Chinese imports hurting electrical equipment units

Valued at more than Rs 1.40 lakh crore in 2013-14, India's small- and medium-enterprise-dominated electrical equipment industry is under severe pressure. Sluggish demand in the domestic market and a consistent increase in imports of electrical equipment from China are threatening its growth. With capacity utilisation at less than 70 per cent, the industry registered miniscule growth of 3.5 per cent in production in 2013-14.

The industry comprises two segments - generation equipment (boilers, turbines, generators) accounting for 28 per cent of revenues, and transmission & distribution (T&D) and allied equipment like transformers, cables, rotating machines, switchgears, capacitors and energy meters, which accounts for the rest. In India, there are over 1,000 manufacturers in the organised sector, 80-85 per cent of them SMEs.

"The built-up capacity of the electrical equipment industry is currently under-utilised across several products due to sluggish domestic demand on account of the slowdown in the power sector and surge in imports of electrical equipment in recent years. This has significantly impacted the commercial viability of the domestic electrical equipment industry, and affected the top-line and bottom-lines of manufacturers," said Sunil Misra, director general, Indian Electrical & Electronics Manufacturers Association (IEEMA) - the lobby group of the power transmission and distribution equipment industry.

He added, "For the first time in 10 years, the T&D equipment sector witnessed negative growth of 7.8 per cent in 2012-13. In 2013-14, there has been miniscule growth of 3.5 per cent in production. The T&D equipment sector and equipment manufacturers are broadly working at less than 70 per cent of their production capacity."

In addition, according to IEEMA, during the years 2005-06 to 2012-13, India's imports of electrical equipment have increased at a compound annual growth (CAGR) of 24.67 per cent in rupee terms, touching Rs 64,674 crore in 2012-13.

Vishnu Agarwal, chairman and managing director of Technical Associates Ltd, said, "China's share in Indian imports of electrical equipment has dramatically increased in the last few years and stands at 44.92 per cent of the total in 2012-13, from 15.26 per cent in 2005-06. Imports from China have grown at a CAGR of 45.46 per cent in the last seven years. Imports of electrical equipment have assumed very threatening proportions and have now captured a 38.26 per cent market share of electrical equipment in India, whereas there is significant under-utilisation of installed domestic capacity, resulting in loss of employment."

According to IEEMA, there is no respite visible for the next two to three quarters. So, there is an urgent need to improve fund availability to the power sector and provide fuel linkages and faster regulatory clearances for timely completion of power projects.

Furthermore, industrialists said that to stimulate demand for the domestic electrical equipment industry, the government should provide a level playing field in the domestic market for Indian manufacturers to compete with imported equipment. "The government needs to provide greater encouragement to indigenous manufacturing by initiating time-bound action like limiting participation in tenders for domestically funded projects to domestic manufacturers only; and secondly, by raising the basic customs duty on all electrical equipment products to a uniform 10 per cent," said Raj Eswaran, president, IEEMA.

He suggested the framing of model procurement guidelines for utilities with standardised and fair contract terms and conditions, with due weightage given to the lifecycle cost of a product (rather than just the initial cost), and to past performance and reliability, as well as opportunities for new domestic manufacturers, and reforms in the tendering process to increase transparency and speed.

However, Indian manufactures also need to focus on product innovation, technology, research and development, packaging and cost competitiveness, he added.