The downturn in the demand for domestic electrical products and increase in imports have spelled double trouble for the Indian market for electrical products, resulting in negative growth of -6.14% over the last nine months. This kind of negative turn has become visible for the first time in the last decade. In the backdrop of such negative industry sentiments, J G Kulkarni, President, Indian Electrical and Electronics Manufacturers Association (IEEMA), in an interaction, highlighted the major expectations of the industry from the upcoming Union Budget 2013-14.
Question: How is the Indian electrical equipment industry evolving?
Answer: The Indian electrical equipment industry is expected to touch approximately USD100 billion (Rs. 5,50,000 crore) by 2022. The total fund requirement during the 12th Plan, considering each aspect of the power sector, is expected to be about Rs. 14 lakh crore, including Rs. 1,35,100 crore required for renewable energy.
The industry has all the potential to grow to the next level, but it is struggling with multiple issues. The government can help the industry by coming up with a policy document which can protect its interests and by creating a growth-oriented environment.
Question: What are the challenges that the industry is facing presently?
Answer: The current market scenario does not present a rosy picture for the industry. The industry witnessed a negative growth of 4.1% in Q2 of 2012-13, the second consecutive quarter of negative growth, which, according to me, is an ’alarming statistic’.
The entire power sector value chain hinges on the financial viability of the power distribution sector, and the 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 commissioning schedules.
The domestic electrical equipment manufacturing industry suffers a substantial cost disadvantage of 14%, as compared to imports, while supplying to power projects, due to many local taxes such as VAT, entry tax/octroi, higher financing cost, project imports at nil or low customs duty, lack of quality infrastructure, and dependence on foreign sources for critical raw material and components.
Question: What are the key recommendations that you would like to make for the upcoming budget?
Answer: Even though a number of policy initiatives have been put in place, the task of transforming the power sector is yet to be achieved. IEEMA has sought extension of service tax exemption to all power projects, including power generation, transmission and distribution projects, in line with other infrastructure projects like roads, airports, ports, railways, transport terminals, bridges, tunnels and dams.
The government should follow the recommendations of the Arun Maira Committee, and provide a level playing field to domestic manufacturers by making customs duty 10%, CVD nil and SAD 4% on all categories of power projects. Simultaneously, deemed export benefits in the form of excise duty exemption/refund should be provided to the domestic suppliers.
All imports are currently exempted from CST/VAT, while all domestic supplies attract CST of 2% and VAT ranging from 5% to 14.5%. Although SAD has been removed on CRGO, its imports should be allowed at nil duty, till indigenous production is made available. There is a delay in the publishing of applicable indices, for reasons beyond the control of the suppliers.
Question: How can the industry cope with its present tough economic conditions?
Answer: Dynamic production techniques must be imbibed to enhance cost efficiency, even while supplying products conforming to highest standards of quality. Critical attention is required in enhancing cost competitiveness, especially to withstand competition from overseas markets.
The policy makers should come up with a document that encourages electrical manufacturing companies to venture into global markets. The motto should be: ‘Think, and go global’. This must be considered as a survival strategy rather than an expansion strategy, considering the poor economic scenario of the electrical industry.