Electric equipment industry faces excess capacity: IEEMA

Exports in power sector have been growing at about 10 per cent CAGR, while imports have been declining at a rate of about 4 per cent in last 5 years, informs Sanjeev Sardana, President, Indian Electrical and Electronics Manufacturers’ Association (IEEMA). He also talks about a range important topics like growth drivers, challenges and GST impacts. Excerpts from his interview EPR:

Of late the electrical equipment industry is witnessing some growth. Is there any specific area where green shoots are visible?
India has seen significant and sustainable growth in recent times in its GDP resulting in substantial rise in purchasing power of middle class and rural India. In order to keep pace with the growing economy, the present government has undertaken initiatives in coal and renewable sector to strengthen the power sector infrastructure within the country. The increased government spending on urban and rural electrification in schemes like Integrated Power Development Scheme (IPDS) and Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) has further spurred the demand of electrical equipment in India.

The electrical and industrial electronics industry witnessed a 4.25 per cent growth in the year 2016-17 over the previous year. The industry exported ` 38,580 crore ($6 billion) worth of electrical equipment in 2015-16 (` 35,276 crore April to February in 2016-17 – $5.25 billion). During April this year, the peak demand was about 159.6 GW and the installed capacity was 329.2 GW with generation mix of thermal (67.0 per cent), hydro (13.5 per cent), renewable (17.4 per cent) and nuclear (2.1 per cent). During 12th Plan, solar power addition achieved 104 per cent in overall renewable addition of 32 GW as against 89 GW from conventional sources. Around 293 global and domestic companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power in India over the next 5-10 years. The initiative would entail an investment of more than $300 billion. Further, there has been rise in mergers and acquisitions activities in recent past.

What are the major growth drivers?
Currently the increase in exports is helping the industry to grow especially in power transformer and high voltage switchgear products, energy meters and cables. Low voltage switchgear which has registered a healthy growth of 22 per cent due to the revival in growth of realty, infrastructure and other manufacturing industries.

Integration of renewable and needs of smart city will impact the growth further as the distribution network will demand further mordernisation. In the 13th Plan the focus will be on renewable energy, power electronics and e-mobility. These new technologies will not only pose disruptive challenges but also open vast opportunities for the industry.

How growth in exports is helping the industry to maintain growth?
Exports in power sector have been growing at about 10 per cent CAGR, while imports have been declining at a rate of about 4 per cent in last 5 years. Indian domestic manufacturers have invested heavily in technology transfer from their principals or have developed technology indigenous for creating and expanding manufacturing capacities, manpower and skill development to meet the growing demand which is in line with the Prime Minister’s dream ‘Make in India’.

Some PSUs are being told to step on the gas by the government, but private power players are in caution mode at present. The industry has already made huge investments in doubling and, in some cases, even tripling its production capacities. However, these built-up capacities are under-utilised across several products and the manufacturers are broadly working at 60 per cent to 70 per cent of their production capacities. As the industry is grappling with an excess capacity scenario, power equipment manufacturers are forced to look at neighbouring markets like Nepal, Bhutan, Bangladesh beside other export markets.

Higher imports and sluggish demand continue to hamper the industry growth. What’s your take in this regard?
Industry segment which is facing injury due to undesirable imports as industry is self-sufficient to serve current and growing demand, it must try to regularly check whether such imports are happening due to unfair trade practices. The government has been aggressively using various trade defense action measures to provide level playing field to Indian industry. So far the government has investigated large number of dumping cases. However, with transformation in global market scenario including China being given market economy status, the focus now is on anti-subsidy investigation along with anti-dumping and emergency measure safeguards.

Indian government has made the beginning by using anti-subsidy/countervailing measures, thereby implying that there is a need of increase in awareness of the Indian industry to utilise this measure which is too green. Three anti-subsidy investigations have been initiated so far by India.

Now that the GST is through, what are the changes you foresee?
GST will improve the business sentiments and it will be a good start. The reduction of cascading effect of taxes will reduce prices; single taxes at all India level will create common national market. It will improve transportation time as the state wise barrier is removed, availing of input credit through online window will reduce the future disallowance. Also withdrawal of C form and Single rate of Tax on the works contract will benefit industry a lot as works contract was a source of major taxation dispute in old tax regime.

How has the GST rates affected electrical equipment industry?
Within the electrical industry, there are mixed feelings about the impact of GST. The reduction in the rate for coal to 5 per cent will bring down the cost of procurement slightly, mainly benefitting thermal projects under operation. How much it will cushion the increase in the operational cost on account of a higher rate for services under GST is yet to be seen.

IEEMA is seriously concerned about higher rate of 28 per cent GST announced on some electrical products and has made a representation to the government for reclassification of GST on these products from 28 per cent to 12 per cent. Through our efforts, GST rates of some of these products were brought down to 18 per cent, which is good news for electrical equipment manufacturers.

Where does Indian electrical equipment industry stands today compared with global peers?
India is firmly set on a path of economic growth that is estimated to usher in prosperity like never before. This economic prosperity will need to be built on the back of significant transformations across several facilitating elements, the primary ones being infrastructure build-out, energy availability and sustainability.

The government’s ‘Make in India’ program has placed India on the world map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020. The Indian government has set an ambitious target of increasing the contribution of manufacturing output to 25 per cent of Gross Domestic Product (GDP) by 2025, from 16 per cent currently. India’s manufacturing sector has the potential to touch $1 trillion by 2025. There is potential for the sector to account for 25 to 30 per cent of the country’s GDP and create up to 90 million domestic jobs by 2025.