IEEMA demands greater encouragement from Govt. for Indigenous Manufacturing

IEEMA demands greater encouragement from Govt. for Indigenous Manufacturing
In an interview with Subhajit Roy; J G Kulkarni, IEEMA President talks on the present scenario of the power industry in India and highlights his roadmap in addressing the macro-level issues and challenges of electrical equipment industry
 
Mr. Kulkarni, congratulations on being elected as IEEMA President, could you outline your prime objectives that you wish to achieve being in this position?It has been our continuous endeavour to consult on policy formulation as the industry-government interface, and evolve product standards alongside India’s standards setting body the BIS.
 
In my new role as a President, I would like to support the continuous efforts made by IEEMA, addressing macro-level issues and challenges of Indian electrical equipment industry. The association has been undertaking various initiatives such as SME focus, building ‘Made in India’ brand overseas, regularly arranging international seminars for exchange and update of latest technologies.
 
Some immediate activities that will be undertaken by the association include:Mission Plan 2022: The mission plan initiative in brief has the objective of building up the Indian electrical equipment manufacturing capabilities to cater to the growing domestic demand and boost exports even to technologically advanced countries in a structured manner over the next decade. This initiative is being carried out under the aegis of the Department of Heavy Industry.
 
Sector Skill Council (SSC): The Indian electrical industry like every other sector is facing a critical shortage of skilled manpower despite having the largest number of engineers in the world. Recognising this need, IEEMA is closely working with Govt. of India to develop a strong base of skilled manpower to help Indian electrical industry go to the next level and be globally competitive. We are working on setting up an Electrical Equipment Sector Skill Council, with the support of the National Skill Development Corporation (NSDC).
 
Promote exports: Over the years, the Indian electrical equipment industry has developed a diversified, mature and strong manufacturing base, with robust supply chain, and a rugged performance design of products. There is also an emerging global reputation of Indian electrical equipment for sourcing of base products and components and also of Indian transmission and other EPC contractors.
 
India’s exports of electrical equipment were around $ 4.6 billion in 2011-12, but were less than 1 per cent of the global trade in electrical equipment. With the electricity sector being a sunrise sector across the entire developing world, there exists significant potential for India to tap the export markets. This will also help the manufacturers in using their underutilised manufacturing capacity on account of sluggish domestic demand.
 
Encourage indigenous manufacturing: In recent months in the telecom and electronics sectors, there has been a move by the government to initiate preferential market access to domestically manufactured products on security grounds and in government procurement. The power sector is of at least as much strategic importance as these sectors, if not more.
 
The government needs to encourage indigenous manufacturing and technology in the domestic electrical equipment industry by stipulating a minimum percentage of the total procurement by any utility to be of ‘Made in India’ products.
 
We also need to protect the domestic industry’s interests under different FTAs that are being negotiated. These measures will support Indian manufacturers 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.
 
How do you see the power sector in India shaping up in the next 5-10 years?An efficient power supply system is a key ingredient for economic growth and quality of life. India, with over a 1.3 billion people, presently produces around 788 billion units of electricity which results in per capita availability of about 733 units. This is less than one-third of the world average. In fact, 30 per cent Indians do not have access to electricity at all. Large share of the Indian population is devoid of benefits of electricity. Enhancing energy supply and access is, therefore, a key component of our national development strategy.
 
To sustain the envisaged annual GDP growth rate of around 8-9 per cent over the next 20 years, it has been estimated that India will require to increase its electricity generation capacity from around 207 GW presently to over 800 GW by 2032. This would require a matching up gradation and enhancement of the electricity transmission & distribution (T&D) segment. The electricity sector requires a projected investment of about $ 300 billion over the next five years.
 
It is estimated that the elasticity of GDP vis-à-vis electricity generated in India is currently 0.9. That is for every 1 per cent growth in GDP, there has to be 0.9 per cent growth in electricity generated. The elasticity is expected to be broadly 0.9 during the 12th Five Year Plan (2012-2017) and 0.8 during the 13th Five Year Plan (2017-2022).We need to address in a concerted manner the challenges being faced by India’s power sector which are impacting our ability to meet capacity addition targets.
 
The T&D sector requires greater and focussed attention than given till now. The lopsided investment pattern needs to be corrected and we need an investment ratio of 2:1:2 amongst generation, transmission and distribution segments in order to achieve a balanced growth in the power sector.
 
We are confident that Indian electrical equipment industry will achieve $ 100 billion in sales by 2022.
 
We have drawn up a four-point agenda to achieve the Mission Plan 2022, which includes:

Encourage increase in spends by Indian companies on R&D
Realign marketing efforts towards emerging markets
Lower dependency on domestic markets and garner active support from Ministry of Heavy Industries & Public Enterprises and Ministry of Power.
 
Exports from India for electrical equipment have to grow substantially during the next ten years – this is the call of the day especially since we have to prove to the world that our technology is best-in-class and also factoring the 33 per cent spare capacity available with most manufacturers. It should be noted that the world trade in electrical equipment aggregated to about $ 260 billion in 2010, recording a 5 year CAGR of 7 per cent. India ranks 28th, registering a CAGR of 10 per cent exports over the last five years but still accounts for less than 1 per cent of global exports. Mission Plan 2022 envisages $ 100 billion sales of electrical equipment by that year.
 
What are the major difficulties the sector is facing today?The T&D equipment sector, which comprises 74 per cent of overall Power sector, has grown at CAGR of 11.5 per cent in the last 4 years. Growth rate of the T&D equipment sector decelerated to 6.9 per cent in 2011-12 as compared to 11.3 per cent and 13.7 per cent in 2009-10 and 2010-11 respectively. For the first time in 10 years, the Indian electrical equipment industry has seen a negative growth of 2.4 per cent in the first quarter (Q1) of the current fiscal (2012-13) compared to the corresponding period of Q1 of 2011-12 (13.82 per cent).
Some of the major challenges that the sector faces today are:Capacity utilisation: Based on the projections of the government for capacity enhancement in power generation, transmission and distribution in the 10th, 11th and 12th Five Year Plans, the domestic electrical equipment manufacturing industry has made huge investments in doubling and, in some cases, even tripling its production capacity.
 
The industry is fully geared up to meet the likely demand arising out of the 12th Plan and even beyond. However, this built-up capacity currently stands under-utilised across several products due to sluggish domestic demand and a surge in imports of electrical equipment in recent years, especially from China, with uncertain lifecycle and quality. This is significantly impacting the commercial viability of the domestic electrical equipment industry and also the top-line and bottom-line of the manufacturers. In the last couple of years, there has been hardly any growth in capital expenditure in the T&D equipment sector.
 
Our inability to meet targets for generation capacity addition, due to multitude of problems such as unavailability of coal linkages for new projects, land acquisition issues, delays in environmental and other clearances, etc. is adversely impacting the downstream transmission and distribution sectors.
 
Absence of a level playing field: Absence of a level playing field for the domestic industry to compete with imported electrical equipment, especially from China, is a clear and present threat. This is adversely impacting the commercial viability of the domestic industry and can have severe long term consequences.
 
During the last five years, India’s imports of electrical equipment imports have increased at a CAGR of 30.30 per cent and were at $ 15.7 billion in 2011-12. Import duties on most products are quite low and are being further lowered under the various FTAs signed by India. China’s share in Indian imports of electrical equipment has dramatically increased in the last few years and now it stands at 44.5 per cent (2011-12) of the total from 15.3 per cent in 2005-06. Imports from China have grown at a CAGR of 57.5 per cent in the last six years.
 
Domestic electrical equipment manufacturing industry suffers a cost disadvantage of about 14 per cent vis‑à‑vis imports due to sales tax / VAT, entry tax / octroi; higher financing cost; lack of quality infrastructure; and dependence on foreign sources for critical raw material and components, etc. 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 give 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 these make Indian industry non-competitive in its own country.

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