Earthmoving: Retain 7.5% import duty on excavators

The earthmoving and construction equipment industry also seeks restrictions on the imports of used equipments into country and to rectify inverted duty structure.

Earthmoving and construction equipment are the vital cog in the accelerated infrastructure development in the country. Infrastructure shortfall is one of the impediments in the accelerated economic development of the country.

Realizing this, an infrastructure investment to the tune of $500 billion has been targeted in the 11th five year plant. Especially the road construction has been tardy in the last couple of years and the country's largest coal producer continues to fall short of its target mining. 

In ended March 2009 (FY 2009), the road contract awarded by the National Highway Development Authority (NHAI) is just for a distance of 642.4 km (or 6% of target) as against a target of 10,640 km under various projects of the National Highways Development Programme (NHDP).

But the situation has improved significantly in FY 2010 with the NHAI awarding contracts for road project totaling a distance of 944.73 km end August 2009, with another 42 projects in advanced stage of tendering expecting to be finalized before March 2010. The current UPA government has announced its plan to build 20 km of highways a day and this is all set to trigger demand for the country.

The indigenous earthmoving and construction equipment industry have invested substantially in building up manufacturing capacity and catering to the domestic needs in sectors such as road construction, power generation, coal mining, oil & gas, etc.

However road construction equipments such as concrete batching plants (capacity of 50 cub/ hr or more), stone crushers (stone type) etc have been allowed to be imported into the country at 0% customs duty and nil counter veiling duty even while the domestic manufacturer are to pay a excise duty of 8% on the same product. 

For certain sectors such as fertilizers, power, coal mining etc were allowed to import equipments at 0% or 5% customs duty at the cost of indigenous industry.

Though the import of mechanical shovels, excavators and other earthmoving equipment, falling under customs tariff headings 8429 52 00 and 8429 59 00, are allowed with a rebate of 20% on the applicable basic customs duty from 47 countries as per Customs notification 236/89 under Agreement of Global System of Trade Preferences (GSTP) the major quantum of imports is from Republic of Korea. Hence the existing customs duty of 7.5% on earth moving and construction equipment should not be reduced.

The other important issue that affects the indigenous manufacturers is import of second hand equipment without any age limit. Given the economic slump in the developed worlds the equipments that has lived its economic life has been dumped into the country adversely affecting the indigenous manufacturers.

In the budget 2006, levy of 4% special CVD was extended to all imports with certain exceptions which includes sectors like mega power projects, oil exploration where earthmoving and construction equipment are used and certain road construction equipments. This defeated the basic principle of this levy i.e. compensating the indigenous manufacturers for state level taxes such as CST/VAT.

Even while the finished equipment is allowed to be imported at 0% or concessional customs duty, the indigenous manufacturers were not allowed to import the inputs for such equipments at concessional rate. This has created a situation, which amounts to hindrance in manufacture within the country.

Industry wish list

The industry wants the current customs duty of 7.5% to be retained for equipments falling under Customs Tariff headings 84295200 and 84295900. It also wants the imports of used equipments into country to be curbed and inverted duty structure anomalies to be rectified. 

Analysts' expectations

Infrastructure development, which is being viewed as a panacea for economic development the Union Budget 20010-11 is all expected to facilitate accelerated development of planned infrastructure projects especially road construction, power generation projects and port development etc. Like wise the investment in augmenting energy sources is also to take preeminence. The budget could provide for measures that facilitate greater private investment and speedier execution of projects by sops as well as increased budgetary allocation.  This though cascade into increase in demand for earthmoving and construction equipment the rationalization of duty structure is not expected to forth-come. 

Stocks to watch

BEML, Gujarat Apollo Industries, Greaves Cotton, Atlas Copco

Outlook

The indigenous earthmoving and construction equipment industry is gaining momentum on increased demand, thanks to focus on accelerated development of infrastructure. 

Be we do not expect the rationalization of duty structure for construction and earthmoving equipment, as the construction lobby is stronger and as the government wants accelerated pace of growth in infrastructure development. As budget is expected to accelerate infrastructure development, it augurs well for the earthmoving and construction sector. 

But the competition from the global player will continue to be intense, as duty structure will remain lopsided against domestic producers. Overall, the outlook is neutral with positive tilt for the industry.

What do you expect from the forthcoming Budget for 2010-11? Tell us!