Rise in customs duty on coal may increase power cost: CMIE

MUMBAI: The government's move to increase customs duty on imported coal may increase the cost of power generation, a CMIE report has said.

Finance Minister P Chidambaram in the Union Budget, had announced a hike in import duty on coal. Besides, basic customs duty of two per cent was imposed on steam coal while countervailing duty (CVD) on imported coal was increased to two per cent from one per cent in the previous year.

"In India, majority of the steam coal is consumed by the power sector. Power companies here use imported coal to feed their capacities as domestic production of coal is not sufficient. Hence, increase in customs duty on coal is expected to drive the cost of power generation upwards in FY14," Centre for Monitoring Indian Economy (CMIE) said in its monthly report.

However, improvement in domestic coal availability will enable thermal power plants to increase their output, it said.

During April 2012-January 2013, the country's coal production increased by 5.3 per cent against fall of 1.5 per cent reported in the corresponding period a year ago, it said.