“Electrical equipment sector envisages 3.5 million jobs by 2022” [June 2012]

June 20, 2012 4:47 am

In the electrical equipment sector, we envisage that by 2022, about 1.5 million persons will be directly employed and about 2 million will be indirectly employed- Ramesh Chandak, MD & CEO, KEC International
Infrastructure is one of the crucial drivers for achieving and sustaining high economic growth. The foremost challenge facing India’s rising aspiration levels to be a global economic powerhouse and improving the standards of living of its ordinary citizens is its huge infrastructure deficit. Nowhere else is this challenge more apparent than in the power sector today.
Power Sector needs urgent policy interventionsAn efficient power supply system is a key ingredient for economic growth and quality of life. According to Ramesh Chandak, MD & CEO, KEC International, “Assured availability of power at reasonable costs will not only act as a catalyst in the socio-economic development of the nation but also enhance the global competitiveness of the domestic industry leading to greater employment generation and higher levels of per capita income. Enhancing energy supply and access is, therefore, a key component of our national development strategy”.
Towards this end, the rapid development of a robust and healthy domestic electrical equipment industry in India, encompassing the complete value chain in power generation, transmission and distribution, is not only crucial for the economy but also of strategic importance to the nation.
The Electrical Equipment Industry Index (EEI) by IEEMA indicates that growth of the Indian electrical equipment manufacturing industry has decelerated to 6.6 per cent in 2011-12 as compared to 11.3 per cent and 13.7 per cent in 2009-10 and 2010-11 respectively. All three segments of the power sector – generation, transmission and distribution are facing several challenges which need to be addressed expeditiously. Sluggish growth in the power sector and the escalating imports of electrical equipment is significantly impacting the commercial viability of the domestic electrical equipment industry and will have severe long term consequences.
Growth in the capacitor, switchgear and transmission line sectors in 2011-12 turned negative, implying distinct slowdown in industrial capex activities and slowdown in off-take by users due to credit squeeze, high interest costs, etc. The cable industry is the only sector that showed a double digit growth of 25.7 per cent last fiscal.
Mr. Chandak observes “Absence of a level playing field for the domestic industry to compete with imported electrical equipment, especially from China, is a clear and present threat. Imports of electrical equipment have grown in the past five years at a CAGR of 28.28 per cent”.
“Urgent policy interventions are required by both the Central and the State Governments to keep a check on the deceleration in growth of the electrical equipment industry”, he adds.
Create enabling environment for innovations and greater R&D The domestic electrical equipment industry manufactures varied range of products including boilers, turbines, generators, transformers, cables, transmission towers and conductors, switchgear, insulators, capacitors, metres, etc. The industry is very heterogeneous, with a good mix of large private and public sector enterprises, multinational companies and small and medium companies, including major foreign players either directly or through technical collaborations with domestic manufacturers. The industry has a diversified, mature, established and strong manufacturing base, with robust supply chain, fully equipped to meet domestic demand and any capacity addition. Rugged performance design of domestically manufactured electrical equipment is equipped to meet the tough network demand and the tough operating conditions in India, including highly varying ambient temperatures and dust / pollution conditions.
The technology used in most cases is contemporary and latest state-of-the-art, but there is slow pace of absorption of new technology by domestic manufacturers of electrical equipment, and also user industries, and low investment in research & development (R&D). According to estimates, less than 1 per cent of the annual turnover of the industry is invested in R&D.
The prime customers / buyers of the electrical equipment industry are the utilities in generation, transmission and distribution of power. Presently, most of these utilities are either owned by the Central Government or different State Governments. Their buying practices do not encourage innovations and R&D.
Most of the State utilities:• Have non-uniform procurement policies and qualifying criteria for vendors for similar products• Outdated tendering procedures and contract awarding based on L1 bidder and negotiations• Lack of standardisation of product specifications, design parameters and ratings for T&D equipment across the country• They do not provide encouragement for field trials of innovative products / technologies.
Mr. Chandak comments,  “The main focus of the manufacturers of electrical equipment is on cutting costs and not on innovative technologies, on piecemeal short-term tactical measures rather than evolving any strategic action plan for their growth and development”.
He suggests, “An enabling environment for innovations and greater R&D needs to be created with the proactive involvement of all stakeholders, led and driven by the government and its agencies. Increase in productivity and automated processes, with best practices, in manufacturing need to be imbibed by the Indian industry”.
Foster collaborative R&D Broadly, as mentioned earlier, a culture of innovation in the electrical equipment industry is lacking. MSMEs manufacturing electrical equipment neither have the resources, technical expertise or the inclination to invest in R&D. Many large manufacturers also are reluctant to invest in R&D on their own. “It is essential to foster collaborative R&D which has application across the sector. This kind of collaborative R&D can only take place if it is driven or backed by the government or a government owned agency which is going to be the major user of the technology”, Mr. Chandak recommends.
The Hurdles!Pointing out the obstacles within the manufacturing sector, Mr. Chandak said, “There is no standard contract document being followed by power utilities across the country. In most cases, the contract clauses are not fair to the equipment suppliers / EPC contractors. As a result, manufacturers have to hold inventories for longer durations, increasing overhead costs; number of days of receivables are longer and, therefore, the working capital requirement of manufacturers remains very high”. Lack of standardisation of specifications and ratings in the distribution sector forces manufacturers to maintain inventory of equipment of different ratings. Delays in completion of power projects on account of various reasons also block the payments to the suppliers as well as contractors. Poor transportation infrastructure also forces the manufacturers to maintain large inventories. All these problems need to be addressed for better optimisation of resources.
Looming skill gapPresently, the electrical equipment industry is facing a major problem in getting skilled and employable manpower which is technically competent, equipped with skills and ready to be deployed. The industry is facing a looming skill gap, which is widening every year. “Due to lack of skilled manpower, electrical equipment industry is suffering as it is affecting critical functions like R&D, consultancy, design and detailed engineering work”, Mr. Chandak observes.
He has also added, “There is need to promote greater linkage and interface between the industry and academia / technical institutes, which requires concerted action by the three critical agencies – technical institutes, industry and government. With structured government support, programmes can be devised for upgrading skills at technical institutions, both for faculty and students”.
Expectations from the GovernmentCapacity 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 (T&D) segments have lagged behind. In the 11th Plan, it is estimated that out of the total investment in the power sector, around 55 per cent was invested in generation, 15 per cent in transmission and 30 per cent in distribution. According to him, “There has been lesser focus and investment in the T&D sector as opposed to generation and the current lopsided investment pattern needs to be corrected. This will help in resolving some of the power problems and will also provide balanced growth”.
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 aggregate technical & commercial (AT&C) losses.
Since the T&D sector requires greater and focused attention than given till now, Mr. Chandak recommends, “The new development plans envisage keeping the investment ratio as 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 next five years has been estimated at Rs. 13,72,580 crore, out of which 47 per cent are for generation and the rest 53 per cent for T&D and others.
Enhance competitiveness of domestic manufacturers Presently, the electrical equipment industry directly employs over 0.5 million persons and indirectly over 1 million persons. If you consider the entire value chain, the total employment is about 5 million, including 1.2 million engaged in power generation, transmission and distribution utilities.
By the end of the 12th Five Year Plan, that is in 2017, given the targets for capacity additions, it is estimated that the employment in power utilities will increase to 1.4 million. By 2022, it is estimated that the manpower requirement in the power utilities will be about 1.8 million.
“In the electrical equipment sector, we envisage that by 2022, about 1.5 million persons will be directly employed and about 2 million will be indirectly employed”, he predicts. ‘If correct steps are taken to enhance the competitiveness of the domestic manufacturers there will be several promising employment opportunities in the electrical equipment manufacturing sector”.
Suggested steps for the Govt. to promote manufacturing sector According to Mr. Chandak, the government needs to encourage indigenous manufacturing and technology in the electrical equipment sector by:• Framing model procurement guidelines for utilities• Ushering in standardisation of product specifications and design parameters• 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 timeframe 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• 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• Supporting commercialisation of innovations• Facilitating access of Indian manufacturers to foreign technologies and know-how• Providing fiscal incentives and subsidies for developing indigenous technologies and innovative products• Encouraging exports and protecting the domestic industry’s interests under different Regional Trade Arrangements (RTAs).
He believes, “These measures will support Indian manufacturers and provide necessary safeguards to the domestic industry that is facing non-market competition on account of cutthroat below-cost entry level prices offered by Chinese manufacturers”.
For the rapid development of the industry, a holistic view and action plan is required. He suggests, “All stakeholders need to pro‑actively 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 along with support from IEEMA is drawing a Mission Plan 2012-2022 for the electrical equipment industry in consultation with all the key stakeholders. “The Mission Plan will lay down a clear roadmap for enhancing the competitiveness of the domestic electrical equipment sector”, Mr. Chandak concludes.