Electrical equipment industry reaction to govern-ment move to allow Chinese power firms to set up service centres in India
The Indian electrical equipment industry, worth over Rs. 1.30 lakh crores ($24 billion) in 2012-13, consists of two segments: generation equipment (boilers, turbines and generators) and transmission and distribution (T&D) and allied equipment like transformers, cables, rotating machines, transmission lines, switchgears, capacitors, energy metres, instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc.
The generation equipment sector is 28 per cent of the total industry, while the T&D equipment sector is 72 per cent. The industry is 10.23 per cent of the manufacturing sector in terms of value and 1.38 per cent of the GDP. It also provides direct and indirect employment for 1.5 million people and over 5 million across the entire value chain. The industry exported $4.9 billion worth of electrical equipment in 2012-13.
Based on the projections of the government for capacity enhancement in power generation, transmission and distribution in the tenth, eleventh and twelfth 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-lines and bottom-lines of the manufacturers. This can have severe long-term consequences.
After growing at 11.3 per cent and 13.7 per cent in 2009-10 and 2010-11 respectively, the growth rate of the T&D equipment sector decelerated to 6.9 per cent in 2011-12. For the first time in 10 years, the T&D equipment sector witnessed a negative growth of 7.8 per cent in 2012-13. 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 broadly working at less than 70 per cent of their production capacity.
During the last seven years, 2005-06 to 2012-13, India’s imports of electrical equipment have increased at a compound annual growth rate (CAGR) of 24.67 per cent in rupee terms and were at Rs. 64,674 crores ($11.9 billion) in 2012-13.
China’s share in Indian imports of electrical equipment has dramatically increased in the last few years and now stands at Rs. 29,054 crores ($5.3 billion), which is 44.92 per cent in 2012-13 of the total as compared to 15.26 per cent in 2005-06.
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. The power sector needs the highest priority attention of the government.
The government of India needs to provide greater encouragement to indigenous manufacturing as done by several countries, including China, by initiating time-bound action on the following: Limiting participation in tenders for bidding for domestically funded projects to domestic manufacturers only; putting in place a 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; mandating testing in only Indian laboratories, like CPRI under the Ministry of Power, for foreign suppliers of electrical equipment, wherever test certificate is a prerequisite; stipulating a minimum percentage of the total procurement by any utility to be of ‘Made in India’ products; stipulating some amount of price preference for Indian products in procurement by utilities; raising the basic customs duty (BCD) on all electrical equipment products to a uniform 10 per cent (currently, BCD on T&D equipment is generally 7.5 per cent and on generation equipment, including project imports, is generally 5 per cent); framing model procurement guidelines for utilities; ushering in standardisation of product specifications and design parameters.; safeguarding the domestic industry’s interests under different free trade agreements (FTAs) by including electrical equipment (at least in those that have significant underutilisation of production capacity) in India’s negative list or with sufficiently long period for duty reduction. With countries having a strong base in manufacture of electrical equipment, India’s endeavour should be to include electrical equipment in India’s negative list or with sufficiently long period for duty reduction. Similarly, with countries not having a strong base in manufacture and export of electrical equipment, endeavour should be to include electrical equipment in the other country’s schedule of tariff concessions, with the shortest possible period for duty reduction.
