During the last five years, India's imports of electrical equipment have increased at a CAGR of 30.30 per cent, pegging at around $ 16 billion in 2011-12. Indian Electrical Equipment Manufacturing Association has urged the government to intervene with progressive policy reforms as equipment manufacturers are running their facilities below capacities.
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, 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.
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 working at only 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. The power generation capacity addition target for the 12th Plan has also been scaled down to about 88,537 MW. As a result, even the generation equipment sector will soon be sitting on huge surplus capacity. Our inability to meet targets for generation capacity addition 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.
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 USD 15.7 billion (Rs 75,057 crores) in 2011-12. Import duties on most products are quite low and are being further lowered under the various free trade agreements (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 15.3per cent in 2005-06. Imports from China have grown at a CAGR of 57.5per cent in the last six years and were Rs. 33,432 crores in 2011-12.
Imports of electrical equipment in the country have assumed very threatening proportions and have now captured 43per cent of the market for electrical equipment in India (Rs. 1,73,092 crores in 2011-12), whereas there is significant underutilisation of installed domestic capacity.
Domestic electrical equipment manufacturing industry suffers a cost disadvantage of about 14per cent vis-a-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.
In addition, Chinese manufacturers of electrical equipment are given by their Government export subsidies as high as 17per cent of the export value, social security subsidies, lower income tax rate (15per cent) and access to financing at low rates of interest, which gives Chinese companies over 24per 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.
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.
What needs to be Done
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.
In recent months in the telecom and electronics sectors, there has been a move by the concerned government departments 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.
Non-reciprocator market access in China - for any tenders by the Chinese national power Companies such as State Grid of China, Southern Power Grid of China as well as the Chinese Provincial Utilities, Indian companies cannot participate directly and one needs a local presence. No such conditions exist in India.
The government needs to encourage indigenous manufacturing and technology in the domestic electrical equipment industry, as done by several countries, including China, by:
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.
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