Sushil Virmani, Managing Director, Socomec Innovative Power Solutions
What is the status of the Indian electrical industry at this time?
This is one industry which definitely has to grow because despite the size of our population, we have very low electricity consumption. Although industrialisation has proceeded at a slow pace here, there is no way it can be reversed; it can only go up. Smart cities remunerates improvement in distribution definitely all segments of the electric power industry have to grow. Our real challenge lies in ensuring quality. In the last two years, while electricity generation has increased, production of components has declined. If you critically examine the index of industrial production (IIP) data, it reveals that on quarter-on-quarter basis (QoQ) basis, we are low by 17 per cent. It clearly shows that though enough power generation has come up and some states have become power surplus, we have not been able to utilise power efficiently and effectively in the new regions.
Since you had earlier mentioned 'stress on power distribution', what is the most effective way to get out of this situation?
The stress in distribution has happened because of two reasons. Number one, in India, the distribution is done by retail segments or distributors who were significantly impacted by the demonetisation process and the initial lack of clarity on the goods and services tax (GST). In the middle of the year, these distributors were trying to liquidate their old stock because as per the GST norms you can take credit only for a specified period of time. So, they stopped taking new materials. That added to the stress in the chain. The manufacturers, who had bought raw materials, were trying to push sales of finished products to their distributors, but distributors were unwilling to take any more stock. Therefore, manufacturers reduced production. Number two, initially it was not very clear on how to bill for products as per the GST parameters. That led to manufacturers acting cautious. These two reasons severely impacted the distribution of electrical products. But projects where customers buy directly from companies, did fairly okay because with adequate production price realisations came down. However, the decline in realisations affected the bottomline of several manufacturing companies. The industry has to grow this financial year as there is enough demand available in terms of power consumption and modernisation of manufacturing processes. Last year we have seen power generation reaching close to 10 GW.
Since the government has announced announced solar mission to achieve 100 GW by 2022, distribution too has to increase accordingly.
So, how did the industry cope during that challenging phase?
The challenges were huge as production came down. If you look at the audited reports of many companies in the last few quarters, year on year (YoY), they have registered the slump. Many companies in India were able to convince their counterparts abroad that the market in India was very tough during that phase.
Can we assume that GST woes and the demonetisation impact are finally behind us?
I would say that while people were struggling to sell more in numerical terms, they went into areas where they had never distributed earlier. That kind of innovative geographical expansion took place. Now, we find that GST has fairly stabilised and enterprise resource planning (ERP) systems of manufacturers are well in place. The government too is clear on its policy. Consequently, things are looking fairly nice. With banks increasing interest rates on large deposits it is evident that the market is hardening. Rising credit off-take means that money supply is coming in and people are making investments. All these are positive signs are for the electrical power industry because since generation is already there, consumption is definitely going to take-off. My only concern is that we have not been able to evenly distribute power in the last few decades as we have compromised on the quality front. On the one hand, we are talking about smart cities and on the other, we have ageing electrical distribution components be it cables, transformers, poorly designed breakers, etc. As other industries move to digitalisation, we need to have a robust back-up in place. Billions of dollars' worth of revenue is lost in production costs because of our poor position on the supply front. Therefore, not only we as manufacturers have the obligation to educate customers on quality but customers also need to give priority to that aspect. Once this match happens, distribution will get stabilised.
How has global disruption owing to IoT and new requirements emerging across industries, affected your product pipeline?
Internet of Things (IoT) is revolutionising the business because people are getting information at a much faster speed. It is also leading to a requirement for more servers for data centres, and that means more power consumption through a highly efficient distribution scheme. In the last two years, we have come up with more sleekly designed digitalised products to help with this improvement in power supply. Wherever connectivity has improved, we have received requests from customers to study their installations for the feasibility of their going in for our new replacements!
Manufacturers who are able to supply quality products that can interconnect with different kinds of devices at the flick of a button are going to be much sought after. That is the trend I foresee over the next five years and it really excites me.
Do you see initiatives like Make in India, Digital India and Skill India providing the right kind of push to your segment?
The government's policies are very good because a thought needs to be in place before you proceed with its implementation. Now, this thinking has to be transported into policy and then executed. I think we are lacking there. I remember the 'Make in India' launched four years ago. After that, except in a few pockets, we haven't seen much movement there. But, then as I said, at least a start has been made. Where good examples are available, they must be shared with the rest of the states or other segments. For example, we have seen how the Delhi Metro Rail Corporation (DMRC) model is being successfully implemented across India. We need to become competitive. Therefore, 'Make in India' must factor in local consumption and export markets. We are doing fine on local consumption as at 1.32 billion, India has a very large population base. But, we can significantly increase our exports only if we are able to produce at a competitive cost. And we need to do that really fast as our competitors already have a lead over us.
What do you see as the major challenges before the electricals industry? Also, what would be your long-term outlook for the market?
A lot of new power generation has come up, owing particularly to solar. Now, we have to look at its efficient distribution. However, until and unless we are able to offer quality products at the right price points, we will not be able to make the best of this opportunity. For that, 'Make in India' is a perfect initiative. All multinational companies (MNCs), including ours, view India as an attractive place to make an attractive return on investment. However, quality standards will need to be made very stringent and the government has a big role to play there. Until and unless that happens, the quality would continue to be compromised and that will have a cascading effect on India's attractiveness as a manufacturing destination in the time to come. As a responsible global company operational in India, we try to educate specifiers, consultants, end customers and decision makers on the latest technologies trends and how one may benefit from them. And, we will continue doing that. But, quality comes at a price, and unless that realisation dawns on customers, such products will not get manufactured in India, and the distribution will continue to be weak like it has been in the last few decades.
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