Indian electrical equipment industry wary of Chinese service hubs“A level playing field, and provide necessary safeguards to the domestic industry that is facing non-market competition on account of cutthroat below-cost entry level prices offered by Chinese manufacturers,” IEEMA observes.During his recent visit to Beijing, the Indian Prime Minister has agreed for setting up of power equipment service centres in India by the Chinese manufacturers. This decision has not gone down well with the Indian manufacturers. They are concerned about losing market share to Chinese makers.The Indian electrical equipment industry, over Rs. 1.30 lakh crore in 2012-13, comprises of two segments – generation equipment (boilers, turbines, generators) and transmission & distribution (T&D) and allied equipment like transformers, cables, rotating machines, transmission lines, switchgears, capacitors, energy meters, instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc.The generation equipment sector is 28 per cent of the total industry, while the T&D equipment sector is the rest 72 per cent. The industry is 10.23 per cent of the manufacturing sector is terms of value and 1.38 per cent of the GDP. It also provides direct and indirect employment to 1.5 million people and over 5 million across the entire value chain. The industry exported $ 4.9 billion worth of electrical equipment in 2012-13.According to the Indian Electrical & Electronics Manufacturers’ Association (IEEMA), the apex association of electrical equipment manufacturing industry, based on the projections of the government for capacity enhancement in power generation, transmission and distribution in the 10th, 11th and 12th Plans, the domestic electrical equipment manufacturing industry has made huge investments in doubling and, in some cases, even tripling its production capacity.However, the industry body states, this built-up capacity currently stands under-utilised across several products due to sluggish domestic demand on account of the slowdown in the power sector and a surge in imports of electrical equipment in recent years. This is significantly impacting the commercial viability of the domestic electrical equipment industry and impacting both the top-line and bottom-lines of the manufacturers. This can have severe long term consequences.After growing at 11.3 per cent and 13.7 per cent in 2009-10 and 2010-11 respectively, growth rate of the T&D equipment sector decelerated to 6.9 per cent in 2011-12. For the first time in 10 years, the T&D equipment sector witnessed a negative growth of 7.8 per cent in 2012-13. In the last couple of years, there has been hardly any growth in capital expenditure in the T&D equipment sector. T&D equipment manufacturers are broadly working at less than 70 per cent of their production capacity.In the last few years, the domestic manufacturing capacity of generation equipment has being ramped up and currently stands at 25,000 MW per annum against a requirement of about 16-17,000 per annum. With 6-7 joint ventures coming up in India, the capacity will increase to 40,000 MW per annum by 2014-15.“Our inability to meet targets for generation capacity addition is adversely impacting the downstream transmission and distribution sectors,” IEEMA said issuing a statement.It also adds, “Disproportionate reliance on imported power equipment, with uncertain quality and lifecycle, and with no domestic manufacturing facility to provide emergency repairs, spares, replacements, etc. especially for heavy equipment, is fraught with long term risks. With integration of automation and communication technology into the T&D network, there is also a possibility of a major security concern.”During the last seven years, 2005-06 to 2012-13, India’s imports of electrical equipment have increased at a compound annual growth rate (CAGR) of 24.67 per cent in rupee terms and were at Rs. 64,674 crore (USD 11.9 billion) in 2012-13.According to the industry estimates, China’s share in Indian imports of electrical equipment has dramatically increased in the last few years and now it stands at 44.92 per cent (2012-13) of the total from 15.26 per cent in 2005-06. Imports from China have grown at a CAGR of 45.46 per cent in the last seven years and were Rs. 29,054 crore (USD 5.3 billion) in 2012-13.Expressing their concerns, IEEMA says, “Imports of electrical equipment in the country have assumed very threatening proportions and have now captured 38.26 per cent of the market for electrical equipment in India, whereas there is significant underutilisation of installed domestic capacity, resulting in loss of employment of qualified engineers, technicians, workers, etc.”“Domestic electrical equipment manufacturing industry suffers a significant disadvantage vis-à-vis imports due to sales tax / VAT, entry tax / octroi; higher financing cost; lack of quality infrastructure; dependence on foreign sources for critical raw material and components, etc.,” IEEMA statement includes.In addition, Chinese manufacturers of electrical equipment are given by their Government export subsidies as high as 17 per cent of the export value, social security subsidies, lower income tax rate (15 per cent) and access to financing at low rates of interest, which gives Chinese companies over 24 per cent unfair pricing advantage and allows them to price their products very competitively. Further, China is also offering credit to foreign buyers on very soft terms to finance their imports. As a result, imports from China are escalating every year. All this makes Indian industry non-competitive in its own country.Import duties on electrical equipment are quite low and are further being lowered under the different free trade agreements (FTAs) signed or being signed. The interests of the domestic electrical equipment industry are not being safeguarded under different FTAs being signed.In the last one year, the Government of India has taken some steps which include:
With effect from 19th July 2012, the Government of India, vide notification no. 49/2012-Customs dated 10th September 2012, imposed import duties at the rate of 5 per cent basic customs duty, w12 per cent countervailing duty and 4 per cent special additional duty, along with cess as applicable, on import of equipment for ultra-mega power plants (UMPPs) / mega power plants (MPPs).
On the finding of the Director General (Safeguard) that the increased import of insulators from China have caused and threatened to cause market disruption to the domestic industry and producers of electrical insulators, the Government of India, vide notification no. 5/2012-Customs (SG) dated 20th December 2012, has imposed a safeguard duty of 35 per cent in the first year and 25 per cent in the second year on imports of electrical insulators from China.
But, IEEMA feels, these measures are not enough, and the Government of India needs to provide greater encouragement to indigenous manufacturing.To stimulate demand for the domestic electrical equipment industry, the government should expeditiously address the challenges confronting the country’s power sector, including the problems in fuel linkages, land acquisition, environmental and other clearances, precarious financial health of utilities, etc. The power sector needs the highest priority attention of the government.IEEMA demands, the Government of India needs to provide greater encouragement to indigenous manufacturing as done by several countries, including China, by initiating time-bound action on the following:
Limiting participation in tenders for bidding for domestically funded projects to domestic manufacturers only
Putting in place a requirement of setting up a manufacturing facility in India, within a specified timeframe of the award of the tender, where foreign bidding is allowed, to provide for level playing field bidding, that is, phased manufacturing process (PMP) should be made mandatory in the country for supply of major equipment
Mandating testing in only Indian laboratories, like CPRI under the Ministry of Power, for foreign suppliers of electrical equipment, wherever test certificate is a pre-requisite
Stipulating a minimum percentage of the total procurement by any utility to be of ‘Made in India’ products
Stipulating some amount of price preference for Indian products in procurement by utilities
Raising the basic customs duty (BCD) on all electrical equipment products to a uniform 10 per cent (currently, BCD on T&D equipment is generally 7.5 per cent and on generation equipment, including project imports, is generally 5 per cent)
Framing model procurement guidelines for utilities
Ushering in standardisation of product specifications and design parameters
Safeguarding the domestic industry’s interests under different free trade agreements (FTAs) by including electrical equipment (at least in those which have significant underutilisation of production capacity) in India’s negative list or with sufficiently long period for duty reduction. With countries having a strong base in manufacture of electrical equipment, India’s endeavour should be to include electrical equipment in India’s negative list or with sufficiently long period for duty reduction. Similarly, with countries not having a strong base in manufacture and export of electrical equipment, endeavour should be to include electrical equipment in the other country’s schedule of tariff concessions, with the shortest possible period for duty reduction.
IEEMA observes, the above measures would support Indian manufacturers, who are not seeking protection but a level playing field, and provide necessary safeguards to the domestic industry that is facing non-market competition on account of cutthroat below-cost entry level prices offered by Chinese manufacturers.