We need to build a brand India in the global electrical equipment domain

STATEMENT BY J. G. KULKARNI , PRESIDENT, IEEMA during Seminar on “Market Outlook for Copper & Copper Alloy Products in Electrical Applications”, Mumbai, 21 June 2013

Mr. J. G. Kulkarni , President, IEEMA

To be a globally competitive economy, it is well recognised that India needs to build domestically a world class infrastructure, both social and physical. An efficient energy supply system is a key ingredient for economic growth and quality of life. Greater consumption of energy is both necessary for economic growth and also as a result of it.

The sustainability of our economic growth process will depend crucially on the level of energy security or independence that India is able to achieve in the future. Enhancing energy supply and access is, therefore, a key component of our national development strategy.Assured availability of quality power at reasonable cost not only acts as a catalyst in the socio-economic development of the nation but also enhances the global competitiveness of the domestic industry, leading to greater employment generation and higher levels of per capita income. Power is the most crucial infrastructure that we require and also one which takes the maximum time to build. To sustain our growth process, we need to ensure uninterrupted power supply of the desired quality at reasonable prices.

India’s Power Sector
India currently has an installed power generation capacity of about 225 GW. India, with over a 1.3 billion people, produced around 911 billion units of electricity in 2012-13. India’s per capita electricity consumption is not even one-fourth of the global average. 30% Indians do not have access to electricity at all. Large share of the Indian population is devoid of benefits of electricity. To sustain the envisaged annual GDP growth rate of around 8-9% over the next 20 years, it has been estimated that India will require to increase its electricity generation capacity to over 800 GW by 2032. This would require a matching up gradation and enhancement of the electricity transmission & distribution (T&D) segment.

The electricity sector requires a projected investment of about US$ 300 billion over the next five years. It is estimated that the elasticity of GDP vis-à-vis electricity generated in India is currently 0.9. That is for every 1% growth in GDP, there has to be 0.9% growth in electricity generated. The elasticity is expected to be broadly 0.9 during the 12th Five Year Plan (2012-2017) and 0.8 during the 13th Plan (2017-2022).

In the 11th Plan, an addition of record 54 GW was achieved in the power generation capacity. Though the achievement in 11th Plan is more than two and a half times that of the 10th Plan, it was only 68.5% of the target of 79 GW. In the 12th Plan, addition of about 88.5 GW is expected, excluding 30 GW of renewable capacity addition. The share of the private sector in capacity addition is expected to increase from 36% in 11th Plan to 53% in the 12th Plan. Several large infrastructure and other projects, including power, in the country have been stalled and have adversely impacted several other upcoming downstream and associated projects as well. These issues need to be immediately tackled by the government so that the projects come back online expeditiously and have the desired multiplier effect on the economy.

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. We need to address in a concerted manner the challenges being faced by India’s power sector which are impacting our ability to meet capacity addition targets. The entire power sector value chain crucially hinges on the financial viability of the power distribution sector and we need to focus on improving its performance, especially of the government-owned power distribution utilities, and reducing the AT&C losses. Poor financial health of State distribution utilities continues to adversely affect both existing and planned projects, leaving developers with no option but to run projects at sub-optimal capacities or go slow on the commissioning schedules.

Capacity additions in different segments of the power sector viz. generation, transmission and distribution is capital intensive. The focus of investments in the Indian power sector has typically been in the generation segment. Power transmission and distribution segments have lagged behind. In the 11th Plan, it is estimated that out of the total investment in the power sector, around 55% was invested in generation, 15% in transmission and 30% in distribution.

The T&D sector requires greater and focussed attention than given till now. The lopsided investment pattern needs to be corrected and we need an investment ratio of 2:1:2 amongst generation, transmission and distribution segments in order to achieve a balanced growth in the power sector. It is heartening that there is some move towards correcting this lopsided investment pattern in the 12th Plan.

The total funds required by the power sector in the 12th Plan have been been estimated at INR 13.73 lakh crores, out of which 47% are for generation and the rest 53% for T&D and others. Apart from the generation capacity target, planned additions in the transmission sector during the 12th Plan include 1,10,340 ckm of transmission lines, 2,70,000 MVA of AC transformation capacity, and 19,250 MW bi-pole link capacity of HVDC systems. This is against an incremental addition of 70,286 ckm of transmission lines; 1,50,362 MVA of AC transformation capacity and 3,000 MW of HVDC systems achieved in the 11th Plan. The inter-regional power transfer capacity is projected to increase to 65,550 MW at the end of the 12th Plan from 27,750 MW at the end of the 11th Plan.

Electrical Equipment Industry
To generate, transmit and distribute electricity, the country requires a robust and healthy domestic electrical equipment industry, encompassing the complete value chain in power generation, transmission and distribution equipment. The electrical equipment industry is, therefore, not only crucial for the economy but also of strategic importance to the nation. The Indian electrical equipment industry, INR 1.20 lakh crores in 2011-12, comprises of two segments – generation equipment (boilers, turbines, generators) and transmission & distribution (T&D) and allied equipment like transformers, cables, transmission lines, switchgears, rotating machines, capacitors, energy meters, instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc.

The generation equipment sector is 26% of the total industry, while the T&D equipment sector is the rest 74%.The industry is fully geared up to meet the likely demand arising out of the 12th Plan and even beyond. The industry is 10.00% of the manufacturing sector is terms of value and 1.44% of the GDP. It also provides direct and indirect employment to 1.5 million people and over 5 million across the entire value chain. 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 made huge investments in doubling and, in some cases, even tripling its production capacity. The industry is fully geared up to meet the likely demand arising out of the 12th Plan and even beyond.

Growth rate of the T&D equipment sector decelerated to 6.9% in 2011-12 as compared to 11.3% and 13.7% in 2009-10 and 2010-11 respectively. For the first time in 10 years, the T&D equipment sector has seen a negative growth of 7.8% 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% of their production capacity. In the last few years, the domestic manufacturing capacity of generation equipment has been also ramped up and currently stands at 25,000 MW per annum. With 6-7 joint ventures coming up in India, the capacity will increase to 40,000 MW per annum by 2014-15. As a result, even the generation equipment sector will soon be sitting on huge surplus capacity.

The built-up capacity currently stands under-utilised across several products due to less than anticipated demand on account of the sluggish growth in the country’s 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-line of the manufacturers and threatening the employment of thousands. This can have severe long term consequences. During the period 2005-06 to 2011-12 (six years), India’s imports of electrical equipment have increased at a compound annual growth rate (CAGR) of 32.63% and were at INR 75,175 crores in 2011-12. China’s share in Indian imports of electrical equipment has dramatically increased in the last few years and now it stands at 44.41% (2011-12) of the total from 15.26% in 2005-06.

Imports from China have grown at a CAGR of 58.46% in the six year period and were INR 33,382 crores in 2011-12. Imports of electrical equipment in the country have assumed very threatening proportions and have now captured 43.40% of the market for electrical equipment in India, whereas there is significant underutilisation of installed domestic capacity, resulting in loss of employment of qualified engineers, technicians, workers, etc.

Disproportionate reliance on imported power equipment, with uncertain quality and lifecycle, and with no domestic manufacturing facility to provide immediate repairs, spares, replacements, etc. especially for heavy equipment, is fraught with long term risks. There are several other challenges faced by the industry which include dependence of some sub-sectors on imports of critical inputs like CRGO; slow pace of absorption of new technology by domestic manufacturers, and also user industries, and low investment in R&D; looming shortage of skilled technical manpower; inadequate and costly domestic testing and calibrating facilities for electrical equipment; lack of standardisation of product specifications; badly designed and diverse procurement policies and qualifying criteria of utilities; etc. But, in spite of these challenges, there exists tremendous opportunity for the growth of the domestic electrical equipment industry. In addition to the huge domestic demand arising from the projected growth in the country’s power sector, there is a huge emerging global opportunity.

Over the years, the Indian electrical equipment industry has developed a diversified, mature and strong manufacturing base, with robust supply chain, and a rugged performance design of products. There is also an emerging global reputation of Indian electrical equipment for sourcing of base products and components and also of Indian transmission and other EPC contractors. India’s exports of electrical equipment were around US$ 4.6 billion in 2011-12, but were less than 1% of the global trade in electrical equipment. With the electricity sector being a sunrise sector across the entire developing world, there exists significant potential for India to tap the export markets. We have been asking our industry to also start seriously focussing on external markets, especially those in emerging economies. Both the government and the industry need to work together.

The government’s responsibility is to facilitate infrastructure creation, promote the country’s capabilities, create a favourable and predictable business environment and promote R&D. The industry, on the other hand, has to work towards designing and manufacturing quality products, improving productivity, maintaining costs, etc. The industry also needs to focus on its price competitiveness and also on benchmarking itself with global quality norms. It needs to rapidly absorb new technologies and undertake continuous R&D and innovation to meet the evolving global standards for efficiency. Together, we need to build a Brand India in the global electrical equipment domain.

Because of its heterogeneous character, the domestic electrical equipment industry, despite its critical role in the economy, has not received focussed attention of the policy makers. Similarly, the numerous stakeholders, including the manufacturers, have not evolved a strategic action plan for the industry’s growth and development and have focussed only on piecemeal short-term tactical measures. For the rapid development of the industry, a holistic view and action plan is required.

All stakeholders need to proactively collaborate and take concerted and coordinated action so that the industry can further accelerate its growth process and contribute significantly to reducing the power demand-supply gap in the country. With this objective in view, under the aegis of the Department of Heavy Industry (DHI), Ministry of Heavy Industries & Public Enterprises, Government of India, and with support from IEEMA, a Mission Plan 2012-2022 for the electrical equipment industry is being drawn up in consultation with all the key stakeholders. The Mission Plan will lay down a clear 10-year roadmap for enhancing the competitiveness of the domestic electrical equipment sector.

Role of Copper in Electrical Equipment Industry
To bridge the gap between power supply and demand, apart from increasing supply, we need to also focus on greater efficiency in our use of energy. Copper is a significant raw material for our industry. It is an excellent conductor of electricity and its use enhances the efficiency of electrical equipment. This translates into lower operating cost, increased reliability and efficiency, longer lifespan and increased safety.

Consumers globally are increasingly demanding more energy efficient machines and copper provides the solution as it can play a major role in improving the energy efficiency of electrical products. Switching to energy-efficient equipment, like high-efficiency motors and transformers, requires a modest additional investment which pays for itself within a short time in reduced energy bills. Copper scores over aluminium in areas like conductivity, resistance, better withstanding capability during short circuit, etc.

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