Budget fails to impress electrical industry

The Union Budget proposals announced on Friday has belied the expectations of the domestic electrical equipment industry which was expecting some corrective action from the government to reverse the downward slide of the industry.

 

"The slowdown in the power sector and escalating imports of electrical equipment, which have led to sharp deceleration in the growth of the domestic electrical equipment industry this financial year, have not been addressed," said Ramesh Chandak, President of the Indian Electrical & Electronics Manufacturers’ Association (IEEMA), adding that the power transmission and distribution sector had been largely ignored while the generation sector received some attention.

 

The biggest issue of concern for the electrical equipment manufacturing industry is that none of their major demands, including service tax exemption for all power projects, duty free import of CRGO electrical steel (a critical raw material for manufacturing transformers), demand for a level playing field for domestic electrical equipment manufacturers vis-à-vis imports, have been acceded to. "The hike in service tax and excise duty rates, will further impact the top-line and the bottom-line of electrical equipment manufacturers and consequently their commercial viability, who are already facing a crunch and working at broadly 65% of their production capacities," says Chandak.

 

Several industry veterans also feel that though the government had a good platform to focus on the electrical industry in order to meet the GDP growth, it chose not to. "The budgetary allocations proposed are weak and would not really benefit the industry," says Vijay Karia, Chairman and Managing Director of Mumbai-based Ravin Cables Ltd, adding, "It is now clear that the electrical industry would have to survive despite the government policies, as they cannot survive because of these policies."

 

Some of the major issues which have been facing the power sector in recent times include excessive capacities on the manufacturing side leading to under utilisation of plants, higher interest rates, threat of cheaper imports from China and the government's lack of focus in reducing losses for the vital transmission and distribution segment.

 

In the eleventh five year plan, the government will end up adding about 52,000 MW in capacity against the proposed 78,000 MW, a deficit of about 34%.