Founded in 1922 in Benfeld, France, SOCOMEC manufactures products for the control and safety of low voltage electrical networks and has a strong global presence through its 27 subsidiaries. Sushil Virmani, Managing Director, SOCOMEC Innovative Power Solutions Pvt Ltd forecasts a prolonged period of growth in the electricals industry on the back of adequate demand for power consumption and modernisation of anufacturing processes. In conversation with Manish Pant, Virmani says that quality norms will have to be made very stringent to ensure the success of Make in India initiative.
What is the status of the Indian electricals industry at this point in time?
This is the one industry which definitely has to grow because despite the size of our population we have one of the lowest consumption of electricity in the world. Although industrialisation has proceeded at a slow pace here, there is no way that it can be reversed; it can only go up. With moves such as smart cities and improvement in distribution, definitely, all segments of the electric power industry have to grow. Our real challenge lies in ensuring quality. In the last two years, while generation of electricity has increased production of components has declined. If you critically examine the index of industrial production (IIP) data it reveals that on QoQ basis we are low by 17 per cent. It clearly shows that though enough power generation has come up and some states have become power surplus, we have not been able to utilise power efficiently and effectively in new regions.
Since you had earlier mentioned “stress on power distribution”, what is the most effective way out of the situation?
The stress in distribution has happened because of two reasons. Number one, in India the distribution is done by retail segments or distributors who were significantly impacted by the demonetisation process and the initial lack of clarity on the goods and services tax (GST). In the middle of the year, these distributors were trying to liquidate their old stock because as per the GST norms you can take credit only for a specified period of time. So, they stopped taking new materials. That added to the stress in the chain. The manufacturers, who had bought raw materials, were trying to push sales of finished products to their distributors, but distributors were unwilling to take any more stock. Therefore, manufacturers reduced production.
Number two, initially it was not very clear on how to bill for products as per the GST parameters. That led to manufacturers acting cautiously. These two reasons severely impacted the distribution of electrical products. But projects, where customers buy directly from companies, did fairly okay because with adequate production price realisations came down. However, the decline in realisations affected the bottom line of several manufacturing companies. The industry has to grow this financial year as there is enough demand available in terms of power consumption and modernisation of manufacturing processes. Last year we have seen power generation reaching close to 10 gigawatts. Since
the government has announced the solar mission to achieve 100 gigawatts coming up by 2022, the distribution also has to increase to match that.
How did the industry cope during that challenging period?
The challenges were huge as it caused a discomfort to the entire industry value chain. If you look at the audited reports of many companies in the last few quarters, YoY, they have registered a slump. Many companies in India were able to convince their counterparts abroad that the market in India was very tough during that phase.
Since you are predicting growth in the coming years can we safely assume that GST woes and the impact of demonetisation are finally behind us?
I would say that while people were struggling to sell more in numerical terms, they went into areas where they had never distributed earlier. That kind of innovative geographical expansion took place. Now we find that GST has fairly stabilised and enterprise resource planning (ERP) systems of manufacturers are well in place. The government too is clear on its policy. Consequently, things are looking fairly nice.
With banks increasing interest rates on large deposits it is clearly evident that the market is hardening. Rising credit off-take means that money supply is coming in and people are making investments. All these are positive signs for the electrical power industry because since generation
is already there, consumption is definitely going to take-off. My only concern is that we have not been able to evenly distribute power in the last few decades as we have compromised on the quality front.
On the one hand, we are talking about smart cities and on the other we have ageing electrical distribution components be it cables, transformers, poorly designed breakers, etc. As other industries move to digitalisation, we need to have a robust back-up in place. Billions of dollars’ worth of revenue are lost in production costs because of our poor position on the supply front. Therefore, not only we as manufacturers have the obligation to educate customers on quality but customers also need to give priority to that aspect. Once this match happens, the distribution will get stabilised.
You just mentioned about legacy issues in the power sector. But then so much disruption is happening globally thanks to IoT and new requirements emerging across industries. How has that affected your product pipeline?
IoT is revolutionising the business because people are getting information at a much faster speed. It is also leading to a requirement for more servers for data centres, and that means more power consumption through a highly efficient distribution scheme. In the last two years, we have come up with more sleekly designed digitalised products to help with this improvement in power supply. Wherever connectivity has improved, we have received requests from customers to study their installations for the feasibility of their going in for our new replacements! Manufacturers who are able to supply quality products that can interconnect with different kinds of devices at the flick of a button are going to be much sought after. That is the trend I foresee over the next five years and it really excites me.
With so much discussion around government initiatives such as Make in India, Digital India and Skill India, do you see them as providing the right kind of push to your particular segment?
The government’s policies are very good because a thought needs to be in place before you proceed with its implementation. Now, this thinking has to be transported into policy and then executed. I think we are lacking there. I remember the Make in India launched four years ago. After that, except in a few pockets, we haven’t seen much movement there. But, then as I said, at least a start has been made. Where good examples are available, they must be shared with the rest of the states or other segments. For example, we have seen how the Delhi Metro Rail Corporation (DMRC) model is being successfully implemented across India. We need to become competitive. Therefore, Make in India must factor in local consumption and export markets. We are doing fine on local consumption as at 1.32 billion, India has a very large population base. But we can significantly increase our exports only if we are able to produce at a competitive cost. And we need to do that really fast as our competitors already have a lead over us.
What do you see as the major challenges before the electricals industry in the country? Also, what would be your long-term outlook like as far as the market is concerned?
This is a most exciting time because, thanks especially to solar, a lot of new power generation has come up. Now we have to look at its efficient distribution. However, until and unless we are able to offer quality products at right price points, we will not be able to make the best of this opportunity. For that Make in India is a perfect initiative. All MNCs, including ours, see India as an attractive place to earn an attractive return on investment. However, quality standards will need to be made very stringent and the government has a big role to play there.
Until and unless that happens, quality would continue to be compromised and that will have a cascading effect on India’s attractiveness as a manufacturing destination in the time to come. As a responsible global company operating in India, we try to educate specifiers, consultants, end customers and decision makers on the latest technology trends and how one may benefit from them. And we will continue doing that. But quality comes at a price and until and unless that realisation dawns on customers such products will not be manufactured in India and distribution will continue to be weak like it has been in the last few decades.