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New Delhi: Now, India’s power sector is moving towards a time when mere energy generation is not important, but capacity expansion is. As electricity demand continues to grow, the installation of renewable energy sources is increasing and critical infrastructure is being strained to keep up the pace, policy makers are faced with a dilemma when deciding whether or not to consider national security issues.
The balancing act has become more apparent recently, as the Centre has relaxed regulations for a few selected Chinese-involved firms.
Four power equipment manufacturers from China have been given a two-year license to compete for government tenders on power projects of critical importance in India by the government’s Ministry of Finance, which has allowed their manufacturing units to be set up in India. These projects, which were previously restricted despite being offered since 2020, are now available for the companies to bid for. The companies – TBEA Energy, Nanjing Electric India, New Northeast Electric India, and Taikai Electric (India) – can now submit bids for these projects. That exemption is only for these companies and has been specifically denied as not a precedent for others.
While it is not an opening up in government procurement for Chinese companies in general, the move is significant in the case of strategic infrastructure projects in India.
The exemption is an important topic to explain why it is significant.
In 2020, after clashes between India and China on the border, New Delhi tightened up its procurement procedures, mandating companies with land borders to India to apply for political and security clearance before bidding on government projects. The policy effectively excluded Chinese involvement in some infrastructure sectors, such as power equipment and power transmission.
Earlier this year, the government had sought this exemption from the Ministry of Power, saying that manufacturers who already have manufacturing units in India should be allowed to participate in projects that are indispensable for enlarging the country’s electricity transmission network.
Timing is important. The country is working rapidly to reinforce the transmission grid to serve the heavy loads of electricity demand and to meet the projected growth in renewable energy installations, especially solar and wind, which demand massive upgrades to the transmission network.
The increased demand is changing the procurement priorities.
As India’s economy has grown, the demand for electricity has increased as well as the urbanization and industrialization. In its target of achieving over 500 GW of non-fossil fuel power capacity by 2030, the country has significant investment needs in substations, transformers and high voltage transmission equipment.
The creation of that infrastructure will require not only funding, but also a steady supply of specialized electrical equipment. Industry participants have noted that in some cases, local manufacturing may not be enough to keep projects on schedule, especially with regard to some types of transmission components.
The latest exemption, in many respects, is a pragmatic way of trying to solve these supply issues and circumscribed to a specific category of companies that already have manufacturing bases in India.
There is only partial shift in policy and no reversal of policy.
The move has caught the eye due to its link with China but is not a total withdrawal of India’s procurement measures.
This exemption is only applicable to these four companies and lasts for two years. The documents also make it clear it cannot be used as a precedent for other companies in the future.
This means that security will continue to be a part of procurement policy, especially within strategic sectors.
The decision comes at a time when commercial ties between India and China seem to have started improving after the country’s diplomatic relations strengthened over the past year. Previously, it was reported that the government is reviewing the possibility of relaxing the rules for Chinese firms’ entry in certain areas where project execution has been constrained by equipment shortages.
Concerns about competition were underscored by market reaction
The development was met with swift response from the financial markets.
Several power equipment firms, such as Hitachi Energy India, GE Vernova T&D India and Siemens Energy India, have seen their shares plummet on the news of the exemption, with investors expecting more competition in government tenders.
The reaction echoes wider thoughts of how providing more manufacturers to public procurement could affect pricing behaviour and contracts in India’s quickly growing transmission equipment market.
Looking ahead
This move by the government reflects how strategic and economic factors are increasingly influencing infrastructure policy. India remains a proponent of domestic manufacturing as part of its wider industrialisation programme, but is also facing a number of practical hurdles for implementing one of the world’s biggest programmes for expanding electricity infrastructure.
It is not known if such exemptions are available in other industries. As of now, the Finance Ministry’s move seems to be limited in scope and is meant for facilitating critical power projects, not changing the overall policy landscape on Chinese involvement in government procurement.
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