On July 28, 2020, the Power Ministry issued public procurement order mandating that tenders for about 110 equipment and works can be awarded only to local companies with high localisation. The equipment includes transformers, switch gears, cables and insulators, which are imported in large numbers in India despite available local capacity.
Before this, on July 23, 2020, the government amended the General Financial Rules 2017 to impose restrictions on bidders from neighbouring countries sharing a land border with India. The curbs have been imposed on procurement of public projects on the grounds of matters directly or indirectly related to "national security".
These are just a few examples of how India is trying to raise the entry barriers to Chinese goods in the country, particularly in electrical & electronics equipment segment. “China has been using many kinds of non-tariff barriers to restrict imports from India. As reciprocal approach, it is very good that India also implements some stringent restrictions on imports from the neighbouring country. In recent times, SCADA and other critical communication equipment were coming from China. This trend is not good especially when there is a hostility between the two countries and when there is a chance that the other country may use these equipment to their advantage,” observes R K Chugh, President, Indian Electrical and Electronics Manufacturers' Association (IEEMA).
According to Vipul Ray, Managing Director, Elmex Controls Pvt Ltd, this (government’s measures to curb imports from China) is very positive step by the Indian Government. “Indian industry is sitting on excess capacity to the tune of 30-40 per cent and this will help the domestic capacity utilization and manufacturing. Also, from the point of view of cyber security, this is a very important step. Going forward aggressive policy for infrastructure development and investment is required to revive the economy. This will also be needed to achieve manufacturing scale for global competitiveness,” he says.
The size of Indian electrical and electronics (E&E) industry - including EPC projects - is estimated at $ 42 billion (approximately Rs 3 lakh crore). Only E&E products portion accounts for $ 30 billion. About 25-30 per cent of the industry is catered by imports. Though India has the capability to manufacture many of these imported products, local industry is suffering because other countries are dumping cheap products in India.
Chugh states, “China accounts for 30-35 per cent of total imports. Out of the $10-12 billion imports, approximately $3 to $3.5 billion electrical & electronics equipment are imported from China. Worrying part is the quantum of imports has been increasing from China in the last couple of years. Government has come out with series of measures to clamp down on imports from China. Industry is not against import of technology or products/components which are critical or not manufactured in India. We should import from countries that are politically friendly towards India.”
For the last two years, IEEMA has been raising this issue (rising imports from China) with the relevant government departments. We are happy that the government has taken some concrete steps in this direction, says Chugh.
In 2018-19, India imported Rs 71,000 crore worth of power equipment, of which Rs 21,000 crore are Chinese. The Ministry of Power’s July 2 order has mentioned possibilities of cyber-attacks on power system through ‘trojans’ embedded in imported equipment, which can have catastrophic effects and the potential to cripple the entire country. Hence, it is important for India to move away from Chinese imports especially in the critical areas by encouraging domestic manufacturing and, in case where local capability is absent, then importing products from reliable and friendlier countries like Japan, Taiwan, Korea, Germany etc.
“Many of the electronic components are imported but our efforts within the industry is to go for alternate countries. Why to depend only on one or two countries for those items? We should broadband our sourcing as part of overall supply chain management. We have seen in COVID time what a disaster it can be if you are only dependent on one country for your sourcing. It could be always better to have multiple sourcing options and stop sourcing from the countries who are not politically friendly to India. So, in that aspect our industry is fully in sync with the Government of India,” says Chugh.
China accounts for nearly 80 per cent of solar module supplies in India. While increase in trade barriers may increase the cost for power project developers, the industry is ready for it. For example, the Chandigarh-based EPC company in conventional and renewable energy (RE) sectors Hartek Group cancelled orders of a few Chinese companies for control panels. Similarly, Techno Electric & Engineering Co Ltd - a contractor of smart metering project in Jammu and Kashmir - dropped its Chinese supplier from the list of sub-contractors after the state-owned REC Power Distribution Corp Ltd (RECPDCL), an arm of Rural Electrification Corp (REC), asked it to do so. Experts feel that hardships are bound to be there and this is a right time for India to take concrete steps.
Chugh explains, “There could be some impact on solar cells and modules (which go into renewable projects) for short period of time. Good news is that Indian manufacturers have risen to the occasion and have increased their manufacturing capacity. It is just a matter of time (may be less than 2 years) before we become self-sufficient in this segment also. We also need to look into the fact that whether the prices offered by these countries are realistic or not. In many instances, we have found that prices are artificially lowered to kill the domestic industry. In national interest, the user should be ready to pay a little high price for the product in the short time. There will be short term pain, but in the medium to long term it will be helpful to the industry and the country.”
The year 2019-20 was not particularly good for electrical & electronics industry. “Compared to 2018-19, the industry was down by 13-14 per cent in 2019-20 because the government projects in transmission and distribution were implemented by March 2019 after which there was a lull. Even before COVID struck, in January 2020, the average capacity utilisation in the industry was about 70 per cent,” says Chugh.
Vipul Ray adds, “Electrical industry was a bit down in 2019-20 and hence our traditional product lines showed a bit of decline, however on the RE side we were better placed. COVID 19 has significantly affected the demand both in OEMs and Channel Sales. Our supply side is fine but demand side is a concern.”
Speaking about Elmex Controls’ growth plans, Vipul Ray says, “In the short term, we will focus on increasing productivity and operating efficiency. From a long-term perspective, we continue to focus on strategy of providing new solutions for our customers. We have recently launched a completely new range of terminal blocks with latest Push-In technology and hence product development and new solutions for our customers will drive our growth in the future. As a company even in these difficult times, we will continue to invest in technology and R&D.”
COVID 19 pandemic has played havoc with the industry bringing down the capacity utilisation in the range of 40-50 per cent. “In the last 6 months, the demand for power has gone down and as result distribution companies (discoms) and transmission utilities - the two key customers of electrical & electronics equipment - are suffering very badly. They have kept on hold their capital expenses and the running projects have been delayed. First quarter of this financial year was a washout in any case due to lockdown triggered by COVID pandemic. Though industrial activity has picked up since July 2020, most of the manufacturing units are running with 50-60 per cent capacity,” informs Chugh.
If the industry has to improve capacity utilisation, Indian manufacturers will have to focus on global market and be part of global supply chain. The government will also have to incentivise R&D and boost foreign direct investments (FDIs) into the country. “About 15 per cent of Indian E&E industry’s turnover comes from exports, which IEEMA intends to take to 25 per cent by 2024-25. India’s share in the global electrical & electronics industry is less than 2 per cent. IEEMA aims to increase this share to 5 per cent in the next 4-5 years. By 2024-25, we aim to take our exports to $ 25 billion,” says Chugh.
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