Will India be next Hub for Thermal Power Equipment OEMs? Analysing the Business Case

Key Policies and Initiatives: Giving Thrust to domestic Manufacturing

  • FDI Policy: 100% FDI is allowed under the automatic route in the electrical machinery sector, subject to all applicable regulations and laws (also applicable for Boiler, Turbine and Generator manufacturing).
  • Delicensing Policy: The BTG manufacturing has been delicensed. This means the global majors can easily enter the Indian market.
  • Tariffs and Custom Duty: The customs duty on power generation equipment (i.e. Boiler, Turbine and Generator) is 5% at present whereas transmission and distribution equipment attracts 7.5%customs duty.
  • Financial Support: In order to provide a further fillip to companies engaged in the manufacturing of an article or thing, the said benefit of additional deduction of 15% of the cost of new plant and machinery, exceeding INR 250 Million that is acquired and installed during any previous year ending on 31st March, 2017. This was a key announcement in budget 2015-16 which was done to facilitate the manufacturing sector and was certain to aid the BTG manufacturing as well.

Key Numbers and Facts for Thermal Power Equipment Manufacturer

  • Investment opportunities in generation equipment in India i.e. in boiler, turbine and generator manufacturing in India by 2022 is anticipated at USD 25-30 Billion.
  • By 2022, the T&D equipment market is anticipated to grow to USD 70-75 Billion.
  • Market-oriented reforms, such as the target of “Power for All” and plans to add 88.5 GW of capacity by 2017 and 93 GW by 2022.
  • Likely foreign investors under MII for Thermal Power Equipment Manufacturing (Including Generation and T&D equipment’s) like MHI (Japan), Hitachi (Japan), Babcock (UK), Alstom (France), Toshiba (Japan), Ansaldo (Italy), Colfax Corporation (USA), Schneider Electric (France), GE (USA) etc.

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Support Landscape

  • Tax Incentive: R&D incentives: industry/private sponsored research programmes. A weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act. A weighted deduction of 200% is granted to assesses for any sum paid to a national laboratory , university or institute of technology, or specified persons with a specific direction, provided the said sum is used for scientific research within a programme approved by the prescribed authority
  • Companies engaged in BTG manufacturing and having an In-House R&D Center: A weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction.
  • State Incentives: Apart from the above, each state in India offers additional incentives for industrial projects. Incentives are in areas like subsidised land cost, relaxation in stamp duty, exemption on the sale/lease of land, power tariff incentives, a concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies , special incentive packages for mega projects.

The level of state incentives vary as per state government’s facilitation. The key structure which vary among the state’s are specified under a range.

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Source: enincon research, Industrial Policies of States

 

 

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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