Stimulus helped industry add capacity worth $30bn

Stimulus helped industry add capacity worth $30bn
Times of India, January 17, 2010, Page 21

TIMES NEWS NETWORK

New Delhi: The fiscal stimulus seems to have worked wonders for the industry which has added an additional capacity worth $30 billion in 2008-09 by importing capital goods taking advantage of the zero per cent import duty.

A Federation of Indian Chamber of Commerce and Industry (FICCI) survey reveals that capital goods imports increased five times to $30 billion in 2008-09 as compared to $6.5 billion in 2003-04; provoking, in fact, complaints from the domestic manufacturers against cheaper imports putting them at a disadvantage of at least 10%-20 %.

Their loss has meant gain for China which overtook Germany as the largest exporter of capital goods. Till 2006-07, Germany had the largest share in Indias total imports of capital goods. It was disloged by China in 2008-09 which accounted for 23% of the imports. Germanys share fell to 16%.

The worst affected domestic industries include manufacturers of construction equipment, machine tools, turbines and transformers. Taking up cudgels for them, the industry body FICCI wants the government to reverse the fiscal stimuli by proposing preference policy, correction in inverted duty structure and capital goods parks.

These imports are now hurting the domestic industry and have captured a significant market share in the country, the study notes. The construction equipment imports account for 112% of domestic production; imports of transformers are 50% of domestic output while that of turbines constitute 70%. Imports of generators and machine tools are 330% of domestic production.

The study says zero duty imports have resulted in various projects in power, oil and gas, fertilizer, mining on their increased dependence on imports while restraining the growth of domestic industry.

Arguing in favour of a more level-playing field for the domestic industry, the report says the cost disadvantage of domestic industry visa-vis foreign suppliers comes in the range of 11% to 22%.

While the imported capital goods face no custom duty, CVD (countervailing duty), SAD (special additional duty) or any other local tax for supply to mega power plants and other projects, the domestic industry has to bear all of them, added with higher cost of financing and infrastructure deficiencies which makes them uncompetitive, the study noted.