Manpower shortage plagues Indian electrical equipment industry

 The Indian infrastructure sector, primarily power, holds great significance for the central government as it plays pivotal role in the overall economic development of the nation. It has been found that the electrical equipment industry enjoys prominence in the infrastructure development of power sector. In the past, the sector made use of low cost labour and also strong manpower base to strengthen its presence in the global markets as an efficient exporter and also producer of electrical equipments.

But, now as India is reeling under the growing pressure of global economic meltdown along with the slowdown in the domestic economy, acute manpower shortage has started to worry the Indian electrical equipment industry. Recently, even Centre agreed that the electrical equipment industry is facing problems in getting quality skilled and employable manpower.


Overview of Indian electrical equipment industry-
The Indian electrical equipment industry has a chequered history. It is among the fastest growing industries in India and meets demands of various sectors. Although, this industry is highly fragmented in its basic nature, but still the small and medium enterprises (SMEs) enjoy considerable presence in this sector.


Analysts believe that over 90% of the electrical equipment manufacturers in India are SMEs. In regard to the overall output, it is projected that close to 25-30% contribution is accounted by the SMEs in this sector.
Presently, this industry covers more than 1,500 units of different sizes, accounting for an annual turnover of close to Rs 1,10,000 crore. Out of the net amount, annual exports' share stands at Rs 20,000 crore, while annual imports at Rs 32,000 crore.


Meanwhile, the Ministry of Heavy Industries and Public Enterprises claimed that employment need in this sector is projected to appreciate to 35 lakh during this year.


According to government's projection, the electrical equipment industry offers direct employment to 5-lakh people and indirect employment to more than 10-lakh people.


Currently, there are many challenges witnessed by this sector such as volatility in the raw material mainly metal prices, substandard quality of raw material and inputs, poor investment in R&D apart from the growing shortage of skilled technical manpower.


Possible reasons for manpower shortage
The rising problem of skilled manpower is causing demand gap and it is rising steadily with the passage of time. The increasing crisis of skilled manpower is impacting various key functions of the electrical equipment industry such as R&D, consultancy, design and detailed engineering work, according to the Ministry of Heavy Industry and Public Enterprises.


The labour productivity has also been low in this sector due to various reasons. As the technical education system in India does not promote innovative thinking, training which is offered in the Industrial Training Institutes (ITIs) is outdated in nature. It is also one of the reasons why the students are not able to fulfill the aspirations of the industry. Even, the qualified supervisors and engineers are not available in significant numbers. The people who are qualified, they are not well trained to fulfill the technical requirements of the industry.


Furthermore, various engineering graduates are of the opinion that the electrical equipment industry lacks considerable growth prospects, leading to limited career options and insufficient salaries. It is leading the new-age students to opt for other high paying sectors such as Information Technology (IT).


It is believed that this demand-supply mismatch can be solved with the upgradation of the present curriculum followed by the engineering colleges across India.


How to improve manpower crunch
· Experts believe that the technical institutes needs to make it absolutely compulsory for teaching staff to spend 3-6 months every 2 years in the industry. It will prove to be beneficial for the continuous upgradation of their knowledge.



· Government should unveil courses which will make one semester of internship in the industry compulsory for students. It will comprise of classroom to hands-on training, improved laboratories to display the latest technologies and products.


· Motivate students and teachers to attend technical seminars on the recent technologies to stay connected with the current developments.


· Develop exchange programmes for teachers across various technical institutes and also with technical institutes of other nations.


· Centre should ensure industry representation in the Education Board for creating curriculum that will showcase the latest technology trends and industry needs. Modules can also be prepared on the basis of industrial clusters along with the course curriculum.


· Indian government should offer extra funds and facilities so that the technical institutes stay upbeat.The financial institutes should aim to offer interest-free loans to technical institutes for upgrading their facilities.


How labour crisis is impacting growth of the electrical equipment Industry -
According to recent reports, the skilled labour crisis has started to impact productivity in a huge way as it has gone down considerably when compared to China and Korea. This is also one of the possible reasons for making the industry non-competitive in nature and also affecting the timely completion of the projects.


Moreover, the growth of India's electrical equipment industry slipped to 6.6% during 2011-12 as compared to 13.7% during the previous financial year 2010-11, as per Indian Electrical and Electronics Manufacturers' Association (IEEMA).


Reports claim that the growth in capacitor, switchgear and transmission line segments became negative during 2011-12.


Many Indian companies supplying electrical equipments to power plants have started to operate their factorieas at half the capacity due to the poor implementation rate of projects and also stiff competition from China and Korea.


Moreover, they have started to pay extra prices for inputs such as copper, steel and aluminium. Also, the Indian suppliers are compelled to lower the selling prices by 15-25% to withstand flood of imports from China and Korea. On an average, the foreign goods are close to 20% cheaper compared to the Indian equipment makers.


Although, the electrical equipment industry is sailing in rough waters, but there is a ray of hope for the survival of this sector. IEEMA has said that the industry is hoping exports to witness six-fold jump to reach $25 billion within one decade. It has been holding regular interactions with the Department of Heavy Industry and the National Skill Development Corporation (NSDC) to establish skill councils for this ailing sector.


Global companies aims to tap the Indian electrical equipment industry
International electric equipment firms with deep pockets are eyeing to raise their foothold in the Indian market due to the stagnation in the developed countries. In India, the demand for electrical equipments are on the rise due to the growing real estate and power sectors.


The companies in this sector want to position themselves as 'one-stop solution' provider to the customers, who come from both retail and industrial sector.


Conclusion
Many feel that despite the importance of this growing industry, it has failed to catch the attention of the policy makers. Government along with the representatives from industry bodies need to chalk out plans to boost the growth of the sector.


Great salary, perks along with benefits may not always ensure low attrition rate. Companies need to ensure job satisfaction of the employees as well.

Credit Rating helps SMEs in building business credibility

 In the past few years, the financial system of India has started to understand the 'true' significance of credit ratings. It is now considered as a noteworthy part of the framework for credit and investment related decisions. In today’s time banks often lay emphasis on lending and offering financial services to the small and medium enterprises (SME) sector.

It is believed that with the help of ratings, SMEs' access to financial services rises considerably. This becomes all the more important as many banks display reluctance to offer loans to SMEs due to the popular belief of risk in loaning to the SMEs, that come with unproven record and also limited assets.
The independent agency ratings for SMEs can enhance the confidence of the lenders and also widen the scope of financial resources for them.


Definition of credit rating –
It is defined as an opinion on the relative degree of risk that is related with the timely payment of interest and also principal on a debt instrument. Usually, alphanumeric symbol is used to show credit rating.


Role of credit rating agency –
For SMEs, reaching out to a credit rating agency is a good option as they often face problems in securing investments and funds. An RBI report on trends and progress in banking 2010 states that just 13% of the registered SMEs in India enjoy access to finance from formal sources.


The rating agencies review any company's financial viability along with its capability to meet the business obligations. They also review the sales figure, financial composition and also focus on the health of the enterprise. Moreover, the rating agencies benchmark the performance of SMEs within the industry itself.


For rating any entity, they charge a fee which is decided on the basis of the company’s turnover. For one year, these ratings are valid and it can be renewed after the completion of time period. Analysts say that good rating raises the chance for SMEs to receive loan.


Basic difference between credit rating agency and credit bureau –
- A credit rating agency offers an opinion related to future debt repayments by borrowers, while on the other hand, a credit bureau gives information on past debt repayments by borrowers.


- A credit rating agency while allocating the ratings uses the information related to a firm's past record in debt servicing, supplied by credit bureaus.
- Credit Bureau information is usually used by the trade creditors, and credit ratings are useful for the financial investors.


Importance of ratings –
Over the years, it has become a known fact that a good rating can help in bagging faster credit for any venture. Few of the agencies in India that rate SMEs are CRISIL Ratings, SME Rating Agency of India (SMERA), Indian credit ratings agency (ICRA), Credit Analysis & Research (CARE), Onicra Credit Rating Agency of India Ltd and FITCH Ratings. They have teamed up with different banks to provide preferential interest rates based on ratings. It is noteworthy that CRISIL enjoys a working arrangement with 35 banks and financial institutions, and SMERA has inked collaborations with 29-financial institutions.


CRISIL has said that the interest rate cut for its clients varies from 0.5-1.25% and almost 35% of the entities have seen decline in the loan processing time. Market experts feel that independent risk evaluation of SMEs by a third party gives credibility to them and also enhances confidence when dealing with MNCs and corporates.


In recent times, the rating schemes for SMEs have gained huge prominence not only in India but across the globe. Standard & Poor’s, a research and rating agency, started an SME rating programme in Japan during 2005.
CRISIL also started rating Indian SMEs in 2005. Just a few days back, it completed its 25,000th SME Rating and also enjoys presence in almost 100-Indian cities. CRISIL rates SMEs under National Small Industries Corporation (NSIC) scheme. SMERA, promoted by SIDBI, assigned its 15,000th SME Credit Rating in March this year. Reports suggest that over 30 public and private sector banks endorse the CRISIL SME ratings and then use them when they carry out internal credit evaluations of the small scale industries. With the help of CRISIL’s rating system, SMEs have successfully saved over Rs 1 bn ($22.5m) in interest costs and are expected to save an overall of Rs 5.6bn ($125m) by 2013. In 2011, CRISIL's Rs 827-crore turnover was primarily pushed by SME ratings and bank loans. It enjoys a rating renewal of 40% from its SME clients.


How to create rating system for SMEs -
Experts feel that creating a rating system for SMEs is not an easy task. The benchmarks which are used for large corporations need to be abandoned while developing a rating system for SMEs. Creating a rating system, similar to the one like CRISIL in India, will solve the purpose of SMEs.
There are two kinds of ratings for SMEs - credit rating of financial instruments and customised rating. Meanwhile, CRISIL has showed inclination to rate close to 100,000 SMEs by 2015.


Conclusion -
Credit ratings can transform the way SMEs are involved in the financial system. The rating agencies need to identify the special steps needed in this direction. They should also start outreach initiatives which will create awareness among SMEs about the benefits of ratings. Rating agencies should also have specialised teams and analytical tools, which are customised for the SME sector.


Credit rating can also be used in the form of a brand building tool by SMEs to boost credibility among suppliers and customers.

K'taka SMEs facing acute manpower shortage, says FKCCI

In an exclusive interview, J R Bangera, President of Federation of Karnataka Chambers of Commerce and Industry (FKCCI), threw light on the conditions of the SMEs in the state of Karnataka and also how his association aims to strengthen trade at the international level.

What is the role that your association aims to play in Karnataka's industrial sector?

JR Bangera: We are hoping to promote international trade through meetings with visiting foreign business delegations, participation in trade fairs/exhibitions and business delegations abroad. Our association offers expert advice on diverse subjects such as industrial growth, monetary and fiscal policy, exchange rate policy, economic planning, taxation and corporate laws. FKCCI has got more than 30 expert committees, which regularly takes up issues of its members' interests in various fields with the policy makers. We also review general/common problems of members at central/state government levels. We provide assistance in identifying joint venture partners at various national level events, organised by FKCCI. We are engaged in certification of export documents including Certificate of Origin, Visa Recommendation Letters for business promotion visits abroad. Our association disburses information services to entrepreneurs, who are either setting up new projects or looking for technological up gradation. Moreover, executive developmental programmes with special focus on Human Resources and Labour/Industrial Relations are initiated at regular intervals. We have been holding regular interactions with government to resolve the various problems that arise from time to time in the business and economic spheres. From the last few years, FKCCI has been playing the role of a forum for business missions from abroad for developing bilateral trade/multilateral trade with foreign countries and to sponsor business missions.

What are the current projects being undertaken by your association?

JR Bangera: With the aim to encourage, boost exporters of Karnataka for their contribution and outstanding performance in the field of exports annually, we are organising workshops on themes such as 'Going Global – Meeting Challenges', update on KVAT and e-Initiatives of Commercial Taxes Dept.

What is the current scenario of the industrial sector in the state?

JR Bangera: The growth rate of the industrial sector is estimated to have decreased to 3.6% during 2011-12, largely due to adverse impacts of the overall economic slowdown. The state’s economy was expected to grow at 6.4% and reach Rs 2,97,964 crore in 2011-12 from Rs 2,79,932 crore in 2010-11. Karnataka’s economy is showing encouraging trends due to the strong services sector, which grew by 10.6% during 2011-12. However, there has been slowdown in the agriculture and allied sectors (minus 2.9 % in 2011-12) attributable to a decline in crop area due to drought and floods, according to the Economic Survey. Are the exports placed aptly for the SMEs in the state? JR Bangera: The contribution made by MSME sector to the state’s export is nearly 40%. Information technology, readymade garments, jewellery, engineering, electronics, processed food, handicrafts, agarbathies are some of the sectors, where maximum exports have been achieved by the small scale industries.

What is the performance of domestic market for these SMEs?

JR Bangera:The recent recession had taken its toll on the MSME sector in Karnataka. The worst affected sectors, that depended on exports, are textile and precision manufacturing sectors. The good news is that the domestic market provides a cushion and have become more efficient today.

Do you feel that government policies (both centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

JR Bangera:According to me, few policies are in favour such as cluster approach for development, marketing support – price preference, reservation of 20% land in large industrial areas, performance linked investment promotion subsidy, interest subsidy for micro manufacturing enterprises, exemption from electricity duty, incentive for technology upgradation/quality certification, subsidy for water harvesting/conversation & energy. On the other hand, the SME traders in Karnataka are facing huge financial losses in their businesses due to the problem of load-shedding. It is believed that manpower crunch is a key issue at the moment for SMEs. How do you view it and what are the solutions? JR Bangera: In the state, there is acute crisis of skilled manpower. Manpower shortage is acting as a big problem for those SMEs which have matured and are willing to grow further. Few of the solutions to this problem are to offer funding to help SMEs in increasing worker training, promoting free expertise schemes, conducting skill development programmes.

Can you throw some light on the ICT (information and communication technology) used by SMEs in the state?

JR Bangera: The problem is that most of the MSMEs are not using ICT effectively may be because of cost or non-availability of skilled man power to use the technology. However, now MSMEs in Karnataka are adopting newer technologies due to globalisation and also the possibility of opening of international market for which they have to display their online presence in the global market. It has been found that Internet application usage among MSMEs has increased considerably. MSMEs use Internet to run their own website, promotion of their products/services online. According to me, nearly 50-60% of SMEs are using Internet to promote their products/services online.

In the past six months, what are the achievements of the SME sector in the state?

JR Bangera: During April-Dec of 2011, 1,4578 units have been registered with an investment of Rs 1,10,732 lakh and providing employment to 90,203 people. Out of this, 13,601 are micro units, 952 small and 25 medium industries have been registered with an investment of Rs 30,388.21 lakh, Rs 63,867.79 lakh, and Rs 16,476 lakh, respectively and providing employment to 60,455, 24,382 and 5,366 people, respectively.

Kindly share the roadmap of your Federation for this fiscal.

JR Bangera: We want to widen the membership base, develop contacts at grass root level in the state, work closely with the government and advice government on various policy initiatives for the development of the MSME 

sector.

What is the outlook for the SME sector in this year?

JR Bangera: Due to the contraction in the European and the US markets, the demand of goods and services from the emerging markets has slowed down considerably. This in turn has negatively impacted the Indian manufacturing and services sectors. Indian SMEs operating in these sectors have got negatively impacted due to this slowdown, coupled with high inflationary pressures which increased the cost of raw materials and other input costs. But, it is expected that by government interventions with favourable policies and schemes, it may minimise the cost of techonology upgradation. It will lead to promotion of market penetration and also offer assistance in procuring raw materials or inputs at low cost.

S&P lowered the outlook for India to negative. Do you think it will effect Indian SMEs?

JR Bangera: Considering the global ratings agency has downgraded the credit rating for several important NBFCs and banks, there are ample reasons for India Inc to be concerned, especially SMEs. Also, on the list of organisations whose credit rating has been downgraded are some large IT firms. S&P credit analyst Takahira Ogawa said in a note that the revision of the credit outlook for India considers the fact that any of the three factors (which are mentioned later) are likely to impact the industry. Firstly, if the international scenario continues to deteriorate; secondly, if the growth prospects diminish; and finally, if slowdown is witnessed in fiscal growth due to weak political setting. The downgrade by S&P, though brushed aside by some experts, is likely to effect the economy in certain ways. Firstly, it will effect the minds of the overseas investors, who are likely to reconsider investing in India. Secondly, foreign investors who have already invested in India are likely to exit at the next available opportunity. Apart from this, the downgrading will increase the cost of credit sourced from abroad for India as a whole as well as other organisations opting for overseas loans.