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Murali Gopalan
MUMBAI, Mar 3: The Government has allowed the Oil & Natural Gas Corporation (ONGC) and Oil India to import specific goods used in petroleum operations at nil import duty, a move that will result in the capital goods industry incurring losses worth several thousand crores of rupees. The list of affected companies will include, among others, Larsen & Toubro, Bharat Heavy Electricals, and Kalyani Seamless.
The two oil public-sector units (PSUs) were paying 43 per cent duty, and the amendment in the budget will give them the opportunity to go in for direct imports instead of sourcing them from local makers. This would, in turn, cripple the capital goods industry, as it would put the sector at a cost disadvantage of nearly 25 per cent (see table for breakup).
"There is no way we can cope with this development, and most of us will need to close down operations," industry sources said. Representatives have dashed off a letter to the finance ministry stating that there is no way they will be able to survive inthis changed scenario. The sector has asked for restoration of normal project import duty of 30.5 per cent which, in turn, will assure the Government much-needed revenue. The other demand is to get all benefits under para 10(3) of the Exim policy as also a price preference of 20 per cent.
The industry has also sought from the ministry changes in the bid-evaluation criteria "to reflect actual transaction costs incurred in relation to import bids". Simultaneously, non-loading of central and states sales tax on domestic bids is to be carried out. The crucial point here is that all these measures need to be implemented in tandem if survival of the capital goods industry is to be ensured.To quote the explanatory memorandum to the budget, under `Exemption to ONGC/Oil India', "Specified capital goods/consumables imported by ONGC/OIL for petroleum operation has been exempted at par with imports under New Exploration Licensing Policy lease agreement." These are the goods specified in list 11 "required in connectionwith petroleum operations undertaken under petroleum exploration licences granted by the Government of India to ONGC and Oil India on nomination basis". The list of such goods is exhaustive and includes all types of drilling rigs, jackup rigs, helicopters, including assemblies/parts, line pipes for flow lines, oil field chemicals, inclusive of synthetic products used in petroleum operations, derrick barges, mobile/stationary cranes, trenchers, pipelay barges, single buoy mooring systems, mooring ropes, etc. There are over 300 such items on the list, and it is clear that there will be no business for the capital goods industry if it has to compete with imported items.
Senior ONGC officials admitted that the notification was to their advantage and that they would not be inclined to place orders with local makers. "We would consider this only if they can quote competitive prices, an impossible task," they added. Senior Government officials, however, felt that this amendment was made to ensure that both ONGCand Oil India would be assured world-class products for crucial operations like exploration and production.
This, they added, was vital at a time when India needed to increase crude output through a series of new techniques like deepwater exploration.The setback to the capital goods industry will be enormous, and observers say it is ironical considering the finance minister had stated: "Conceptually, I am averse to zero customs duty since our domestic industry generally merits some minimal protection. I have reviewed the entire list of such commodities and am proposing imposition of 5 per cent duty for some of these."
The budget had also rationalised the import-duty structure of project imports. Under this rationalisation, power generation, coal mining, refinery, telecom and fertiliser projects will now attract a nominal basic customs duty of 5 per cent. They will be, however, subject to applicable rates of countervailing duty and, as the finance minister said, the net impact of these changes will not besignificant in most cases.
Insight
Problems for seamless tubes firms
For the capital goods industry, the budget has a sop in the form of a concessional duty of 25 per cent on imports of special steels, against 35 per cent last year. With raw materials forming up to 50 per cent of production cost, the saving would be substantial. Nevertheless, the seamless tube sector will suffer badly. Kalyani Seamless Tubes has cut losses beacuse of higher prices charged due to the additional 4 per cent across-the-board customs duty and non-modvatable duty charged on imports. With these duties removed in the budget, the firm will find it difficult to come out of the red.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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