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Interaction | August 2015

OEMs expect 25 per cent growth in EE industry

Rajesh Kumar, Joint MD and CFO, Salzer Electronics underline one of the key challenges for electrical equipment industry´a need for level playing field´with a support from the government.

The government has claimed several records in its first year. Are these in the best interests of the power equipment sector?
Yes. We all know that power is the most important and basic aspect of any industry, and that power in India is in shortage and of poor quality, unless we improve upon this we can´t expect investment. Though there has been a lot of improvement in the power situation, we are yet to see any significant impact in terms of growth in investment and business due to all this. We feel that this will take a little longer than expected.

There is lack of new orders and investments for the 13th Plan. Do you see new orders coming your way specifically, and in general?
The Global Electrical Equipment industry is estimated to be about $260 billion. According to IEEMA ´ India is ranked 28th on the list. Indian exports accounts for only around one per cent of this.

So there is a lot of opportunities available. India, being one of the lowest cost countries in terms of manufacturing, is extremely well placed to take on the world and become one of the top 5 manufacturing locations in the world. This is very well known by all international players and companies from outside India will invest here soon. The 13th Plan envisages 93 GW addition to the power generation capacity and all other infrastructure to evacuate and distribute the power. All this new investment in the sector will improve the business climate in the country for electrical equipment manufacturers.

We are very well placed to capture this next growth phase with sufficient infrastructure and capacity.

What new orders you are expecting and by when will they materialise? What is your current order book position?
We are an electrical component and ancillary equipment manufacturer. Our customers are top line electrical equipment manufacturers. Hence, companies like ours normally don´t work on a huge order book. Maximum lead time for our products are 4–8 weeks and this is how the industry operates. However, we get forecasts from our large clients. In that sense, we see a good forecast for 2015-16.

Approx. 75 per cent of our top OEM´s gave us an extremely good forecast with 25 per cent growth rate compared to last year.

Do you agree that there is a level playing field for domestic players? If no, can you suggest some specific remedies for it?
Low cost imports, specifically from China is a key challenge and a big threat to the Indian electrical equipment industry. Though, we have seen good growth rate in the past in the sector, in the last few years, we have not seen the electrical industry growing. One main reason is low cost imports.

We can´t say there is a level playing field vis-a-vis competition from foreign countries, where in the companies have various incentives or subsidies in terms of raw materials, lower cost of capital, incentives for exports, better infrastructure and highly efficient systems that facilitates faster exports and imports.

These are some of the things that the government has to look into. Even today, the import and export is a complicated and time consuming procedure in India. Indian ports are still not as efficient when compared to its peers.

There is no special incentive for exports. The government should look into this, as the electrical equipment industry can become of the largest employment generating tool with a potential to create more than 3 million additional employment in the next five years. Hence, this industry should be looked into as a highly potential industry for employment as well as for exports.

The capital goods sector is the only engineering sector where basic customs duty is nil in case of specified mega power projects, ultra-mega power projects, nuclear power projects, and specified goods for coal-bed methane operations. This provision of zero customs duty on import of capital goods for projects should be removed. There should be rationalisation of taxes and correction of anomalies, including inverted duty structure on specific products such as electrical insulators, insulated cables and machine tools.

Do you think the government is just in announcement mode and nothing much has happened? On a straighter note, why is investment in the power sector not picking up?
Existing projects are stalled due to various issues. These are being sorted out by the present government. Another main reason for lack of new investment in the power sector is the very poor financial health of discoms and state-utility companies. If these companies are unable to purchase power and pay for it, then the whole cycle will stop. Fuel linkage is another main reason for low investment in the power sector.

Being practical, what is your assessment towards entire power equipment industry?
There is a huge potential for the industry. The country can be one of the foremost exporter of electrical equipment industry in the world. The sector can be one of the largest employer in the country. All this can happen, provided the government facilitates on the regulatory front, restructures the discoms or utility companies, and makes the government companies more efficient. In addition, the government should prepare a study on the basis of the Chinese policies towards the electrical equipment industry and create a level playing field for the Indian Industry. The sector has the potential to grow at a CAGR of 25 per cent for next 5 years.

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