India, no doubt, has good skills and resources for domestic manufacture of all range of electrical power industry equipments and a significant proportion of domestic production is exported too. But, to match the prices of Chinese equipments we need to work harder.
The electrical machinery manufacturing industry in India holds its own importance in the domain of industry because it is the indigenous source of all electrical equipments used in generation, transmission and distribution of electrical power. This importance is underlined by the following statistical information. There has been recorded a 10.5 per cent rate of market expansion of the above equipment between 2007 and 2012. Exports have seen a 14.8 per cent growth of these equipments in the last 8 years. The government plans to add 88.5 gigawatt (GW) and 93 GW capacities by 2017 and 2022 in this sector of the industry. By 2022, the generation equipment industry in India is projected to grow to US Dollar (USD) 25-30 Billion. The industry is sized at USD 6.7 Billion in 2012-13. By 2022, the Transmission and Distribution (T&D) equipment market in India is expected to grow to USD 70-75 Billion from USD 17.3 Billion in 2012-13.
Let us cast a look at the incentives and other policy pronouncements made by Government of India to promote the growth of this industry.
Investment allowances (additional depreciation) have been announced at the rate of 15 per cent to manufacturing companies that invest more than International Normalised Ratio (INR) 1 Billion in plant and machinery acquired and installed between April 1, 2013 and March 31, 2015 provided the aggregate amount of investment in the new plant and machinery during the said period exceeds INR 1 Billion. Alternatively, in order to provide a further fillip to companies engaged in the manufacture of an article or thing, the said benefit of additional deduction of 15 per cent of the cost of new plant and machinery, exceeding INR 250 Million which is acquired and installed during any previous year ending on March 2017 has also been announced. For industry/private sponsored research programmes in this sector, a weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act. A weighted deduction of 200 per cent is granted to assessees for any sum paid to a national laboratory, university or institute of technology, or specified persons with a specific direction, provided the said sum is used for scientific research within a programme approved by the prescribed authority.
Apart from the above, each State in India offers additional financial and fiscal incentives for industrial projects. A host of export incentives like Export Promotion Capital Goods Scheme and Duty Remission Scheme and Area Based Incentives for Units in Special Economic Zones/National Investment and Manufacturing Zones (SEZ/NIMZ) and specific states have also been provided by the government.
The major policy change made to facilitate the growth of this industry is its de-licensing which has enabled the entry of global majors into the electrical machinery industry in India. With planned capacity addition of 88.5 GW projected at the end of 2017 through the Accelerated Power Development Reform Programme, the Government plans to provide reliable, affordable and quality power to all. To make India the country of choice for the production of electrical equipment and reach an output of USD 100 Billion by balancing exports and imports the areas marked for focus include technology and Research and Development (R&D), the lowering of customs duties on a range of equipment, the setting up of the Electrical Equipment Skill Development Council (EESDC), the establishment of electrical equipment industry clusters and the enhancement of product-testing infrastructure in the country.
Let us now see some hard and harsh ground realities pertaining to this sector. India, no doubt, has good skills and resources for domestic manufacture of all range of electrical power industry equipment and a significant proportion of domestic production is exported too. But, to match the prices of Chinese equipment made on huge economies of scale, we shall have to work harder. We shall have to implement in right earnest the fiscal and financial incentives announced for this sector. We need to establish medium or large scale industries in the area of transformers, cables, switchgears and other power equipment for achieving economies of scale and export price competitiveness. Such large factories may be set up in the proposed new SEZs. Our central PSU, BHEL has been struggling since 2008 to maintain a healthy capacity utilisation figure in the wake of Chinese imports of power generation equipment. The growth of this industry depends on the growth of the power sector, which, in turn, will depend on the operational health of the distribution sector which generates power sector revenues. Reforms including privatisation and modernisation of distribution sector will step up the operational efficiency of this sector by reduction of power losses and make healthy and profitable business models in the power sector.
(The writer is a senior columnist)