Indian Electrical & Electronics Manufacturers' Association (IEEMA) is the apex association of manufacturers of electrical, industrial electronics and allied equipment in India. The association has over 750 member organisations encompassing the complete value chain in power generation, transmission and distribution. Its membership base, ranging from public sector enterprises, multinational companies to small and medium companies, gives IEEMA a truly national representative character.Data from the association shows, India's electrical equipment industry contracted for the first time in 10 years with a growth of (-) 2.4 percent in the first quarter of 2012-13 (Apr-Jun).Ramesh Chandak, President of IEEMA, in an interview to Raja Iyer, Research Analyst at First Infocentre urged government to revive the sector through various measures particularly providing a level playing field for domestic manufacturers vis-a-vis their foreign counterparts.He also recommended state utilities in generation, transmission and distribution segments to evolve uniform procurement policies and qualifying criteria for vendors of similar electrical equipments. Following is the excerpts of the interview.The growth of electrical equipment industry declined to 6.6 per cent in 2011-12 from 13.7 per cent in 2010-11. What according to you are the causes of the slowdown in the sector?The major causes of the slowdown in the electrical equipment industry are the sluggish growth in the power sector and the escalating imports of electrical equipment. Both of these factors are significantly impacting both the top-line and bottom-line of the Indian manufacturers. The electrical equipment industry has been witnessing a slowdown in the order flow for more than a year now and is in danger of becoming commercially unviable.The sluggish growth in the power sector is on account of problems like unavailability of fuel / lack of coal linkages for new and existing projects, problems in environmental clearances and land acquisition, etc. The extremely poor financial health of power distribution companies continues to adversely affect both existing and planned projects, leaving developers with no option but to run projects at sub-optimal capacities or go slow on the commissioning schedules.During the last five years, India's imports of electrical equipment have increased at a CAGR of 28.28% and were at USD 11 billion in 2010-11. Import duties on most products are quite low and are being further lowered under the various FTAs signed by India. 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.Which of the three segments - generation equipment, transmission & distribution (T&D) and allied equipment – registered a remarkable decline in growth and why?The generation equipment segment is 24% of the total industry and has grown at a CAGR of 31.4% in the last 4 years. The T&D equipment sector, which comprises 76% of the industry, has grown at CAGR of 11.5% in the last 4 years. According to our estimates, while the generation equipment segment grew by 16.6% in 2011-12 over 2010-11, major T&D equipment segment grew by only 6.9% and allied equipment segment grew by 7.2%.The reasons, as mentioned earlier, are the sluggish growth in the power sector and the escalating imports of electrical equipment. 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 made huge investments in doubling and, in some cases, even tripling its production capacity. But due to less than anticipated demand, T&D equipment manufacturers are presently working broadly at only 65% of their production capacity.Even though the generation equipment segment has shown relatively better growth, it will soon also be sitting on huge surplus capacity. In the last few years, the domestic manufacturing capacity of generation equipment has been ramped up and currently stands at over 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. The power generation capacity addition target for the 12th Plan has also been scaled down to about 88,000 MW.What are the steps you expect government to take to address the slowdown in the sector?Firstly, the government needs to address in a concerted manner the challenges being faced by India's power sector which are impacting our ability to meet power generation capacity addition targets, which in turn, are adversely impacting the downstream T&D sector. The government needs to provide fuel linkages and faster regulatory clearance for timely completion of power projects; bring out a clear and conducive land acquisition policy; improve fund availability to power sector; accelerate renovation & modernization activities and accelerate deployment of rural electrification schemes.The entire power sector value chain crucially hinges on the financial viability of the power distribution sector and the government needs to focus on improving its performance, especially of the government-owned power distribution utilities, and reducing the aggregate technical & commercial (AT&C) losses. The debt of power distribution companies has reached a level of Rs. 2 lakh crores and the government should expedite the debt restructuring package being drawn up for the power distribution companies.Secondly, to improve the competiveness of the electrical equipment sector, the government needs to address several issues in a concerted manner. There are several critical inputs used in the manufacture of electrical equipment which are not readily available domestically. CRGO is a prime example, which is a critical raw material for transformers, and totally imported. The ambitious power development projects of the government necessitate setting up of a domestic CRGO manufacturing facility.The electrical equipment industry is also facing a major problem in getting skilled and employable manpower and the government needs to address this issue urgently.There are no appropriate standards specified by the Central and the State utilities and tenders are floated with non–standardized specifications and design parameters by each of the utilities which causes a lot of trouble to manufacturers. Standardisation of specifications for various equipments used in the power sector across utilities, at least under the centrally sponsored schemes, will not only lead to cost competitiveness of the industry being enhanced but also minimize the lead-time in manufacturing and procurement.The domestic testing and calibrating facilities for electrical equipment, especially high voltage equipment, is inadequate, time-consuming and costly. Manufacturers have to send their products abroad for testing for want of domestic testing facilities or long waiting period, which results in high logistics cost. The government needs to take urgent steps for upgradation of testing and calibrating infrastructure in the country, especially for high voltage equipment.The prime customers / buyers of the electrical equipment industry are the utilities in generation, transmission and distribution of power. Presently, most of these utilities are either owned by the Central Government or different State Governments. Most of these utilities have non-uniform procurement policies and qualifying criteria for vendors for similar products. They have outdated tendering procedures and contract awarding based on L1 bidder and negotiations. Therefore, there is need to frame more conducive procurement policies for utilities.To provide a level playing field, the government should immediately enhance the import duty on electrical equipment. Domestic electrical equipment industry's interests should be protected under different FTAs being signed.What is your expectation of growth in the sector during 2012-13 and 2013-14? Do you expect it to be better than the earlier year? If so, why?According to data compiled by IEEMA based on the production and sales data (in volume / quantity terms), the first quarter of this fiscal year (Q1, 2012-13), the growth index of the electrical equipment industry has shown a negative (-) 2.4% growth. This is the first time in over 10 years that we have entered negative growth. Unless the government looks at the problem holistically and addresses all the concerns in a concerted manner, the future in the next couple of years does not appear to be rosy.Domestic power equipment makers are facing fierce competition from cheap imports from Chinese firms. Besides hiking import duty, what other measures do you expect government to take for the domestic manufacturers to withstand competition?China's share in Indian imports of electrical equipment has dramatically increased in the last few years and now it stands at around 44% of the total from around 15% in 2005-06. Imports from China have grown at a CAGR of 59% in the last 5 years.The domestic electrical equipment manufacturing industry suffers a cost disadvantage of about 14% vis-à-vis imports. In addition, Chinese manufacturers also enjoy export subsidies, social security subsidies, lower income tax rates and access to financing at rates below 6% per annum provided by their government – the combination of these three gives Chinese companies a 24% unfair pricing advantage. Further, China is also offering credit to foreign buyers on very soft terms to finance their imports. All this makes Indian industry non-competitive in its own country and also in other countries vis-à-vis Chinese products.The domestic electrical equipment industry is not looking for any protection but wants a level playing field. Further, disproportionate reliance on imported power equipment, with uncertain quality and lifecycle, and with no domestic manufacturing facility to provide immediate spares, replacements, etc. especially for heavy equipment, is fraught with long term risks.The government needs to provide greater encouragement to indigenous manufacturing, as done by several countries including China. In addition to the change in the duty structure, IEEMA has been also asking for (1) limiting participation in tenders for bidding for domestically funded projects to domestic manufacturers only with tightened quality requirements so that only good quality & reliable equipment comes into the country; (2) putting in place a mandatory requirement of setting up a manufacturing facility in India, within a specified time frame 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; (3) stipulating a minimum percentage of the total procurement by any utility to be of 'Made in India' products; and (4) Protecting the domestic industry's interests under different Regional Trade Arrangements (RTAs).Do you feel that there is a need for domestic manufacturers to improve their efficiency to face foreigncompetition? Is there scope for domestic producers to reduce cost of production and still deliver quality output?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. While the support of the government is required in creating a conducive policy environment and providing the requisite infrastructure, Indian manufacturers also need to focus on product innovation, technology, R&D, packaging and enhance their cost competitiveness.There is an increasing global reputation of Indian electrical equipment for sourcing of base products and components and also of Indian transmission and other EPC contractors. It is time that Indian manufacturers increasingly look outwards and go global. There is a need to build a Brand India globally in the electrical equipment domain.Government aims to create 80,000 mw generation capacity in the 12th five-year plan. Considering this, do you expect electrical manufacturers to increase their production capacity to cater to the expected rise in demand for their products? What is your expectation of capex in the industry in 2012-13, 2013-14?To sustain the envisaged annual GDP growth rate of around 8-9% over the next 20 years, it has been estimated that India will require to increase its electricity generation capacity from around 200 GW presently to over 800 GW by 2032. This would require a matching up gradation and enhancement of the electricity T&D segment. The electricity sector requires a projected investment of about US$ 300 billion over the next five years. Our per capita consumption of electricity (780 kwh) is around one-fourth of the global average (2,782 kwh). With this huge latent demand for electricity in the country, the sector can only grow in the future.Even though currently, we have an excess capacity in the T&D equipment segment, given the right government support and conducive policy environment, there is tremendous opportunity for the growth of the domestic electrical equipment industry.Presently, Indian exports of electrical equipment are less than 1% of the global trade. With the electricity sector being a sunrise sector across the entire developing world, there also exists a significant export potential for the domestic industry.Capacity additions in different segments of the power sector viz. generation, transmission and distribution is capital intensive. The focus of investments in the Indian power sector has typically been in the generation segment. Power transmission and distribution segments have lagged behind. In the 11th Plan, it is estimated that out of the total investment in the power sector, around 55% was invested in generation, 15% in transmission and 30% in distribution.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. It is heartening that there is some move towards correcting this lopsided investment pattern in the 12th Plan. The total funds required by the power sector in the next five years has been estimated at Rs. 13,72,580 crores, out of which 47% are for generation and the rest 53% for T&D and others.Because of the under-utilisation of existing capacity, in the last couple of years, there has been hardly any growth in capital expenditure in the T&D equipment sector. Therefore, in the immediate future, any significant rise in the capital expenditure does not appear likely unless the situation undergoes a dramatic change.Recently, half of the Indian population faced blackout for prolonged period because of power tripping. Do you feel Indian power equipment makers can provide some solution (through advanced products) to prevent such incidents?India has the latest technologies in place to prevent such happenings. For example, there are under and over frequency relays which are supposed to automatically operate and prevent such occurrences. However, these are under the control of respective State utilities and are sometimes bypassed to meet the State power demand leading to overdrawal, which may have led to the grid collapse.
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