cabinet agenda. The proposal was on the agenda last week but was deferred due to opposition from Trinamool Congress.

The meeting is expected to approve the changes suggested by the Parliamentary Standing Committee to the Bill that has been hanging fire for a very long time and amend the Bill. The Parliamentary Committee wants greater autonomy for commodities market regulator Forward Market Commission (FMC) that also regulates the three spot online commodity exchanges, namely, Financial Technologies-promoted National Spot Exchange Ltd (NSEL), the National Commodity & Derivatives Exchange-promoted NSpot and Ahmedabad-based National Multi Commodity Exchange (NMCE).

The Committee's suggestions include freer entry for financial institutions and banks, mutual funds, and insurance companies be permitted to participate in forward market. This is expected to ensure better price discovery and low volatility. Options trading should be allowed for the benefit of farmers and new product launches like options and derivatives should be allowed under the law. Under the existing FCRA, hedging products such as options, indices are not permissible.

The Food and Consumer Affairs ministry hopes to introduce the FCRA Bill in the Monsoon session of Parliament.

Another issue that is back on the agenda is the Department of Disinvestment's proposal to sell 10.82 per cent government stake in Steel Authority of India (SAIL). Government holds 85.82 per cent in the country's largest steel producing company. Government hopes to mop up about Rs 4,000 crore from the stake sale.

The proposal to divest SAIL will be the first disinvestment proposal in this fiscal and it comes after the lukewarm response to ONGC sell off last fiscal.

The CCEA in April, 2010 had approved 10 per cent disinvestment of government's share in SAIL along with issue of 10 per cent fresh equity by the company in two equal tranches. But due to some issues with merchant bankers and volatility in the market conditions the government deferred the SAIL offer.