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AFTER BEING in the doldrums towards the end of the 1990s, the Indian electrical equipment
industry is seeing a revival in the last couple of years with the growth rate averaging 7 per cent
per annum. The next two years should see a double digit growth rate, says P. Krishnakumar,
President of the Indian Electrical and Electronics Manufacturers' Association (IEEMA).
There is no doubt that a major cause of this upsurge is the reforms that have led to unbundling of
monolithic, state-owned power utilities and the corporatisation of the transmission and
distribution sectors. The pressure on these new enterprises to be commercially viable has led to
the implementation of practices for reducing power losses (technical as well as due to theft) in
the pipeline and effect better recovery of dues. This, in turn, has led to investment in new
equipment and systems which have boosted the fortunes of the equipment manufacturing
industry.
Reforms help
Schemes like the Accelerated Power Development and Reforms Programme (APDRP) of the
Union Ministry of Power, involving an outlay of Rs. 40,000 crores during the Tenth Plan for
modernisation of the T & D network and reduction of cash losses incurred by the distribution
entities, has led to a surge of orders for equipment such as electronic meters, distribution
transformers, switchgear and power capacitors. Ironically, the electrical industry has also
benefited by the three years of deficient rainfall that hit the country from 2000 to 2002 since that
led to a boom in the demand for water pumps which needed motors and starters.
The change in the fortunes of the electrical industry should actually have been led by private
sector investment in new generation projects. However, as is well known, the concept of
Independent Power Producers (IPP) was almost a non-starter due to confusion in the payment
regime by power consumers. The addition to generating capacity in the Ninth Plan was less than
half of the envisaged 10,000 MW per annum. One of the victims of this confusion was the
Dabhol Power Project. Hopefully, the new Electricity Act 2003 will lead to a more transparent
payment system, fair to both the producers and consumers and, in turn, trigger the much needed
private investment in new power projects. A significant sign of this is the recent announcement
by the Reliance group to set up a 3,000 MW project in U.P.
The depressed domestic market in the last five years forced many Indian manufacturers of
electrical products to explore foreign markets. This has paid out and exports have started
climbing up from Rs. 2,813 crores in 2001-02 to Rs. 3,119 crores last year. In 2003-04 exports
are expected to grow by 11 per cent. The main items exported include power transformers,
winding wire, industrial electronics, cables, capacitors, switchgear and components. A new and
promising line of exports is custom-built products like motor control centres and switch board
panels, where there is engineering design input, in which India is cost ² competitive. Almost 70
per cent of the exports are going to developed countries.
What is more heartening is that, of late, Indian manufacturers have improved their productivity
to such an extent that some of them are becoming global sources for international electrical
giants for machined parts. Last year the export of machined parts touched Rs. 153 crores and this
is likely to show a quantum jump in the years to come.
The new round of import tariff cuts declared by the Government recently may have a negative
impact on the domestic manufacturers, says Mr. Krishnakumar. This is because the duty on
imported equipment for T & D (Transmission and Distribution) projects has been brought down
to 10 per cent from the previous 25 per cent. A similar cut has not been effected on the raw
materials imported by the domestic equipment manufacturers, which leaves them at a
disadvantage, since raw materials form a major portion of the cost of most equipment and a large
proportion of the raw materials have to be imported. Yet another disadvantage imposed by the
latest round of duty cuts is the removal of SAD (Special Additional Duty) which was originally
imposed to balance the scales for the domestic industry which had to pay 4 per cent Central Sales
Tax. The removal of SAD means that imported equipment will immediately have a 5.6 per cent
price advantage over equivalent domestic equipment.
Will the floodgates of imports be opened now? Not necessarily, since the logistics costs from the
ports to inland projects are quite high. However, imports have climbed from Rs. 3,745 crores in
2001-02 to Rs. 4,263 crores (a 13 per cent rise) in 2002-03.
One of the issues often raised is the fear of flood of imports from China. According to Mr.
Krishnakumar, Chinese electrical products certainly are lower in cost, but their quality is suspect.
For example, Chinese compact fluorescent lamps proved to be a failure in India. The Indian
industry is not afraid of Chinese competition, so long as the products from there are conforming
to quality standards. The Quality Control Order of February 2003, promulgated by the Govt. of
India, has specified that unless a product conforms to the Bureau of Indian Standards criteria, it
cannot be marketed in India. This should go a long way in preventing the flood of low quality,
low price products coming from China.
Spurious products
A weak point in the structure of the Indian electrical industry is its fragmented nature. Almost 60
per cent of the output of the Indian electrical industry is from SMEs. Most of these are ill
equiped and have no quality control worth the name.
A large proportion are engaged in manufacturing duplicates of well-known brands. Since they do
not pay excise duties and are sold in retail outlets on cash basis, these spurious products can
undercut the genuine ones in price. But the consumer ultimately suffers. Much of this activity is
seen in low tension consumer electrical products such as switches, plugs, sockets, bulbs,
dimmers and controllers. Some big names like Anchor Electricals, try to protect themselves by
using 3-D holograms on their packing, which cannot be easily duplicated.
All said and done, the Indian electricals market seems to be on a roll and has started attracting
foreign interest. This is manifested by the fact that for IEEMA's bi-annual trade show this year,
Elecrama-2004, scheduled from February 4 to 7 in New Delhi, there are 100 exhibitors (out of a
total of 1,000) from 20 countries.
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