India to curb power equipment imports amid China tiff

India is set to tighten imports of equipment used in building coal-fired and renewable power plants amid tension with China. The steps are also part of efforts to boost domestic manufacturing of power equipment to support India's big expansion plans for electricity generation.

Utilities should not import any equipment, materials and goods for their plants in cases where there is sufficient domestic capacity available, power and renewable energy minister Raj Kumar Singh said on 23 June. Favourable financing will be given to utilities using domestic equipment, he said.

Delhi also plans to impose customs duty on solar modules, cells and solar inverters from August, although the quantum has not been fixed yet, Singh said.

To slash dependence on overseas supplies, utilities will also need to obtain prior permission from the government before importing power equipment if domestic capacity is not sufficient. Such imported equipment would need to be tested for malware and compliance with Indian standards. This mechanism will be in place for at least two to three years, typically the time taken for local manufacturing lines to come up. The country also plans to give policy and tax incentives to such manufacturing facilities.

The plans to expand local manufacturing are part of the government's latest pledge to boost India's self-reliance and to help the economy navigate the current slowdown. They also come at a time when tensions have escalated between India and China as their armies clashed recently. Beijing and Delhi have long-standing border disputes, but the latest violence is the worst in about five decades. The conflict has sparked calls in India for boycotts of Chinese products, raising the prospect of a deterioration in trade relations.

Trade tensions

The tensions could hurt India's big power sector expansion plans as a large part of the country's electricity generation capacity, both non-renewable and renewable, is reliant on Chinese technology. Several projects currently under construction require key equipment sourced from Chinese suppliers and vendors.

Around 45-53pc of India's coal-based generation capacity of 198GW has been developed sourcing main components from China, consultancy PwC India said in March. About 30pc of 62GW of the coal-based power projects that are under construction will also rely on equipment from China. The utilities depend on Chinese equipment suppliers for major overhauls and the supply of critical spares.

Meanwhile, India sources about 80pc of its solar modules from China. The supply chain has already been dented by the Covid-19 pandemic. Indian ratings agency Crisil estimated in March that nearly 3GW of under-construction solar power projects, worth 160bn rupees ($2.16bn), could be at risk of penalties if they miss their respective scheduled commercial operation dates amid the outbreak.

The country's power ministry and its renewable energy ministry, which both fall under Singh, have already set up units to vet foreign direct investments from neighbouring countries as well as departments to "hand-hold" viable projects to speed up their development.

By Saurabh Chaturvedi