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The new policy does not specifically mention China as its target. While commenting on the new policy, however, India's minister of state for power, Jairam Ramesh, admitted that India is concerned over the proliferation of Chinese equipment suppliers in its power sector and that the country requires a new policy to encourage local manufacturing.
"Chinese equipment supplies in new thermal (power) plants constitute one-fifth of the total equipment supplies. The Chinese have offered strategic (read cheap) prices for nearly all projects they have bid for," said Ramesh. "We are unhappy with this development and we should ensure that Indian manufacturers supply the majority of the equipment. However, Chinese companies are encouraged to set up shop in India, but I am against direct imports."
According to the minister, the proposed new policy will make local manufacture a major pre-condition for all foreign power equipment manufacturers, and the directive will apply to all new projects barring those for which orders have already been placed.
The worry lines that are spreading in the corridors of power in New Delhi may not be without reason. From almost no presence in the Indian power equipment market a few years back, Chinese companies have managed to gain a fair share of India's power sector. The industry reckons that of the capacity addition target of 78,000 megawatts of power generation in the country's 11th five-year plan period -- 2007-2012 -- Chinese equipment vendors have bagged orders in projects involving 16,000 megawatts.
As a foreign country, China also has the largest share in India's power equipment segment, with Sepco Electric Power Construction Corporation, Dongfang Electric Corporation, and Shanghai Electric Corporation as major players.
According to Santosh Kamath, associate director in India of the global consultancy firm KPMG, Chinese companies have emerged as favorites because not only are they cost competitive -- cheaper -- but they have the capacity to supply on demand as well. "The problem with local power equipment companies is that their order books are full for years," says Kamath.
For instance, Dongfang Electric Corporation alone has a manufacturing capacity of 20,000 megawatts, twice that of BHEL, the largest engineering and manufacturing company in the energy-related infrastructure sector in India. There are many more local players including big names like L&T Ltd., Siemens, ABB, Crompton Greaves and Bharat Bijlee, but all have much lower capacities. And although all local equipment makers are adding capacity aggressively, most of the proposed new capacities are unlikely to be operational before 2012, since power equipment manufacturing has a gestation period of at least four years, say industry sources.
And this is one reason why many have also termed the latest policy "irrational and not supported by economic logic."
"It is at best protectionist at a time when the country needs to add so much capacity at an affordable cost," says an industry source, requesting anonymity.
The capacity of Chinese companies ensures quicker delivery, add experts, which is crucial in the power business because low equipment costs enable power companies to put in lower bids for projects and raise their chances of winning them.
However, the new policy's implications could go beyond just Chinese imports; all global power equipment suppliers from the United States, Japan, Germany, France, Russia and even South Korea will be affected by the move.
While GE of the United States, ALSTOM of France, and Voith AG and VA Tech AG of Germany are already major foreign power equipment suppliers in India, Fuji Electric and Mitsubishi Electric of Japan and Doosan Infracore of South Korea have been participating lately in India's huge power expansion plans.
Once the changes are announced, all these companies would be part of an international competitive bidding process for sourcing equipment. The main condition in this bidding, according to the new policy, would be that equipment suppliers would have to set up a local manufacturing base.
Out of the 78,000 megawatts, over 55,000 megawatts of capacity still remain to be executed in the next four years, requiring an investment of US$70 billion. Since power equipment constitutes 80 percent of a power project, this means that a huge amount of money is at stake.
Indeed after ports, aviation, telecom, oil and gas, more recently Internet services, and now power, the paranoia about China as a threat from both national security and economic points of view seems to be increasing day by day in India.
For that matter, ever since the eruption of border skirmishes between India and China in 1962 that gradually developed into an emotional posturing called "Chinese aggression," India and China have never been comfortable with each other, and that has been going on for decades despite many political attempts over the past decade and a considerable improvement in bilateral trade.
Even as the 2007-08 Indian Economic Survey shows that China has surpassed the United States to become India's largest trading partner -- with India-China trade at US$38.6 billion at the end of 2007, up from $166 million six years ago -- China continues to be on the sensitive list of India's foreign direct investments. According to reports, since last year investments from not only the Chinese mainland but also from Hong Kong and Macau are screened microscopically in India by the country's National Security Council.
Meanwhile, there is at least one Chinese company that sees an upside in the new policy. According to Wen Ya, chief representative in India for Dongfang, which is setting up a US$30-million manufacturing base in India, the new policy could end up being win-win for Chinese manufacturers.
"Two years back, the 'Made in China' label gave us a competitive edge. But in future, with costs going up in China, maybe a 'Made in India' label would help," said Wen in a comment to the local press.
