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Power gear makers gives thumbs up to GST but lack of investment still the biggest concern

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Source: The Economic Times
Saturday, July 08, 2017

 MUMBAI: Power equipment makers said the introduction of the Goods and Services Tax (GST) will bring them close to a "level playing field" with the Chinese, but the fundamental problems in the sector persist and lack of orders is bleeding these units. 


The 18 per cent GST that applies to Indian manufacturers will also be applicable on imports now. But manufacturers point out that the Chinese still have access to cheaper credit and inputs and they would be fighting for a slice of the shrunk pie of orders in the domestic market since there are no signs of recovery in capex for thermal power. 

Capital goods manufacturers in the power sector have been complaining that their Chinese counterpart have an undue advantage over them and are able to price products cheaper. Of the 117 gigawatts of projects ordered for the 12th Five year Plan, almost 45 per cent were bagged by foreign players led by the Chinese. 

The 13th plan has not seen any major fresh investment in the conventional power sector, leaving companies like BHEL, L&T, Thermax among other with dry order pipelines. 

“Post GST, we would have level playing field. But, we see concerns and challenges over its implementation for next 3-6 months. In our power business, tax is either reimbursable or inclusive. The tax arbitrage enjoyed by the Chinese manufacturers will not continue after GST,” said Shailendra Roy, member of the board and whole-time director (power, heavy engineering & nuclear), Larsen & Toubro. 

“It is a step towards level playing field with foreign makers but our GST is still among the highest in the world. The Chinese enjoy other costs advantages that we don’t. All Indian power equipment makers are making losses; the boiler-turbine generator industry alone is making losses of a couple of thousand crore,” said M S Unnikrishnan, managing director and chief executive officer of Pune-headquartered Thermax.
Companies like L&T, JSW Energy, Bharat Forge, Thermax and BGR Energy formed joint ventures with foreign partners and committed huge investments to set up units to manufacture thermal power boilers and turbine generators in India. The industry is running at 25-30 per cent capacity utilisation as new orders have been far too few in the last years. 

Despite the government’s attempt though the Uday scheme to revive the state-run power distribution companies, the key customers for power generators, discoms are still reluctant to enter power purchase agreements. 

“The Indian growth story is true, it would take 2-3 years before we see this phenomenon happening and its commensurate power growth generation would be evidenced only after 5-6 years. This period of 5-6 years is the period which could witness much lower capacity additions, thereby boiler and turbine manufacturers will have shops running at capacity utilization of as low as 25-30 per cent,” Roy of L&T said. 

Some of the power equipment makers like L&T have started supplying components or orders for jobs won by their JV partners in overseas market to keep their capacity engaged. While it gives them some respite, they are still making losses. 


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