Vote on Account 2014: Growth of capital goods largely dependent on addition in installed power capacity

Journey so far:

The growth of capital goods sector in India has largely been dependent on the addition in installed power capacity. In the last two five year plans incremental capacity added by 94832mw, which out of total installed capacity of 2.33lkh mw, nearly 41% of capacity addition happened in last two five year plan.

Going with the trend capital good major BHEL has increased the capacity to 20,000mw from almost 6000mw a decade ago. Now all BTG players BGR energy (4000mw), Thermax (3000mw), Dosan(4000mw), Bharat forge(5000mw)and JSW (3000mw) are putting up capacity. Even supportive power equipment players like Cromptron Greaves, KEC, Kalpataru transmission have expanded their capacities.

Post announcement of the Mega power policy by Government in 1995, Indian power equipment player were facing tough times on back of rising competitive pressure from Chinese players. After pace of capacity addition moderated on delay in projects due to environment and policy hiccups, most of India players pressing hard to impose additional duty on imported power equipment. A year back Government hiked import duty on equipment to 5%, 12% counter veiling duty and 4% special additional duty, which on cumulative basis total duty now constitute to 21%. Now for all upcoming UMPP domestic sourcing has also been mandatory.

Looking ahead:

The industry is looking at more impetus to power industry, which should be bereft of any policy hindrance and complex land acquisition mechanism. Under the current five- year plan installed capacity is expected to rise by 88536mw, out of 78% would be coal based. With 17GW of projects under implementation still large part is stuck due to environment, land or coal linkage problem.

Though capital goods player are ramping up capacity on back additional installed capacity, but with elongated timeline making tough time for the sector. The problem can gauged from fact BGR energy had to pull out for NTPC Barapali plant after delayed by almost three years.