1.main report

CONTENT

Page No.

List of Tables List of Annexure

Executive Summary i-v

Chapter 1 Introduction

1.1 Background 1

1.2 Objectives of the Study 3

1.3 Terms of Reference 3

1.4 Methodology 4

1.5 Limitations 6

Chapter 2 Light Electrical Industry: Large Home Appliances Segment

2.1 Light Electrical Industry in India 7

2.2 Growth of Durable Product Market in India 8

2.3 Large Home Appliances Segment 10

2.3.1 Preferential Government Policies 10

2.3.2 India to enforce energy efficiency in climate fight 12

2.3.3 Air Conditioners 13

2.3.3.1 Types of Air Conditioners 14

2.3.3.2 Penetration in India and Competing Countries 14

2.3.3.3 Players and Market Share 14

2.3.4 Refrigerators 16


2.3.5 Washing Machines 19 2.3.5.1 Penetration of Washing Machines in India and Global 21


2.3.5.3 Future Scenario 22

2.3.6 Vacuum Cleaners 23

2.3.7 Microwave Ovens 23 2.8 Financial Analysis of Domestic Electrical Appliances 25 2.9 Financial Analysis of Refrigerators and Air Conditioners 26

Chapter 3 Impact of WTO, FTAs and Global Economic Recession 3.1 Introduction 27

3.2 WTO and Implications for Indian Economy 28

3.3 Impediments to the growth of India’s International Trade 29

3.4 From the Uruguay Round to Doha Round 29

3.5 The Doha Development Round 30

3.6 Free Trade Agreements (FTAs) 31

3.6.1 India- Thailand Free Trade Agreement 32

3.7 Product Categories under Early Harvest Scheme 34

3.8 India signs FTA with ASEAN 35

3.9 Global Economic Recession 36

Chapter 4 Productivity Growth of Large Home Appliances

4.1 Introduction 38

4.2 Air Conditioner 38

4.2.1 Key Features of the Registered Factory Sector 38 4.2.2 Data and Variables 39

4.2.3 Growth Air Conditioner Sector 40

4.2.4 Partial and Total Factor Productivity Growth for Air Conditioner Industry

40

4.3 Refrigerator 43


4.3.3 Growth Refrigerator Sector 44 4.3.4 Partial and Total Factor Productivity Growth for Refrigerator

Industry 45

4.4 Washing Machine 48


4.4.3 Growth of Washing Machine 49

4.4.4 Partial and Total Factor Productivity Growth for Washing Machine 50

Chapter 5 Competitiveness of Large Home Appliances in India

5.1 Introduction 53

5.2 Export Trends 53

5.3 Import Trends 54

5.4 Export Competitiveness of Large Home Appliances 55

5.5 Air Conditioners 57

5.6 Refrigerator 60


5.8 Vacuum Cleaners 71

5.9 Microwave Ovens 74

5.10 Conclusion 76

Chapter 6 Field Survey Findings of Large Home Appliances

6.1 Profile of Light Electrical Manufacturing Units 77

6.2 Product Category wise distribution of the manufacturing units 78

6.3 Refrigerator 78

6.3.1 General Profile of Respondents 78

6.3.2 Employment Trend 79

6.3.3 Domestic Market Trend 79

6.3.4 Productivity and Competitiveness 83

6.4 Air Conditioners 84





6.5 Washing Machines 90





6.6 Vacuum Cleaners 96





6.7 Microwave Oven 101





6.8 Conclusions 107 Chapter 7 Summary of Diagnostic Case Studies 109

7.1 Introduction 109

7.2 Air Conditioner Manufacturing Unit 1: Mumbai, Maharashtra 109

7.3 Air Conditioner Manufacturing Unit 2: Mumbai, Maharashtra 111

7.4 Refrigerator Manufacturing Unit 3: NOIDA, Uttar Pradesh 113

7.5 Refrigerator Manufacturing Unit 4: Aurangabad, Maharashtra 114

7.6 Washing Machine Manufacturing Unit 5: Gurgaon, Haryana 116

7.7 Washing Machine Manufacturing Unit 6: NOIDA, Uttar Pradesh 116

7.8 Microwave Ovens Manufacturing Unit 7: NOIDA, Uttar Pradesh 117

7.9 Microwave Ovens Manufacturing Unit 8: Mumbai, Maharashtra 118

7.10 Vacuum Cleaners Manufacturing Unit 9: Mumbai, Maharashtra 119

7.11 Vacuum Cleaners Manufacturing Unit 10: NOIDA, Uttar Pradesh 119

Chapter 8 SWOT Analysis of Large Home Appliances in India

8.1 Air Conditioner 121

8.2 Refrigerator 122


8.4 Vacuum Cleaner 123

8.5 Microwave Oven 124

Chapter 9 Factors Constraining the Growth of the Sector

9.1 Electrical Energy Generation Review 125

Chapter 10 Summary of Findings: Study of Major Asian Trade Partners

10.1 Introduction 131 10.2 China 131

10.2.1 Lessons from Chinese Industry 133 10.3 Thailand 133 10.4 Malaysia 134 10.5 Korea 135 10.6 Energy Efficiency Standards and Labeling: International Scenario 135

10.6.1 China 136 10.6.2 India 137 10.6.3 Thailand 138 10.6.4 Malaysia 139 10.6.5 Korea 139

Chapter 11 Conclusions and Recommendations

11.1 Policy Guidelines for Skill Development and Training of Manpower 141 11.2 Infrastructure Development 142 11.3 Raw Material, Components & Machinery 142 11.4 Building a Global Supply Chain Network 144 11.5 R&D and Technology Upgradation 144 11.6 Implementation of Quality Standards and Energy Efficiency

Standards labeling programme 146

11.7 FDI in Light Electrical Sector 146 11.8 Policy of Disposal of e-waste 147 11.9 Fiscal Incentives 147 11.10 Changing character of Refrigeration Manufacturing in India 148 11.11 Market Segmentation 149 11.12 Quality and Price Discrimination 149

11.13 Customer Relationship Management 150 11.14 Labour Relations 150

11.15 Productivity Enhancement for Raising Profit Margins 150

11.16 Contract manufacturing 150

References 151

Annexure 153-177

Study Team 178

LIST OF TABLES

Page No

2.1 Growth drivers of Consumer durables 10

2.2 Foreign Trade and Domestic consumption of Air Conditioners- India

16

2.3 Major Players / Manufacturers in India based on Market Share - Air Conditioner

16

2.4 Foreign Trade and Domestic consumption of Refrigerators- India 19 2.5 Major Players / Manufacturers in India based on Market Share -

Refrigerator 19

2.6 Foreign Trade and Domestic consumption of Washing Machines- India

22

2.7 Major Players / Manufacturers in India based on Market Share - Washing Machines

22

2.8 Foreign Trade and Domestic consumption of Vacuum Cleaners- India

23

2.9 Major Players / Manufacturers in India based on Market Share -Vacuum Cleaners

23

2.10 Domestic Electrical Appliances (All Categories)- Financial Aggregates

25

2.11 Refrigerators and Air Conditioners – Financial Aggregates 26 3.1 India’s Revised offer list for ASEAN under AI-FTA dated 7th Feb

2008 35

3.2 Year on Year Growth in Secondary Sector 37 4.1 Characteristics of Registered Air Conditioning Industry in India 39 4.2 Growth of Organized Air Conditioner Sector 40 4.3 Productivity Estimates for Labour and Capital Inputs 41 4.4 Labour, Capital and Total Factor Productivity Growth 42 4.5 Index of Labour , Capital and Total Factor Productivity Growth

Rates 42

4.6 Characteristics of Refrigerator Sector in India 44 4.7 Growth of Organized Refrigerator Sector 45 4.8 Productivity Estimates for Labour and Capital Inputs 45 4.9 Labour, Capital and Total Factor Productivity Growth 46 4.10 Index of Labour , Capital and Total Factor Productivity Growth

Rates 47

4.11 Characteristics of Washing Machine Sector in India 48 4.12 Growth of Organized Refrigerator Industry 49 4.13 Productivity Estimates for Labour and Capital Inputs 50 4.14 Labour, Capital and Total Factor Productivity Growth 51

4.15 Index of Labour , Capital and Total Factor Productivity Growth Rates

51

5.1 Segment wise Export of Home Appliances – India Total 54 5.2 Segment wise Import of Home Appliances – India Total 55 5.3 Product Segment wise Export-Import Ratio of Home Appliances 56 5.4 Export of Other Window/Wall Types Self-contained Air

Conditioning Machines 57

5.5 Import of Other Window/Wall Types Self-contained Air Conditioning Machines

58

5.6 Trade Ratio of Other Window/Wall Types Self-contained Air Conditioning Machines

58

5.7 Country wise Export of Split System Air Conditioning Machines 59 5.8 Country wise Import of Split System Air Conditioning Machines 59 5.9 Trade Ratio of Split System Air Conditioning Machines 60 5.10 Country wise Export of Refrigerator (Household Compressor type

refrigerator) 61

5.11 Country wise Import of Refrigerator (Household Compressor type refrigerator)

61

5.12 Trade Ratio of Refrigerator (Household Compressor type refrigerator)

62

5.13 Country wise Export of Refrigerator (Other Household type refrigerator)

63

5.14 Country wise Import of Refrigerator (Other Household type refrigerator)

64

5.15 Trade Ratio of Refrigerator (Other Household type refrigerator) 64

5.16 Country wise Export of Other Machines, dry linen capacity <= 10kg 65 5.17 Country wise Import of Other Machines, dry linen capacity <= 10kg 66 5.18 Trade Ratio of Other Machines, dry linen capacity <= 10kg 66 5.19 Country wise Export of Other Machines, with Built-in centrifugal

drier of a dry linen capacity not exceeding 10kg 67

5.20 Country wise Import of Other Machines, with Built-in centrifugal drier of a dry linen capacity not exceeding 10kg

68

5.21 Trade Ratio of Other Machines, with Built-in centrifugal drier of a dry linen capacity not exceeding 10kg

69

5.22 Country wise Export of fully automatic machines of dry linen capacity <=10 kg

69

5.23 Country wise Import of fully automatic machines of dry linen capacity <=10 kg

70

5.24 Trade Ratio of fully automatic machines of dry linen capacity <=10 kg

71

5.25 Country wise Export of Vacuum Cleaners 72 5.26 Country wise Import of Vacuum Cleaners 73

5.27 Trade Ratio of Vacuum Cleaners 73 5.28 Country wise Export of Microwave Ovens 74 5.29 Country wise Import of Microwave Ovens 75 5.30 Trade ratio of Microwave Ovens 75 6.1 Distribution of Manufacturing units- NPC Field Survey 77 6.2 Distribution of Manufacturing units- Product category wise 78

Refrigerators 6.3 Refrigerator units surveyed: Statewise 79 6.4 Market share of Refrigerator 80 6.5 Domestic Sales to Total Sales 80 6.6 Local and Foreign Competition 81 6.7 Refrigerator Units: Import 81 6.8 Complete Knock Down (CKD) 81 6.9 Any Government Policies to help growth of Industry 82 6.10 Government Interface with business/private sector 82 6.11 Government friendly towards investor 82 6.12 Clearance to start manufacturing unit in India 82 6.13 Availability and quality of basic Infrastructure in India and

Competing Countries 83

6.14 Taxes and other controls in India and Competing countries 83 6.15 Cost of production in Competing countries 84 6.16 Any effect of Global Financial Crisis on company 84

Air Conditioners 6.17 Air Conditioners units surveyed: Statewise 85 6.18 Market share of Air Conditioners 86 6.19 Domestic Sales to Total Sales 86 6.20 Local and Foreign Competition 86 6.21 Import: Responses of Air Conditioners Units 87 6.22 Complete Knock Down (CKD) 87 6.23 Any Government Policies to help growth of Industry 87 6.24 Government Interface with business/private sector 88 6.25 Government friendly towards investor 88 6.26 Clearance to start manufacturing unit in India 88 6.27 Availability and quality of basic Infrastructure in India and



Washing Machines 6.31 Washing Machines units surveyed: Statewise 90 6.32 Market share of Washing Machines 91 6.33 Domestic Sales to Total Sales 92

6.34 Local and Foreign Competition 92 6.35 Import: Responses of Washing Machine Units 93 6.36 Complete Knock Down (CKD) 93 6.37 Any Government Policies to help growth of Industry 93 6.38 Government Interface with business/private sector 94 6.39 Government friendly towards investor 94 6.40 Clearance to start manufacturing unit in India 94 6.41 Availability and quality of basic Infrastructure in India and



Vacuum Cleaners 6.45 Vacuum Cleaners units surveyed: Statewise 96 6.46 Market share of Vacuum Cleaners 97 6.47 Domestic Sales to Total Sales 97 6.48 Local and Foreign Competition 98 6.49 Import: Responses of Vacuum Cleaner 98 6.50 Complete Knock Down (CKD) 98 6.51 Any Government Policies to help growth of Industry 99 6.52 Government Interface with business/private sector 99 6.53 Government friendly towards investor 99 6.54 Clearance to start manufacturing unit in India 99 6.55 Availability and quality of basic Infrastructure in India and



Microwave Oven 6.59 Microwave Oven units surveyed: Statewise 101 6.60 Market share of Microwave Ovens 102 6.61 Domestic Sales to Total Sales 103 6.62 Local and Foreign Competition 103 6.63 Import: Responses of Microwave Oven Units 104 6.64 Complete Knock Down (CKD) 104 6.65 Any Government Policies to help growth of Industry 104 6.66 Government Interface with business/private sector 105 6.67 Government friendly towards investor 105 6.68 Clearance to start manufacturing unit in India 105 6.69 Availability and quality of basic Infrastructure in India and


6.70 Taxes and other controls in India and Competing countries 106

6.71 Cost of production in Competing countries 106 6.72 Any effect of Global Financial Crisis on company 106 9.1 Electricity Generations- Target & Achievement (Jan 2009) 125 9.2 Electricity Generations- Target & Achievement (Cumulative period

April 2008 to Jan 2009) 125

9.3 Fuel-wise components of thermal generation 126 9.4 Hydro Energy Generation 127 9.5 Energy content in the Reservoirs – Region wise 128 9.6 Shortfall in Generation 130

ANNEXURE

Page No.

Annexure - 1: Survey Questionnaire 153

Annexure -2 : Format for developing Diagnostic Case Studies

159

Annexure – 3: India-Thailand Consolidated List of Items for Early Harvest Scheme (EHS)

160

Annexure -4: Methodology adopted for Partial and Total Factor Productivity Estimations

163

Annexure -5: List Of Units Surveyed For The Field Study

166

Annexure-6: Storage Position of Major Reservoirs based Projects in the Country

169

Annexure-7 : Generation Performance of New Thermal Units during Apr.’08 – Jan’09

172

Annexure-8 : Statement of shortfall in Generation (April 08-Jan 09) existing Thermal Stations vis-à-vis Target

175

Annexure-9: List of Thermal Stations Achieving Higher generation than Target During April 08- Jan. 09

177

Final Report Productivity and Competitiveness of Light Electrical Industry in India

National Productivity Council i

Executive Summary

It was not until 1992, when the Indian market first began to open up post liberalization, that the MNCs started taking a closer look at the purchasing power of country’s middle class. Inevitably, the first thing they saw was the massive volume of this potential market, rather than its cultural idiosyncrasies. Studies have found that the penetration level of various appliances in India is fairly low. Refrigerator use is about 18 per cent of the total population, washing machine 6 per cent, air-conditioner less than 2 per cent and microwave ovens about 1 per cent, which translates into a great potential to tap new consumers. Light Electrical Industry, particularly the large home appliances sector attracted a number of leading MNC’s to either start joint ventures or start their fully owned subsidiaries in India.

The Indian consumer durables segment can broadly be segregated into consumer electronics (TVs, VCD players and Audio systems etc.) and consumer appliances (also known as white goods) like Refrigerators, Washing Machines, Air Conditioners, Microwave Ovens and Vacuum Cleaners.

Present study examines the light electrical industry particularly large home appliances sectors such as Refrigerators, Air Conditioners, Washing Machines, Microwave Ovens and Vacuum Cleaners based on a detailed analysis of the data from both primary and secondary sources. During the field interactions and surveys, suggestions have been also sought from manufacturers, Industry associations, policy makers, experts/professionals, research and developmental institutions, quality implementation agencies etc., on aspects relating to productivity and competitiveness of the sector.

Domestic sales of Electrical Appliances at the aggregate All India Level during 2000-01 to 2007-08 reported an annual growth of 7.81 percent during the entire period, however, the expenses have grown slightly at a lower rate of 6.99 percent per annum. One disturbing fact been the total expenses are found to be higher than the sales realization.

Most of the segments in this sector are characterized by intense competition, emergence of new companies (especially MNCs), joint ventures and introduction of state-of-the-art models, price discounts and exchange schemes. MNCs continue to dominate the Indian consumer durable segment.

World trade has definitely grown since the signing of WTO Agreements in 1995 thereby giving indicators that international trade reforms do play an important role in boosting economic development of various countries. But there are several problems facing these Multilateral Trade Agreements. Predominance of developed nations in negotiations extracting more benefits from developing and least developed countries. Currently India tops the list of Asian countries with 30 FTAs, of which eight are with the integrating Asian region, while and 22 are outside of Asia. It is a matter of concern that over the $8 billion trade deficit


National Productivity Council ii

that India has with South East Asian Nations (ASEAN), as India’s exports to ASEAN is worth only $16 billion, while ASEAN’s exports to India is to the tune of $24 billion. India’s trade with Singapore is more balanced, with India’s exports to that country worth $7 billion and imports of $8 billion. Indo-Thai Free Trade Agreement (FTA) was to the first of India’s FTAs with another ASEAN country while negotiations with Singapore began almost at the same time.

The Light Electrical Industry is highly capital intensive and also the obsolescence is very high. Domestic industry is competing with global players from countries like China, Malaysia, Thailand and South Korea having the path breaking technologies by their side. There is an imperative to continuously upgrade manufacturing facilities in line with the latest technological developments for which a suitable R&D infrastructure need to be in place. Importing is considered to be a cheaper option than manufacturing locally by many domestic appliance manufacturers in India.

Indian manufacturers are not able to compete with global majors due to the high level of technological knowhow and R&D content. Fiscal incentives like rationalization of tariff on raw materials and capital goods, lowering of excise duty on components, introduction of Value Added Tax (VAT) etc., in conjunction with free environment to the manufacturers, speed of business, proper communication, power supply, strong engineering and design base, adequate R&D facilities etc., are key to a successful and competitive domestic electrical industry.

Earlier Refrigeration industry was mainly operating at the local level not having much brand value and brand availability. However, recently the character of the market got changed as the 90 percent manufacturing has come to the organized sector with high brand value while only 10 percent remains at the local level. The cost difference between the branded and the local make was in the range of Rs.8000 to Rs. 12000 per piece earlier but the cost difference came down substantially in recent years. As a result the small manufacturers stopped production since they are not able to produce high quality durable products at lower cost. Another area where there is significant change in the character of production has taken place was that small manufacturers have become channel partners to major producers as ancillaries or component manufacturers.

Since refrigerators are bulky items, currently about 80-90 percent refrigerators are manufactured in India. Many multinational manufacturers of foreign origin have set up their manufacturing plants in India. Currently the domestic value addition is estimated at the level of 80-90 percent. It has been recommended by the industry associations that different duty structures can be introduced for different components so that domestic value addition and employment can be increased.


National Productivity Council iii

Customer Management or Customer Care is a crucial differentiator in the home appliances industry. Distribution network could be an excellent source of competitive advantage for a manufacturer of large home appliance. Manufacturers need to build a good after sales service network, along with strong brand positioning to take care of customers. Consumer helpline should address the complaints at the earliest. The idea of customer being the King is the only sustainable strategy.

Manufacturers need to take special care towards efficient utilization of plant and machinery, reduction in waste etc. It would result in raising the productivity level of the firms and lowering the cost of production, thereby increasing the profit margins. A part of enhanced profit may be passed on to the customers through lowering of product prices. Further better quality, durability and round the clock customer support would enhance the market value of the domestic producers.

Many Indian entrepreneurs or companies have already started functioning as Electrical Manufacturing Services (EMS) companies to larger Original Equipment Manufacturers (OEMs). In this case, OEMs would provide Indian EMS with a full range of services like contract design, prototyping, final system assembly, configuration, order fulfillment, and repair and after-market services. Further, being part of OEMs, Indian EMS could be able to reap other benefits such as research and product development, brand building, sales and marketing network of OEMs.

Labour policies in India are not favourable for manufacturing as compared to other competing countries such as China. Therefore, there is requirement of flexible labour policies to enable manufacturers to restructure labour force in response to market demand. Basic infrastructure, raw material availability, government policies and R&D need to be updated and upgraded.

To tackle the factors hindering the productivity and competitiveness of the sector, a number of strategic initiatives need to be taken up by Industry Associations, manufacturers and Government. In order to become competitive in the domestic as well as world market, light electrical manufacturing units need to formulate strategies based on market intelligence, product development, R&D, demand forecasting and competitive pricing.

The field survey results indicate that the quality manpower availability for the industry is declining and there is shortage of skilled and trained personnel. The attrition rate is also high as the industry salary packages are not competitive with ITES sector. The current educational system and the training institutes are unable to meet the requirement of the sector. Further, the course curriculum is theoretical and in plant training of students is missing in most of the institutes.

There is a requirement of Industrial Training Institutes (ITI) and the Course Curriculum of ITIs should be redesigned and continuously updated and upgraded to meet the changing


National Productivity Council iv

requirement of light electrical industry particularly large home appliances segment. Industry Associations involvement in developing course curriculum and in plant training should be made as a compulsory part of course curriculum. Industry/corporate bodies may be encouraged through tax benefits/ payment of management fee to adopt government run ITI or diploma colleges for effective and efficient management. Private Engineering / Management Institutes may be encouraged to run courses specific to industry requirements.

Lack of adequate physical infrastructure such as roads, ports, airports, electricity etc., are adversely affect the competitiveness and productivity of the domestic home appliances manufacturing sector. Uninterrupted power supply is a necessary condition for operation manufacturing units as power fluctuations can lead to major losses to the manufacturing processes. Moreover, the demand of home appliances such as Air Conditioners, Refrigerators, Washing Machines, Microwave Ovens and Vacuum Cleaners are driven by the electrification of homes and uninterrupted supply of electricity in the already electrified areas.

There is a need for active government support for the survival of domestic home appliances manufacturing in India as suggested by industry associations. A time bound plan to upgrade physical infrastructure needs to be prepared. Adoption of Private–Public–Partnership (PPP) model can facilitate faster and cost effective development of infrastructure. Financial incentives may be given to manufacturing units for establishing and maintaining of backup power units and for utilizing non-conventional energy sources.

Weak supply chain network and lack of vendor support also affects the quality, productivity and competitiveness of the sector. There should be hassle free import of raw material and components by streamlining the import policy and systems and through simplification of import procedures. Maritime Transport is a critical infrastructure for the development of Logistics and Supply Chain Management. It influences the pace, structure and pattern of development.

Government should strengthen Research and Development in light electrical manufacturing sector especially in the applied research like product development through special grants to leading Research Institutes/Universities and Technical Institutes like IITs/ ITIs. Special schemes may be formulated to promote the development of Indigenous Technology to reduce dependence on imported equipments and components. Since the cost of production is high in India due to low technological levels and poor infrastructure, an appropriate financial support schemes can be evolved for manufacturing units so that the current level of technology can be upgraded to global standards. Productivity estimations based on Labour and Total Factor Productivity Growth rates have been found quite low in the light electrical sector particularly home appliances segments, there is a need for substantial up gradation of skill levels and technological knowhow (R&D activities) in this sector for further value addition at the domestic level.

Final Report Productivity & Competitiveness of Light Electrical Industry in India

National Productivity Council 1

CHAPTER 1

INTRODUCTION

1.1. Background

With the successful completion of the Uruguay Round of negotiations, which marked the

commencement of WTO regime of international trade relations, countries as well as

industry/firms are constantly investing their knowledge/intelligence to evolve strategies to

remain competitive in the global market. In this pursuit of excellence, no country or industry can

afford to remain laggard as the champions are promised huge economic gains, where as the

losers face the dire risk of going out of business. In essence, competitiveness has emerged as the

determinant of winner or loser in the manufacturing scene.

Since, India has been trailing behind Asian neighbours in terms of production, quality and export

of Light Electrical Industry products, performance levels of most of factors of production such as

quality manpower, capital investment, infrastructure, technology etc., need to be enhanced

through conscious policy interventions and managerial action to boost competitiveness of this

sector. In this context, an attempt has been made to understand the productivity and

competitiveness of light electrical manufacturing in India with a view to document, identify and

recommend policy solutions to make the sector internationally competitive. The study also

attempts to identify the factors hindering the progress of the sector and suggest measures for

enhancing the competitiveness of the sector.

A wide range of products such as air conditioners, refrigerators, washing machines, microwave

ovens, vacuum cleaners, dish washing machines apart from household electrical appliances,

electrical fans, electrical lamps, storage batteries, dry cells and others are covered within the

ambit of Light Electrical Industry sector. Besides these items, light electrical industry also covers

electric wires and cables industry, transmission line towers, cranes, lifts & escalators, dairy

machinery industry, food processing machinery, packaging machinery industry, water pollution

control equipment, air pollution control equipment etc.

Domestic electrical appliances are now increasingly being used in the household and, therefore,

it is very important that safety and quality aspects of these products need special attention.



Government has introduced compulsory Bureau of Indian Standards (BIS) marking with respect

to certain electrical appliances like stoves, plugs and sockets. Greater consumer awareness about

the quality and safety of these goods will go a long way in ensuring that manufacturers adhere to

these standards.

Since the industry covers a large number of diverse product categories which cannot be covered

in a single study, present study limits its scope to large home appliances only. Among the large

home appliances, the study focuses on five large home appliances such as Refrigerators, Air

Conditioners, Washing Machines, Microwave Ovens and Vacuum Cleaners. The biggest

attraction for light electrical industry manufacturers in the world is the growing middle class in

India which is, equated by many, to the size of European market in terms of purchasing power.

With Domestic Electrical Appliances (DEA) characterized by low household penetration,

international brands have an edge over their Indian counterparts in terms of superior technology

combined with a steady flow of capital, while domestic companies compete on the basis of their

well-acknowledged brands, extensive distribution network and an insight into local conditions.

Sales of household domestic electrical appliances in India posted strong growth in the recent

years as the Indian economy recorded sterling growth and personal disposable income levels

increased. Intense competition among manufacturers, influx of Chinese brands, and

rationalization by manufacturers to offer products to cater to the middle and lower-middle class

has kept up pressure on unit prices - particularly for air conditioners and refrigerators. Appliance

manufacturers, having understood the need to localise products for the Indian household strived

to introduce new features and technologies that would appeal to the Indian consumer.

Refrigerators with a separate compartment for onions and fresh herbs, washing machines that

utilise less water, and Microwave ovens designed for Indian style cooking are becoming more

common.

In view of the above, National Productivity Council (NPC) undertakes an in-depth analysis and

study on the sector particularly the large home appliance such as Air Conditioners, Refrigerators,

Washing Machine, Microwave Ovens and Vacuum Cleaners in order to evolve strategies to

promote Indian companies and increase domestic value addition. The study has been sponsored

by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry



with a view to come out with meaningful policy recommendations to increase domestic value

addition by Indian manufacturers.

1.2. Objectives of the Study

The study is carried out with the following major objectives:

1. Prepare a baseline report on the Light Electrical Industry sector in India.

2. Delineate major strengths and weaknesses of Indian light electrical sector especially Large Home Appliances using SWOT analysis.

3. Estimate productivity and competitiveness of the sector vis-à-vis major overseas competitors such as China, Thailand, Malaysia and Korea.

4. Evolve strategies to increase the production and export potential of the sector.

1.3. Terms of Reference

The study is carried out in accordance with the following Terms of Reference focusing on Large

Home Appliance segment of Light Electrical Industry:

1. Study and document the structure of diverse Light Electrical manufacturing sectors in India.

2. Undertake a SWOT analysis of the Light Electrical Industry sector focusing on Large Home Appliances segment.

3. Analyze factors constraining the growth of the sector including internal factors such as availability of electrical power etc.

4. Study the productivity & competitiveness of the Large Home Appliances segment during the last ten years.

5. Identify and study the competitive advantage of major overseas units/clusters who are having substantial market share of Large Home Appliances such as Refrigerators, Air Conditioners, Washing Machines, Microwave ovens and Vacuum Cleaners in domestic market.

6. Develop Unit specific case studies for each of the major product categories listed at TOR 5 above. Endeavour would be to highlight one case each from successful as well as failure categories.

7. Identify the support measures needed by the domestic manufacturing units from the sector to increase the present market share in the wake of intense competition arising



from international brands originating from countries such as China, Thailand, Malaysia and Korea.

1.4. Methodology

A study on Light Electrical Industry focusing on Large Home Appliances necessarily required

pooling of technical expertise not only from NPC but also from the industry and its associations,

government and domain experts. Hence for the conduct of the study a suitable team has been

constituted as follows:

• A multi disciplinary team of consultants have been drawn from economics, industrial

engineering, energy, finance, management, IT etc., for conducting the study. • Eminent experts from the field also are included in the study team. • NPC Study team is headed by Shri. Brijesh Kumar IAS (Retd.) formerly Secretary,

Department of Information Technology, Government of India. • A number of eminent experts from the concerned industry and industry associations are

also consulted from time to time on various aspects during the course of the study.

The study has been undertaken in two broad phases. First phase of the study included preparation of a detailed baseline Report on the basis of

secondary sources of data and literature. The study focused on an in-depth study of the present

competitive environment in the aftermath of the opening up of the Indian economy and its

impact on domestic light electric manufacturers especially Large Home Appliances category.

Besides, the study team analyzed all available published and unpublished literature and data over

the years with a view to gauge the growth and development of selected product categories in

terms of sales volume and manufacturing practices.

The study also focused on the overall policy environment and the productivity and

competitiveness of the domestic brands both in the domestic and export markets. Special

emphasis has been given to analyze the impact of WTO agreements in the relative performance

of the sector in the recent years.

The available research studies on the sector have been referred while arriving at suitable

analytical framework including SWOT analysis of the sector. Apart from the detailed study of



literature, the study team compiled published industry specific data from various official and

company sources.

The compiled data from different sources such as CMIE, DGFT, ASI etc., have been used for the

estimation of productivity and export competitiveness of the sector. Relevant data published by

Annual Survey of Industries on the light electrical sector has also been consulted.

Second phase of the study focused on discussions with industry associations and detailed field

survey of the manufacturing units for which data has been collected from randomly selected

units located at major production clusters in the country. Similar field level discussions have

been carried out at two major competing overseas countries (Thailand and China) for identifying

the comparative edge over India in terms of guiding factors such as cost, quality, price,

technology, policy etc. Deliberations are also held with industry associations at respective

countries on the aforesaid aspects. Since similar cooperation could not be received by the study

team from the other competing countries such as Korea and Malaysia, efforts have been made to

find out their relative competitiveness vis-à-vis Indian manufacturers based on data and

information compiled from internet sources.

A sizable number of manufacturing units from each product category has been contacted for the

detailed field survey in India through a structured questionnaire to find out segment-wise specific

productivity and competitiveness parameters for the sector (Annexure 1). The study covered

detailed field surveys based on purposive sampling of at least 10 units each covering all the five

product categories such as Refrigerators, Air Conditioners, Washing Machines, Microwave

ovens and Vacuum Cleaners. The field survey in Indian covered 70 Manufacturing units.

Adequate care has been taken to include both successful as well as not so successful cases in the

selected sample. Major manufacturing units from each of the product categories are selected for

detailed study and survey.

The compiled data has been analyzed using SPSS software for drawing inferences on the factors

such as productivity and competitiveness of the sectors. The study also included diagnostic case studies of 10 manufacturing units (equal number of

successful and not so successful) selected from each of the product categories for identifying unit

specific problems. The diagnostic case study has been carried out through a check list



(Annexure 2). The study focused on unit specific problems such as logistic problems,

technological problems, market access issues, finance, employment etc., with a view to find out

unit specific issues confronting the industry in achieving competitive edge.

1.5. Limitations • Originally the study was scheduled to be completed within six months time period.

However, due to number of extraneous factors beyond the control of the study team such as General Elections to 13th Lok Sabha during April and May 2009 most of the industrial associations and manufacturing units were reluctant to cooperate with the field surveys. Hence the field surveys had to be re-scheduled leading to delay in completion of study.

• Responses from the Industrial associations from overseas countries such as Thailand, Malaysia , China and Korea was equally evasive, hence the study team had to resort to alternate methods to compile most of the information from those countries. After a lot of persuasion, Thailand Electrical and Electronics Industry and Thailand Productivity Council facilitated a limited field study at Thailand. Similarly field study exercise was also carried out at selected locations in China by NPC study team with the help of FICCI and Chinese Chamber of Commerce & Industry. However, the field study was limited due to the non co-operation of Chinese Industry to share manufacturing related information and data. Therefore, the field study was mainly based on discussions with Chinese Chamber of Commerce & Industry and discussions and visits to certain manufacturing units.

• Since the present study had to be carried out with the involvement of a number of external

experts and field survey agencies apart from NPC consultants, substantial finances required

for successful implementation of the project. Disbursement of additional 50 percent of the

project cost apart from the initial 10 percent took place only in September 2009, which also

contributed to delays in undertaking field surveys both in India and abroad.



CHAPTER 2

LIGHT ELECTRICAL INDUSTRY: LARGE HOME APPLIANCES SEGMENT

2.1. Light Electrical Industry in India

Driven by a young population with increasing disposable incomes and easy finance options, the

consumer market in India has been throwing up staggering figures. However, the rupee income

classifications by themselves do not present a realistic picture of market potential for a foreign

business enterprise, because of significant differences in purchasing power parities of various

currencies. In fact, the Indian rupee has very high purchasing power parity as compared to its

international exchange value. For instance, while the exchange rate of one US dollar is 48.50

Rupees, the domestic purchasing power of a US dollar in the US is closer to the purchasing

power of Rs 6 in India, for equivalent needs and services. As a result, India ranks fifth in the

world, on purchasing power parity terms, despite having low per capita national income (US$

340 per capita).

It was not until 1992, when the Indian market first began to open up post liberalization, that the

MNCs started taking a closer look at the purchasing power of country’s middle class. Inevitably,

the first thing they saw was the massive volume of this potential market, rather than its cultural

idiosyncrasies.

The Indian consumer durables segment can broadly be segregated into consumer electronics

(TVs, VCD players and audio systems etc.) and consumer appliances (also known as white

goods) like refrigerators, washing machines, air conditioners (A/Cs), microwave ovens and

vacuum cleaners.

Most of the segments in this sector are characterized by intense competition, emergence of new

companies (especially MNCs) and introduction of state-of-the-art models, price discounts and

exchange schemes. MNCs continue to dominate the Indian consumer durable segment.

In consonance with the global trends, over the years, demand for consumer durables has

increased with rising income levels, double-income families, changing lifestyles, availability of



credit, increasing consumer awareness and introduction of new models. Products like air

conditioners are no longer perceived as luxury products.

2.2. Growth of Durable Products Market in India

Source: Ministry of Information and Technology, Government of India The biggest attraction for MNCs is the growing Indian middle class. This market is characterized

with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of

superior technology combined with steady flow of capital, while domestic companies compete

on the basis of their well-acknowledged brands, an extensive distribution network and an insight

in local market conditions.

One of the critical factors that influence consumer durable demand is the government spending

on infrastructure, especially the rural electrification programme. Given the government's

inclination to reduce spending, rural electrification programmes have always lagged behind

schedule. This has not favoured durable goods manufacturers till now. Any incremental spending

in infrastructure and electrification programmes could spur growth of the consumer durable

industry.

Apart from steady growth in personal disposable income gains, consumer financing has become

a major driver in the consumer durables industry. In the case of more expensive consumer goods,

such as refrigerators, washing machines, colour televisions and personal computers, retailers are



joining hands with banks and finance companies to market their goods more aggressively.

Among department stores, other factors that support rising sales include a strong emphasis on

retail technology, loyalty schemes, private labels and the subletting of floor space in larger stores

to smaller retailers selling a variety of products and services, such as music and coffee.

Rising disposable income and declining prices of durables have resulted in increased volumes.

An increase in disposable income is aided by an increase in the number of both double-income

and nuclear families.

A recent study conducted by The Economist analyzed the growth trends in consumer electronics

segment. One of the product categories taken up for study was refrigerators. The sales has been

found increasing from 42,30,000 units in 2005 to 55,05,000 units in 2008 and it is expected to

grow to 65,42,000 units of refrigerator by 2010. Consumer durables are expected to grow at 10-

15 per cent in 2007-08, driven by the growth in CTV’s and air conditioners. Value growth of

durables is expected to be higher than historical levels as price decline for most of the products

are not expected to be very significant. Though price declines will continue, it will cease to be

the primary demand driver. Instead, the continuing strength of income demographics will support

volume growth.

Fig 2.1: Sales trend and future projection of consumer electronics segment

Source: Intelligence Unit, The Economist



Another study analysed the major drivers of growth for various consumer durable products such

as Air Conditioner, Refrigerators , Colour televisions and Washing Machines (Table 2.1). It is

reported that reduction in price and increasing disposable income are the major drivers of

growth.

Table 2.1: Growth drivers of Cosumer durables

2.3. Large Home Appliances Segment

2.3.1. Preferential Government Policies

Consumer electronics and appliances manufacturers expect strong growth in the fiscal 2009-10

due to buoyant demand, concessions proposed in the Budget and improved consumer sentiment.

“The growth of the consumer electronics and appliances industry in the first quarter of the

current fiscal was about 10-12%, much better than last year (8%),” according to the Industry

Association for Consumer Electronics and Appliances Manufacturers Association. Factory

output data for May, showed that production of consumer durables grew by as much as 12.4%,

compared with 2.8% in the same month last year. The index of industrial production grew by

2.7% in the month.



In the three months ended June, sales of refrigerators and air conditioners (ACs) rose

significantly compared with the same period last year. “In the case of refrigerators, the growth

was not much in January to March 2009, but after March the growth has been about 5-7%. ACs

has grown 8-10%. Favourable decisions by the government have helped boost consumer

confidence, among other reasons,” said Vice President, sales and marketing, appliance division,

Godrej and Boyce Manufacturing. Co. Ltd.

Consumer Durable manufacturers need to invest Rs.1,000 crores on promotions, raising capacity

and R&D. Consumer durables manufacturers such as LG, Samsung, Whirlpool and Godrej &

Boyce to line up investments amounting to about Rs.1,000 crores over the next few months for

product launches, research and development (R&D) and for upgrading capacity at their existing

manufacturing plants.

Each of these companies are investing in the range of Rs. 100 crores and Rs. 500 crores. Godrej

& Boyce, for instance, will invest around Rs. 100 crores in its plants at Punjab, Maharashtra and

Uttaranchal. The funding will be through internal accruals. "March and April have been very

good for the industry. We have overcome three issues — liquidity crunch, credit crunch and lack

of confidence. The confidence is returning," said Godrej & Boyce's Chief Operating Officer

(appliance division).

LG India, on its part, plans to invest Rs 500 crore in R&D activities as well as on advertising

home appliances during 2009-10. "LG is looking to double the amount of investments done in

R&D to Rs 400 crore and spend Rs 100 crore on advertising and marketing of home appliances,"

said LG Electronics India's Managing Director. Currently, LG has two manufacturing units in

India one at Greater Noida (near Delhi) and the other at Ranjangaon in Pune, which would be

expanded in the next three years. The company may set up another unit by 2012 as a part of its

plans to augment manufacturing capabilities.

Whirlpool had recently effected 4-5 per cent price reduction in its refrigerator offerings, which is

expected to help boost sales. The company would invest more than Rs 300 crore in product

development and promotion over the next three years. It expects a 10 per cent top line growth

during the current fiscal, while the same would touch 25 per cent during the year 2010-11.



Samsung, too, has planned an investment of Rs 100 crore to increase the capacity of its Noida

facility. The company is looking to strengthen its portfolio with a new range of air conditioners,

refrigerators and washing machines.

The Consumer Electronics and Appliances Manufacturers Association (CEAMA) estimate the

size of the industry at Rs 30,000 crore. However, the penetration level of various appliances in

India is fairly low. Refrigerator use is about 18 per cent of the total population, washing machine

6 per cent, air-conditioner less than 2 per cent and microwave ovens about 1 per cent, which

translates into a great potential to tap new consumers.

Major players in this segment are LG, Panasonic, Onida , Samsung, Godrej & Boyce and

Whirlpool have individually introduced a host of new technology and star-rated products across

washing machines, refrigerators, televisions and air conditioners this year.

While Samsung introduced 47 new products in these categories, Godrej & Boyce introduced 13

new air-conditioners and direct-cool range of refrigerators.

2.3.2. India to enforce energy efficiency in climate fight

India will make energy efficiency ratings a must for electric home appliances, including air

conditioners and refrigerators, from January 2010, stepping up domestic efforts to fight climate

change.

Energy efficiency is a key focus in India's national climate change policy, unveiled last year and

which lays out a roadmap to a green economy but doesn't fix a target for carbon emissions. The

government hopes to save 10,000 megawatts of power by efficient use of energy by 2012.

A top climate official said India would unveil a trading scheme centered on energy efficiency

certificates that could possibly expand to renewable energy. The plan involves creating a market-

based mechanism that would allow businesses using more energy than stipulated to compensate

by buying energy certificates from those using less energy or using renewable energy.



The government is setting up energy benchmarks for each industry sector. Companies that do not

meet the benchmarks would have to buy these certificates under a reward and penalty system.

Most firms in India, which is Asia's third-largest economy and the fourth-largest emitter of

planet-warming carbon dioxide, have yet to plan for the impact of climate change and do not

measure emissions or have deadlines to curb them, according to studies.

2.3.3. Air Conditioners

In 1902, Dr. Willis Haviland Carrier invented and secured the patent for a weather control

concept - air conditioning. Ever since, life hasn't been the same. The air-conditioner market is

heating up as more and more people appear to be convinced about the comfort of an air-

conditioner (AC). The extremely hot summers have stirred the demand for ACs and the industry

is experiencing a significant change.

Growth in the white goods segment was largely driven by the Air-conditioner (AC) segment.

Within this, split ACs have been the main growth drivers, recording a growth of over 90 per cent

in 2006. Growth, albeit at a slower rate of 32 per cent, has also been experienced in the segment

of window ACs. The window AC segment is slightly less organised as compared to split AC

segment. The market for air-conditioners is divided quite uniformly across customer segments,

with about 45 per cent share for private sector corporate, 20 per cent for domestic use, 15 per

cent each for public sector companies and government use and 5 per cent for hospitals. Air

Conditioners generally refer to Room Air Conditioners as distinct from Central Air Conditioning

Plants. Room Air Conditioners market is segmented into Window AC (WAC) and Split AC.

Now with the limitation of space and scarce availability of window space and also to reduce the

noise in a room, the Split AC is gaining popularity.

Also split AC has come into prominence due to export orders from abroad. Technologically the

Indian Window Air Conditioner Industry has come a long way and is now at par with

international level. Import of capital goods for the manufacture of non-CFC refrigerator and air

conditioners are allowed duty free.



2.3.3.1 Types of Air-Conditioners

Air conditioning products are divided into Non Ducted products & Ducted systems .The Non

Ducted products are divided into two parts: window ACs & the mini splits. The ducted systems

are divided into central plants, packaged ACs and ducted ACs. Window ACs account for about

54% of the total market for ACs with an estimated market size of about Rs20 billion. Room air

conditioners operate on electricity or gas and are enclosed in a single cabinet. They blow the

conditioned air directly into the room and do not have air ducts leading to and from them. The

three chief types are window air conditioners, consoles and self-contained air conditioners.

Window air conditioners fit into the lower part of a window and can be moved from window to

window and thus the name, Window ACs. Self-contained air conditioners are the large room air

conditioners. Central air conditioners also use electricity or gas. They can supply conditioned air

to a number of rooms or to an entire building from one central source. Fans blow the conditioned

air through air ducts from the air conditioner to the rooms. Central conditioners have a number of

advantages over other kinds. For example, all the equipment for air conditioning is located in one

place. This reduces the cost of cleaning and repairing. Central conditioners can also be zoned i.e.

they can supply air of different temperature to different parts of a building.

2.3.3.2 Penetration in India and Competing Countries

According to Refrigeration and Air-conditioning Manufacturing Association (RAMA) the

penetration of household Air-Conditioners is abysmally low in India at around 2% as compared

to 20% in Indonesia, 24% in China, 40% in Thailand, 45% in Malaysia.

2.3.3.3 Players and Market Share

The size of the room Air-conditioners industry is estimated at 1.1 million in volume terms, and

Rs 24 billion in value terms. According to FICCI, Indian AC industry which is mainly dominated

by players like Carrier and Voltas has been taken over by the new MNCs in the last few years.

AC market is dominated by four major players—LG, Voltas, Carrier and Samsung. LG is the

market leader with a market share of 29 per cent followed by Voltas (11) and Carrier and

Samsung (9.2 each) in addition to other players like Hitachi and Videocon.



Market Segment, AC India, 2006

0 20 40 60 80 100

Organised

Unorganised

type

per cent

Windows Split

Company Brands Mirc Electronics Limited Onida Videocon International Limited Videocon LG Electronics India Limited LG Samsung India Electronics Limited Samsung Whirlpool of India Ltd Whirlpool Godrej & Boyce Mfg. Co. Ltd. Godrej Voltas Limited Voltas Electrolux Kelvinator Electrolux Blue Star India Ltd Blue Star Daikin Industries, Ltd. Daikin

Market Share (Segmentation), ACs India in 2006 Private Sector 25% Domestic 20% Corporate 20% Public Sector 15% Government 15% Hospitals 5%



Table 2.2: Foreign Trade and Domestic consumption of Air Conditioners – India (Rs. Crores)

Year Export Import Trade Ratio

Domestic Consumption

(Value)

Domestic Sales (Value)

2002-03 94 330 0.28 2430 2194 2003-04 205 473 0.43 2920 2652 2004-05 216 715 0.30 3697 3198 2005-06 180 914 0.20 4794 4060 2006-07 198 1278 0.15 6100 5019 2007-08 253 1819 0.14 8403 6837

Table 2.3: Major Players/ Manufacturers in India based on Market Share - Air Conditioner (%)

Name of the Company 2002-03 2005-06 2007-08Blue Star 14.53 16.51 17.98 Voltas 12.12 11.95 14.11 L G Electronics India Pvt. 13.54 18.85 13.2 Samsung India Electronics Pvt. 3.93 7.01 6.88 Total 44.12 54.32 52.17

Source: CMIE, Industry Market Size and Share, April 2009

2.3.4. Refrigerators

Refrigerators are one of the most sought after home appliances in Indian middle class homes. The

refrigerator market has two segments: Direct Cool and the relatively new Frost-Free type. The

market for refrigerators in 2006-07 was about 6.5 million units. The growth of refrigerator segment is

projected to be between 18 to 22 per cent over the next 5 years. A critical success factor for the

refrigerator market, given its widespread use, is deeper reach into the market and increased

penetration. Recently, the market is getting reinforced by the replacement segment as well.

Indian refrigerator industry has become highly competitive as many global brands have entered

the market and the consumer has a wide choice. Refrigerators are presently manufactured in two

basic designs, which are referred to as Direct Cool (DC) and Frost Free (FF) refrigerator.

Manufacturers of refrigerators claim to have improved the quality of the product particularly the

reliability of the compressor. Quality products, with superior technology have helped the

industry to achieve higher growth in term of value and also higher realization in value terms.



In so far as new technology is concerned, the concept of Frost Free refrigerator has been gaining

popularity. Capacity wise also, there is a shift in refrigerator market. Till about two years back,

165 litres had a larger share and now units of capacity 185-300 litres are having increasing

market share. Manufacturers are encouraged to adopt environment friendly technology like usage

of non-CFC refrigerant based air conditioners, non-CFC refrigerators are manufactured in the

country but because of their high initial cost, the demand is somewhat sluggish. Refrigerators in

India are inevitability keeping in mind the tropical climate of India. More than 8 months of the

year, 90% India face hot humid weather. And hence, Refrigerators are used in almost all

households. Sale of Refrigerators In India has touched new heights in the recent years as the

living standards of the masses have improved and Refrigerator prices have become more

affordable. Refrigerators for Home as well as Industrial use can be bought for amount starting

from less than Rs. 20,000 to over Rs. 1,10,000. Refrigerators with/without Freezers and separate

Freezers are also available with the Retail Stores. The types of refrigerators available in the

Indian market are:

Bottom Freezer Refrigerators Compact Refrigerators Counter Depth Refrigerators Freezer Less Refrigerators Side-By-Side Refrigerators Top Freezer Refrigerators Wine Coolers Freezers

The Best Buy ones are mainly the Bottom Freezers one and the Small Refrigerators. The

Consumer Reports show a sharp rise in Online Sale of refrigerators as well. The Indian buyers

have become smarter and prefer the Best Deals giving them complete value for money. They

seek complete information about the Refrigerators At Best Buy Prices as well as reports on

Refrigerator Reliability from the Reviews and Ratings available on many websites. Comparisons

between Refrigerators are made on the basis of the utility features like:

Size and Dimensions - Small or large Energy Efficient Capacity ranging from less than 200 liters to above 350 liters depending upon use



Freezer capacity ranging from less than 50 liters to over 100 liters Defrosting system which can be automatic, semi automatic, frost free or cyclic The number of doors.

Many Electronic Appliances stores In India offer special festive Discount and Best Buy Deals.

Most of them also provide Maintenance and Troubleshooting services in case the customer faces

any problems with the Refrigerator use. Some of the manufacturers like LG, Samsung,

Whirlpool, Godrej, Videocon and Electrolux also have authorized Service Centers In all parts of

India for their Refrigerators. Some shopkeepers also deal in Wholesale of New or Used

Refrigerators and Spares where one can get Cheap Deals. The Life Span of the Used

Refrigerators may vary with their previous Use and Maintenance. Refrigerators with Built-In or

No Freezers and genuine Stainless Steel Spare Parts are also available with the local dealer or

with the company Service Centers.


The refrigerator industry has become highly competitive as a number of brands have entered the

market and the consumer has a wide choice. Some of the leading companies in the Refrigeration

manufacturing and their brand names are given below.

Company Brands

Videocon International Limited Videocon, Akai

LG Electronics India Limited LG Samsung India Electronics Limited Samsung Whirlpool of India Ltd Whirlpool Godrej & Boyce Mfg. Co. Ltd. Godrej Voltas Limited Voltas Electrolux Kelvinator Electrolux Kelvinator, Electrolux

and Allwyn

Refrigerators constitute the second largest product segment within the Indian consumer durables

sector in India, with an estimated annual turnover of Rs 39 billion during FY2005 with an

estimated sale of 4.1 million units. According to FICCI Survey April-March 2003-2004

Whirlpool and Godrej are the top two players with market shares of 27 per cent and 20 per cent

respectively. Electrolux Kelvinator and LG compete for third and fourth position with market



shares of 16 per cent and 14.5 per cent respectively. Videocon (11 per cent), Samsung (6), BPL

(4), Voltas and Akai are the other significant players.

Table 2.4: Foreign Trade and Domestic consumption of Refrigerators– India (Rs. Crores)

Year Export

Import

Trade Ratio

Domestic Consumption

(Value)


2002-03 59 103 0.58 2843 2799 2003-04 84 94 0.89 2860 2850 2004-05 77 119 0.65 3242 3200 2005-06 115 74 1.56 3559 3600 2006-07 218 115 1.89 3798 3900 2007-08 347 111 3.12 4064 4300

Table 2.5: Major players/ Manufacturers in India based on Market share – Refrigerator (%)

Name of the Company 2002-03 2005-06 2007-08

Whirlpool of India 28.55 24.36 28.48 L G Electronics India Pvt. 16.88 24.56 27.14 Samsung India Electronics Pvt. 7.08 17.3 22.46 Total 52.51 66.22 78.08


2.3.5. Washing Machines

During the last few years, the market for Washing Machines has grown quite fast. It is the fully

automatic segment, which in recent times has been getting the attention of the users especially in

those households where both partners are working. Consequently manufacturers have started

paying more attention to this segment and have started introducing more features in their

products. The customers now have a wide range of world-class brands to choose from.

The sales of washing machines have grown from about 780,000 units to 1,948,000 units during

1999 to 2007 period, registering about 12.2 per cent annual growth. The washing machine

market can be segmented into semi-automatic and fully automatic machines. Semi-automatic

washing machines enjoy a dominant share of 85 per cent. Fully automatic washing machines

have been gaining their share as a consequence of product improvement, competitive pricing etc.

However, semi-automatic machines will continue to play a major role in the Indian market for



quite sometime. Fully automatic washing machines have been growing at 44.5 per cent and semi-

automatic segment, at about 18 per cent. The entry of MNC’s has widened the range to more

than 10 brands with a proliferation of models, while ensuring technology upgradation. A visible

impact of this has been the exit of a few established domestic players from the market.

There is also an increasing demand for purchasing smaller washing machines in the range of 3 to 4 kg

capacity as compared to larger machines as nuclear families are growing. In regard to emerging new

technologies in the washing machine sector, it may be noted that aero power, triple cascade tornado

wash, digital intelligence, unique optical sensor and other such innovations and adaptations which are

being gradually introduced by the indigenous manufacturers. Washing Machines demand in India is

increasing with the changing status of women. It is now one of the basic utilities at home. Most of the

women in modern India are working so there is less time left with them to do the manual washing. The

washing machines really help a lot by speeding up domestic work. The leading names in the sector of

washing machines in India have really lowered the prices of their product thus increasing the sale of

washing machines in India. Their sale further increases during the festival seasons as different

companies offer discount rates and gifts along with washing machines and some of the best deals can

be made. From a very crude look in the beginning it has transformed into very stylish one. Now it

ranges from washing machine to washer dryers with front loading, top loading etc. In earlier times

market for washing machines in India was not very lucrative. Videocon introduced India's first washing

machine in 1988 in collaboration with Matsushita Electric Industrial Co. Ltd, Japan.

With the changing status of women the washing machine in India has also undergone

transformation. From the crude and clumsy look it has metamorphosed into modern and trendy

look. Latest technology also gives an added advantage. Electrolux has launched Walky Talky

Machine in India. The first talking machine has 90 different phrases in Hindi and English that

guide a woman in each step. Samsung has introduced Silver Nano technology in washing

machine that is an anti-bacterial technology. It destroys 99.9% of bacteria, germs and keeps

clothes bacteria free even after 30 days of washing.

Whirlpool is one of the leading brands that has fully automatic and semi automatic washing

machines with different capacities. Godrej prides in having fully automatic, semi automatic and

front-loading washing machine for the cleanest wash. Along with these Hitachi, Haier, IFB,



Kenstar are also giving the best possible washing machines in India. Most of the machines now

have the facility of both washing and drying. Further new brands such as Z-line and Unistar have

been launched from Vishal Retail and reliance retail outlets which are basically Chinese in

origin.

2.3.5.1 Penetration of Washing Machines in India and Global

The penetration level of Washing Machine is relatively low in India as compared to global

levels. Many housewives in less affluent households prefer to wash clothes themselves rather

than invest in washing machines. Water scarcity in many Indian cities and timely availability is

another major issue. However, it is expected that penetration of washing machine will rise by

more than 6 per cent in the next two years.


The refrigerator industry has become highly competitive as a number of brands have entered the

market and the consumer has a wide choice. Some of the leading brands are as follows:

LG Electronics has registered a remarkable growth of 36 % in the Washing Machine Segment in

H1 The Fully Automatic Washing Machines segment has recorded a remarkable performance

where volumes have grown by 22% and value by 25% .Here again LGEIL happens to be the

undisputed leader with a 30.7 % market share in Fully Automatic Washing Machine and 33.7 %

market share in Semi Automatic Washing Machine. (ORG-GFK, May 2004)

Company Brands

Whirlpool of India Ltd. Whirlpool

LG Electronics India Limited LG Samsung India Electronics Limited Samsung Godrej & Boyce Mfg. Co. Ltd. Godrej BPL BPL IFB Industries Limited IFB Hitachi Home & Life Sol. India Ltd. Hitachi Haier Appliances India P. Ltd. Haier Toshiba India Pvt. Ltd. Toshiba Kenstar Kitchen Appliances Ltd. Kenstar



Table 2.6: Foreign Trade and Domestic consumption of Washing Machines – India (Rs.Crores)

Year Export

Import Trade Ratio Domestic Consumption (Value)


2002-03 40 45 0.87 1913 1907 2003-04 39 46 0.84 1945 1937 2004-05 67 70 0.96 2027 2024 2005-06 87 108 0.80 2261 2240 2006-07 33 154 0.22 2512 2391 2007-08 35 232 0.15 2962 2765

Table 2.7 Major players/ Manufacturers in India based on Market share – Washing Machines (%)

Name of the Company 2002-03 2005-06 2007-08 Value Industries 50.01 47.72 38.14 L G Electronics India Pvt. 11.61 14.57 15.57 Samsung India Electronics Pvt. 6.42 10.04 12.72 Total 68.04 72.33 66.43

Source: CMIE, Industry Market Size and Share, April 2009 2.3.5.3 Future Scenario

Rising rate of growth of GDP, growth in disposable income, improved lifestyles, rising

purchasing power of people with higher propensity to consume with preference for sophisticated

brands would provide constant impetus to growth of white goods industry. While the consumer

durable market is facing a slowdown due to saturation in the urban market, rural consumers

should be provided with easily payable consumer finances schemes. Rural India, which accounts

for nearly 70 per cent of the total households, has a two per cent penetration in case of

refrigerators and 0.5 per cent for washing machines, offers plenty of scope and opportunities for

the white goods industry. Rural market is growing faster than the urban India now. The urban

market is a replacement and up-gradation market now.



2.3.6. Vacuum Cleaners

Vacuum Cleaners are an emerging segment in the Indian market, still at a nascent stage. The

drivers for demand have been the improvement in life style and higher aspirations of urban

middle class and the top income brackets. While the market has been growing, this segment is

not expected to reach significant volumes soon. Part of this could be attributed to the lifestyle

compatibility of Indian customers with the product. In the large majority of Indian houses, for

instance, floors are not carpeted and the product will have to meet dual requirements of sweeping

and mopping. Another impediment to the adoption of vacuum cleaners has been the availability

of cheap domestic help in most cities.

Table 2.8: Foreign Trade and Domestic Consumption of Vacuum Cleaners – India (Rs. Crores)

Year Export Import Trade Ratio Domestic Consumption (Value)


2002-03 2 5 0.33 178 175 2003-04 3 5 0.55 174 172 2004-05 3 9 0.31 182 176 2005-06 3 10 0.31 197 190 2006-07 2 14 0.11 226 213 2007-08 6 28 0.22 216 194

Table 2.9: Major players/ Manufacturers in India based on Market share - Vacuum Cleaner (%)

Name of the Company 2002-03 2005-06 2007-08Eureka Forbes 61.65 64.58 68.25Forbes & Co. 30.26 18.58Total 61.65 94.84 86.83


2.3.7. Microwave Ovens

Microwave Ovens until recently were a rarely found and used Home Appliance in India, but in

the recent years we observe an emerging trend of a OTG or Microwave Oven in almost every

modern Indian kitchen. The Microwave Ovens available in the market are of following types:



• Compact Microwaves It is also known as portable microwaves. These are the smallest and are mainly used to reheat food, cook light meals and make popcorn.

• Countertop Microwaves These are among the popular categories of microwave ovens. You can put them on a counter or table and hence, these are named as 'countertop'.

• Convection Microwaves Such microwaves possess the features of standard microwaves and convection ovens. It cooks food quickly and is more expensive.

• Over the Range Microwaves (OTR microwaves) also called built-in microwaves; these can be installed over a cook top. You may also need to use exhaust fan or chimney hood along with over the range microwaves.

• Convection and Grill These are convection microwaves with grill.

The facts about Microwave Ovens that need to be checked before buying one are the capacity that ranges from less than 20 liters to above 30 liters; the programme panel of the Microwave, available as electronic, manual, single touch rotary, tactile or feather touch which can be seen according to personal need; and certain security options like if one has kids at home one surely needs child lock in the Microwave Oven. In India, many electronic stores offer Discount or Best Deals and even certain Finance Schemes as the Microwave Ovens can range from less than 7000 Rupees to more than 21000 Rupees depending upon the desired features. Made of Stainless steel the Microwave Ovens have toughness and can bear the adverse temperature changes. Available in almost all electronics shops, they are becoming as essential as refrigerators especially for the working families In India. Company Brands

Whirlpool of India Ltd. Whirlpool

LG Electronics India Limited LG Samsung India Electronics Limited Samsung Electrolux Kelvinator Ltd. Electrolux Godrej & Boyce Mfg. Co. Ltd. Godrej BPL BPL IFB Industries Limited IFB Hitachi Home & Life Sol. India Ltd. Hitachi Haier Appliances India P. Ltd. Haier Panasonic India Ltd. Panasonic Inalsa Export Pvt. Ltd. Inalsa Sanyo India Private Limited Sanyo



2.8. Financial Analysis of Domestic Electrical Appliances This section analyses the pattern of growth of Domestic Electrical Appliances during 2000-01 to

2007-08. Domestic sales reported an annual growth of 7.81 percent during the entire period,

however, the expenses have grown slightly lower rate at 6.99 percent per annum. One disturbing

fact is the total expenses are found to be higher than the sales realization. Detailed analysis of

various cost components are reported in Table 2.10.

Table 2.10: Domestic Electrical Appliances (All categories) – Financial Aggregates (Rs. Crore)

S. No. Variables 2000-01 2004-05 2007-08 CAGR(%) 2000-01 to

2007-08

CAGR(%) 2000-01 to

2004-05

CAGR(%) 2004-05 to

2007-08 1 Total Income 3,051 4,126 5,280 8.15 7.84 8.57 2 Sales 2,985 3,983 5,054 7.81 7.48 8.26 3 Total expenses 3,236 4,185 5,192 6.99 6.64 7.45 4 Raw material expenses 1,497 2,022 2,148 5.29 7.81 2.04 5 Power, fuel & water

charges 55 58 47 -2.22 1.34 -6.77

6 Compensation to employees 196 218 267 4.52 2.70 6.99

7 Selling & Dist. Expenses 193 254 408 11.29 7.11 17.11

8 Interest paid 244 208 153 -6.45 -3.91 -9.73 9 Depreciation 111 151 121 1.24 8.00 -7.12

10 Forex earnings 88 313 88 0.00 37.33 -34.49 11 Forex spending 276 324 344 3.20 4.09 2.02 12 Reserves & surplus 302 -8 159 -8.76 - - 13 Total borrowings 1,745 1,734 1,931 1.46 -0.16 3.65 14 Current liabilities 887 1,194 1,433 7.09 7.71 6.27 15 Sundry creditors Assets 553 623 717 3.78 3.02 4.80 16 Gross fixed assets 2,279 2,656 2,807 3.02 3.90 1.86 17 Net fixed assets 1,519 1,316 1,258 -2.66 -3.52 -1.49 18 Investments 115 93 88 -3.75 -5.17 -1.83 19 Total assets/liab. 3,369 3,544 3,950 2.30 1.27 3.68

Source: Industry: Financial Aggregates & Ratios, Centre for Monitoring Indian Economy, March 2009

Sharp India Ltd. Sharp Videocon Appliances Ltd. Videocon Kenstar Kitchen Appliances Ltd. Kenstar



2.9. Financial Analysis of Refrigerators and Air Conditioners This section analyses the pattern of growth of Refrigerators and Air Conditioners during 2000-01

to 2007-08. Domestic sales reported an annual growth of 9.71 percent during the entire period,

however, the expenses have grown slightly lower rate at 8.79 percent per annum. One disturbing

fact is the total expenses are found to be higher than the sales realization till 2004-05. Detailed

analysis of various cost components are reported in Table 2.11.

Table 2.11: Refrigerators and Air Conditioners – Financial Aggregates (Rs. Crore)

S. No. Variables 2000-01 2004-05 2007-08

CAGR(%)2000-01

to 2007-08

CAGR(%)2000-01

to 2004-05

CAGR(%)2004-05

to 2007-08

1 Total Income 3607 3770 6780 9.43 1.11 21.61 2 Sales 3494 3666 6683 9.71 1.21 22.16 3 Total expenses 3649 3974 6581 8.79 2.16 18.31

4 Raw material expenses 1742 1994 3686 11.30 3.44 22.73

5 Compensation to employees 274 303 388 5.10 2.55 8.59

6 Selling & Dist. Expenses 395 421 572 5.43 1.61 10.76

7 Interest paid 144 51 40 -16.72 -22.86 -7.78 8 Depreciation 103 90 89 -2.07 -3.32 -0.37 9 Forex earnings 68 252 470 31.81 38.75 23.09

10 Forex spending 317 536 1186 20.74 14.03 30.31

11 Reserves & surplus 190 -406 802 22.84 - -

12 Total borrowings 1155 842 517 -10.85 -7.60 -15.01

13 Current liabilities 1036 1021 2095 10.58 -0.36 27.07

14 Sundry creditors 484 471 843 8.25 -0.68 21.41

15 Gross fixed assets 1708 1388 1529 -1.57 -5.05 3.28

16 Net fixed assets 1229 749 835 -5.37 -11.64 3.69 17 Investments 57 18 24 -11.62 -25.04 10.06

18 Deferred tax assets 98 116 138 5.01 4.31 5.96

19 Total assets/liab. 3062 2462 3976 3.80 -5.31 17.32 Source: Industry: Financial Aggregates & Ratios, Centre for Monitoring Indian Economy, March 2009



CHAPTER 3

IMPACT OF WTO, FTAs AND GLOBAL ECONOMIC RECESSION

3.1. Introduction

We are living in an interdependent world where go-it-alone policies and actions are not enough

to achieve collective results; nor are they any longer sufficient to even achieve country-specific

goals. World trade has definitely grown since 1995 thereby giving indicators that international

trade reforms do play important role in boosting economic development of various countries. But

there are several problems facing these Multilateral Trade Agreements. Predominance of

developed nations in negotiations extracting more benefits from developing and least developed

countries. Incompatibility of developed and developing countries resource sizes and skill

limitations thereby causing distortions in implementing various decisions. Non-tariff barriers

being created by developed nations. Regional cooperation groups posing threat to utility of WTO

agreement itself, which is multilateral encompassing all member countries.

India's ranking in recent Global Development Reports and World Competitiveness Year books

are not very encouraging due to infrastructure problems, poor governance, poor legal system,

poor market access etc.

It appears that Indian manufacturing does not stand to gain much from the increasing trade as a

result of the integration of world markets. India will have to start major reforms in agriculture

and manufacturing to become globally competitive. Same way it is questionable if India will be

major beneficiary in dismantling of quotas, which were available under Multi Fiber Agreement

(MFA) for market access in US and some EU countries. China, Germany, North African

countries, Mexico and such others have started reaping benefits in textiles and Clothing areas,

toys, home appliances etc. Unless India embarks upon major reforms in modernization and up

gradation of manufacturing sector, Indian manufacturing and domestic value addition will

decline sharply. In this chapter we briefly discuss major developments that are taking place with

respect to WTO, FTAs and recent Global economic recession. All these factors are critically

affecting Indian manufacturing sector particularly Light Electrical Industry.



3.2. WTO and Implications for Indian Economy

Developing countries have generally been apprehensive in particular about the implementation

of special and differential treatment provisions (S&D) in various Uruguay Round

Agreements. Full benefits of these provisions have not accrued to the developing countries, “as

clear guidelines have not been laid down on how these are to be implemented.”

The first Ministerial Conference held in 1996 in Singapore saw the commencement of pressures

to enlarge the agenda of WTO. Pressures were generated to introduce new Agreements on

Investment, Competition Policy, Transparency in Government Procurement and Trade

Facilitation. The concept of Core Labor Standards was also taken up for introduction.

India and the developing countries, which were already under the burden of fulfilling the

commitments undertaken in the Uruguay Round Agreements, and who also perceived many of

the new issues to be non-trade issues, resisted the introduction of these new subjects into WTO.

They were partly successful. The Singapore Ministerial Conference (SMC) set up open-ended

Work Program to study the relationship between Trade and Investment; Trade and Competition

Policy; to conduct a study on Transparency in Government Procurement practices; and do

analytical work on simplification of trade procedures (Trade Facilitation).

Not many people are aware that there is a dispute settlement system in the WTO. This is at the

heart of the WTO and sets it apart from the earlier GATT. Countries like USA and European

Union have brought cases against India and won these cases like in pharmaceutical patents. India

too has complained against the US and Europe and it too has won its fair share of disputes in

areas like textiles. India must effectively use this mechanism to extract fair share in world

markets.

Recognizing the important linkages between trade and economic growth, the Government of

India has simplified the tariff, eliminated quantitative restrictions on imports, and reduced export

restrictions.



3.3. Impediments to the growth of India’s International Trade

New tariff barriers faced by Indian products in various overseas markets are severely

constraining exports. These barriers may broadly be enumerated as: (i) restrictive import policy

regimes (import charges other than customs tariff, quantitative restrictions, import licensing,

custom barriers); (ii) standards, testing, labeling and certification (including phytosanitary

standards), which are set at unrealistic high levels for developing countries or are scientifically

unjustified; (iii) export subsidies (including agricultural export subsidies, preferential export

financing schemes etc.); (iv) barriers on services (visible and invisible barriers restricting

movements of service providers, etc.); (v) government procurement regimes; and (vi) other

barriers including anti-dumping and countervailing measures.

While developed countries, and especially the markets of the United States and the European

Union, still provide the lion's share of market opportunities for developing country exports, this

situation is changing. South-South trade has grown faster than North-South trade over recent

years. It has become increasingly evident that one developing country's trade policies can create

opportunities for more trade with other partners. Much of the expansion in South-South trade has

taken place in Asian developing countries, which are estimated to account for more than two-

thirds of all intra-developing country trade.

Some developing countries such as China have benefitted greatly from international trade.

Unfortunately, there are many developing countries that have yet to reap real gains from trade.

India’s gain from the increasing international trade is mixed due to poor infrastructural facilities

and technological backwardness as compared to its competitors.

3.4. From the Uruguay Round to the Doha Round

The establishment of the WTO at the conclusion of the Uruguay Round in 1995 was in many

ways a great success for multilateral cooperation, and boded well for the global economy. It was

a signal that the majority of the countries in the world wanted a wide far-reaching global trade

body to promote equitable and transparent trade rules — in goods, services and intellectual

property. The WTO is a consensus-based organization, thereby providing the basis of a system in



which each country — even the smallest — counts. And this is where its legitimacy lies. There is

no Security Council in the WTO and no Board of Directors.

But the Uruguay Round was left with some “unfinished business”. For example, while

agriculture was for the first time brought explicitly into the multilateral trading system under the

Uruguay Round, no significant cuts in trade-distorting subsidies or agricultural tariffs were

achieved. In developing countries, the quantum of protection offered by some developed

countries to their agricultural sectors is seen as a major obstacle to development; in particular as

certain developing countries do have a comparative advantage in many agricultural products.

This is the case of India in cereals, spices, coffee, tea, sugar or fish. India is a net food exporter.

In 2007 its food exports were twice as large as its food imports.

On Services, the success achieved by the Uruguay Round was modest compared to the huge

potential of this sector. For the sake of the global economy in general, and developing countries

in particular, there is a need to further open global services trade.

3.5. The Doha Development Round

Almost seven years after the launch of the Doha Round what we now have on the table is at least

two or three times greater than from any previous round of negotiations. Among the areas where

developing countries in particular would gain, is the elimination of agricultural export subsidies,

significant reductions in trade-distorting domestic support in agriculture and agricultural tariffs,

with greater efforts needed on cotton, reduction of high tariffs and tariff peaks on industrial

products of export interest to developing countries, and the opening up of services trade. Not to

mention rules to simplify customs procedures and cut red tape or reduction of fishery subsidies

to help preserve fish stocks.

Even if the use of safeguards has been limited and has only had a minimal impact on overall

trade flows, it has always provided a political response to domestic fears about trade opening

commitments. In fact trade opening in sensitive sectors has often been accompanied by “safety

nets” to reassure constituencies about multilateral commitments to trade opening.



A special safeguard was created in the Uruguay Round to provide a safety net to WTO members

agreeing to transform existing quotas on textiles into tariffs which they also agreed to reduce.

Also in the Uruguay Round, a safeguard measure was created for those developed and

developing countries which agreed to “tariffy”, i.e. convert agriculture quotas into equivalent

tariffs, and then cut those tariffs. In fact, part of the discussions centred successfully around the

request by many developing countries that this Uruguay Round special safeguard be eliminated

for developed countries after a transition period.

The world is interdependent and the solutions must be the result of a collective effort; all need to

contribute to address our collective challenges such as economic development, climatic change,

immigration etc.

3.6. Free Trade Agreements (FTAs)

According to statistics by the Asian Development Bank, currently India tops the list of Asian

countries with 30 FTAs, followed by Singapore with 26, China and Korea with 22 each, and

Japan (19). The total number of FTAs that Asian countries have entered into is 134. Out of

India’s 30 FTAs, eight are with the integrating Asian region, while and 22 are outside of Asia. It

is a matter of concern that over the $8 billion trade deficit that India has with South East Asian

Nations (ASEAN), as India’s exports to ASEAN is worth only $16 billion, while ASEAN’s

exports to India is to the tune of $24 billion. It is a fact that India entered into FTA talks with

ASEAN knowing that we have lesser competitiveness than them in goods trade, speaks volumes

of India’s attempts to integrate economically with Asia. Compared to this, India’s trade with

Singapore is more balanced, with India’s exports to that country worth $7 billion and imports of

$8 billion.

Of late China is emerging as India’s largest trading partner replacing the US. India’s Look East

policy architecture, the Bay of Bengal initiative for Multi-Sectoral Technical and Economic

Cooperation (BIMSTEC), is expected to conclude in FTA. “With the FTA with SAARC (South

Asian Association for Regional Cooperation) countries well on course, the conclusion of the

FTA talks with ASEAN and the hope to conclude FTA with BIMSTEC soon, India will

complete the three pillars of economic integration with Asia”.



Indo-Thai Free Trade Agreement (FTA) was to be the first of India’s FTAs with another ASEAN

country while negotiations with Singapore began almost at the same time. India already has an

FTA in place with Sri Lanka and the one with Singapore

3.6.1. India-Thailand Free Trade Agreement

India aims to increase its share in global trade from a dismal 0.7 percent to 1.9 percent by 2009.

While the government attempts to wrestle its demands vis-à-vis the developed world in the

World Trade Organization, its “Look East” policy is aimed to forge bilateral trade relations in

this part of the globe. As the country does not belong to any trade bloc (the likes of SAARC,

BIMSTEC-EC are hardly strong enough), India is depending on the Free Trade Agreements with

countries in the region.

Thai-Indian business relations have improved since the end of the Cold War, with reciprocal

visits by Prime Minister Rajiv Gandhi in 1986 and Thai Prime Minister General Chatichai

Choonhavan in 1989. The ties strengthened after India became partner of the ASEAN, and a

member of the ASEAN Regional Forum (ARF). The formation of the BIMST-EC (Bangladesh,

India, Myanmar, Sri Lanka, and Thailand Economic Cooperation) and the launching of Mekong-

Ganga Cooperation in 2000 also went a long way in forging closer Indo-Thai relations.

FTA between India and Thailand was supposed to benefit Indian consumers to get cheaper color

television sets, auto parts and other electric goods while Thai consumers would have benefited

from cheaper Indian agro products. Besides, the agreement would give India of using Thailand as

a stepping-stone for growing overseas investments as well as cheaper imports of intermediate

products that India requires in its production value chain.

The two countries signed an agreement in October 2003 that tariffs would be slashed by 50

percent by 2004-05, 75 percent by 2005-06 and completely eliminated by 2006-07. By 2010,

India and Thailand hoped to have a comprehensive FTA for all items of trade. As a starter, 82

items were put under the “early harvest scheme” in September 2004, for which the first 50

percent of tariff cut was imposed. March 1, 2005 was set as the deadline for detailing out the

agreement.



In 2004-05, bilateral trade between India and Thailand reached $2 billion, an increase of 34%

from 2003. Between 1993 and 2003, ASEAN-India trade grew at an annual rate of 11.2%, from

$2.9 billion to $12.1 billion.

There is a fear among Indian businessmen that the FTA might lead Thailand to dump cheap

products in the Indian market. However, to ensure that this does not happen, the Indian

government has imposed a condition that Thai products would have a value addition of 40

percent. Besides, the government is also attempting to reduce state-level mandi and octroi duties

so that Indian products grow competitive to Thai products.

The success of the India-Thailand FTA depends on development of the cost advantage of Indian

business as compared to Thai products. According to a Federation of Chambers of Commerce

and Industry (FICCI) study in 2006, India at present is at a disadvantage regarding this. The apex

chamber ran a survey of 35 companies in the segments of color picture tubes, color televisions

and auto components. It showed that India’s electricity costs are Rs 5.50 in India, compared to

Rs 2.5 in Thailand; interest rates are 13 percent compared to 4.5 percent in Thailand; major

imports like glass parts and chemicals used in the color picture tube manufacture can be

imported duty-free in Thailand while Indian producers have to pay 15 percent duty; alloy steel

and stainless steel attract 5 percent higher duty in India than in Thailand putting auto component

manufacturers at a severe disadvantage.

Indian industry also feels that labor laws in the country are too stringent and the lack of right to

closure deters businesses to operate competitively. "Industry members feel that the option to

right-size their workforce when needed would create more jobs and not less. The existence of

stringent labor laws is forcing the industry to adopt more capital-intensive technologies that at

times are costly and have to be imported. This also has an adverse impact on employment

generation," (FICCI, 2006).

Indian manufacturers may even consider outsourcing production in Thailand to arbitrage on costs

and third-party imports may be routed through Thailand to take advantage of the zero-duty

structure. Both of these could in effect harm the Indian economy, the first resulting in job losses



and the latter by reduced government revenues. However, this could be more than compensated

by India’s access to the South East Asian market which it can enter using Thailand as a gateway.

Thailand has long been a key overseas destination for Indian investors. There are 33 joint

ventures in Thailand, including those led by major industrial groups Aditaya Birla and Indorama.

Thailand now wants to enhance the cooperation from the arena of trade and investment by

welcoming the Indian IT majors, thus pooling the financial resources of Thailand and knowledge

pool of India

3.7. Product Categories under Early Harvest Scheme

As per the ‘Early harvest scheme (EHS)’ under the agreement, a common list of items for

exchange of tariff concession at 6-digit level and tariff on these identified items is slated to be

phased out by March 1, 2006. As per the ‘Early harvest scheme (EHS)’ under the agreement, a

common list of items for exchange of tariff concession at 6-digit level and tariff on these

identified items is slated to be phased out by March 1, 2006.

As per agreement, negotiations on goods started from January 2004 would be concluded in

March 2005 and the FTA for zero duty imports will be put into effect by 2010.

(ii) Tariff Reduction and Elimination:

(a) The products covered under this Early Harvest Scheme shall be subjected to the

following tariff reduction and elimination:

Period Tariff reduction on applied MFN

tariff rates as of 1st January 2004 1.3.2004-28.2.2005 50% 1.3.2005-28.2.2006 75% 1.3.2006 100%

(b) All products where the applied MFN tariff rates are 0%, shall remain at 0%.

(c) Where the implemented tariff rates are reduced to 0%, they shall remain at 0%.

Detailed list of items under EHS are given in Annexure 3.



Results of econometric analysis confirmed that only two out of 84 import items from India that the

Thailand India Free Trade Agreements (TIFTA-EHS) tariff reductions have had positive impacts on

raising their import shares and caused trade diversion. (Ake –Aroon Auansakul, 2007)

Thailand is certainly benefiting over India with respect to the TIFTA- EHS as total exports’

values to India have increased much more than its total imports from India. The TIFTA-EHS

agreement is now ended. Thailand, in particular, should support a continuation and extension of

the Tifta-EHS and propose a merge of it into the broader Thailand and India FTA for the benefits

of the two countries [Ake –Aroon Auansakul, 2007]. Relevant authorities should be very

carefully in listing the products to be included in the agreement, by examining the trade diversion

impacts on the country’s economic efficiency and welfare.

A FICCI Survey on ‘India Thailand FTA: Emerging Issues, 2006’ notes that imports from Thailand of

the 82 Early Harvest Items stood at USD 104.84 million for the period April-December 2005 as against

USD 84.44 million for the same basket of commodities for the whole of 2003-04.

3.8. India signs FTA with ASEAN

India finally signed the Free Trade Agreement (FTA) with 10 nations in South Asian bloc

ASEAN amidst concerns and protests from within the cabinet, state governments and NGOs.

The FTA would eliminate tariffs on over 4000 products including electronics, chemicals and

textiles that account for more than 80 percent of total trade in goods between the two sides.

Tariffs on those products would be reduced to zero by 2016. Table 3.1 provides the list of

products from home appliances category included in the FTAs with ASEAN.

Table 3.1: India’s Revised offer list for ASEAN under AI-FTA dated 7th Feb 2008

Sl.No. HS Code

Description Tariffs 2007-08

Offered under

1 841821 Compression-type Refrigerators, Household 10 NT-1 2 845012 Other machines, with built-in centrifugal drier

of a dry linen capacity 10 NT-1

3 845019 Other machines of a dry linen capacity <=10 Kg 10 NT-1 4 851650 Microwave Ovens 10 NT-1



3.9. Global Economic Recession

The global financial crisis has significantly slowed down the growth of the world economy in the

interim period, with the global GDP growth falling to 3.7 per cent and 2.2 per cent in 2008 and

2009, respectively, from 5 per cent in 2007. The downward GDP growth eased the demand side

pressures on inflation due to a fall in commodity prices, a trend that is already visible.

Due to greater integration with world economy, India though having a robust domestic demand

is also affected by the recent global financial crisis. However, strong domestic demand, which

has been a key growth driver for the Indian economy, has provided a buffer against global

turbulence. However, it should be noted that even before the onset of the global crisis, the Indian

economy had started slowing down on account of proactive monetary tightening policy adopted

by RBI during the first half of 2008, aimed at controlling domestic price inflation. As a result of

the combined effect of global and domestic slowdown, GDP growth declined to moderate to 6.5-

7.0 per cent in 2008-09 (CRISIL-NMCC, (March 2009).

To reinforce the monetary measures announced on December 6, 2008, the Government of India

unveiled a multi-dimensional fiscal stimulus package on December 7, 2008 that is expected to

stimulate growth across sectors and fuel consumption. The Government of India effected an

across-the-board cut of 4 percentage points in the ad-valorem CENVAT for the remainder of the

current fiscal (2008-09) on all products other than petroleum and those where the existing rate

was below 4 per cent.

The steps taken by Government are in the right direction and have reduced the adverse impact of

the global slow-down on these industries. Further, the lower cost of debt for export oriented

industries like textiles and garments marginally improved their competitiveness vis-à-vis global

players. Though domestic demand generation insulates industries, the quest for higher levels of

competitiveness in the export oriented segments need to be supported actively as global buyers

become more price sensitive. The current global economic scenario represents both a challenge

and an opportunity for Indian exporters.

In the second stimulus package announced on January 2, 2009, the Duty Entitlement Passbook

(DEPB) scheme has been extended till December 31, 2009 which would benefit the exporters.



While the cumulative growth rate of manufacturing sector during the first half of this fiscal

stands at 5.2 per cent, the figures for mining and electricity for the same period are 3.9 and 2.6

per cent, respectively. As the US financial turmoil and its ripple effects are still being faced

globally, Industrial growth during current fiscal estimated in the range of 5.5-6.0 per cent for

2008-09. The year on year growth in secondary sector for the period from April to September for

the financial year 2008 and for the financial year 2009 is provided in Table 3.2.

Table 3.2: Year on Year Growth in Secondary Sector

Details Apr-Sep, Financial Year 2008

Apr-Sep, Financial Year 2009

Manufacturing 10.0 5.2 Mining 5.1 3.9 Electricity 7.7 2.6 Secondary Sector 9.5 4.9

Source: CRISIL-NMCC, March 2009

The manufacturing industries which have performed relatively better during the first six months

of this fiscal (FY2008-09) are beverages (23.3%), transport equipment (12.8%) and machinery

and equipment (9.8%). Eight industries have posted negative growth during the first 6 months of

this fiscal as compared to just one industry during the same period last fiscal (FY2007-08). In the

textiles and garments industry, the textiles segment has posted negative growth in a) cotton

textiles segment and b) jute and other vegetable fibre textiles segment. The textile products

segment including wearing apparel has posted a high growth rate of 3.8% in first six months of

FY 2008-09 as compared to 3.3% in corresponding period in FY2007-08 (CRISIL-NMCC,

March 2009).

Though the MFA has expired with effect from 1st January 2005, certain provisions of quota

policy were extended initially for a period of one year; again it was extended till 31st December

2006. Hence, the changing scenario definitely indicates that the future of Indian textile and

clothing industry is bright. It has been recently reported that textile exports in 2009-10 period

will be equal or could be even lower than the one achieved in 2008-09. In this global financial

meltdown situation, it is an immediate task for all stake holders to takes a note of situation and

takes stock of the difficulties and chart plans for sustainability and growth of the Indian light

electrical industry.



CHAPTER 4 PRODUCTIVITY GROWTH IN LIGHT ELECTRICAL INDUSTRY

4.1 Introduction This chapter analyses productivity growth performance of organized registered manufacturing

segment of Light Electrical Sector such as Air Conditioners, Refrigerators and Washing

Machines. The organized factory sector occupies an important position in light electrical sector

in India*. Structurally, the organized factory sector consists of small, medium and large-scale

registered enterprises. The developments in the organized factory sector are easily visible and the

implications of government policy (both domestic and global) can be easily assessed since the

data are available on a continuous time series. Considering these facts an attempt has been made

in this chapter to analyze the large home appliances segment of light electrical industry

(organized factory sector/ registered manufacturing) in India. In this chapter productivity estimations have been undertaken separately for three large home

appliances such as Air Conditioners, Refrigerator and Washing Machines. Annual Survey of

Industries data is not available for the other two product categories such as Microwave Ovens

and Vacuum Cleaners.

4.2. Air Conditioner Sector

4.2.1 Key Features of Registered Factory Sector An examination of the air conditioner sector (registered manufacturing) at the all India level

suggests that the industry has not experienced any significant growth in terms of Gross Value

Added during the study period (Table 4.1). However, annual growth rate estimations of

employment during 1999-00 to 2005-06 has shown positive trends at an annual rate of 1.22 per

cent. By 2002-03 total employment, value of output and value added declined in absolute terms

as compared to 1999-00 levels. *(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The sections 2m (i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; or (b) whereon twenty or more workers are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on).



In 2004-05, the industry has shown the signs of recovery. A comparison between the levels of

1999-00 and 2005-06 reveals that the value of output has increased by 37% during the last seven

years (Table 4.1). The number of workers and the number of factories have also increased

considerably during this period whereas the value added has decreased.

The above analysis suggests that the organized air conditioner industry in India has started

showing signs of growth in the recent years as compared to `nineties. This probably indicates

that the measures adopted during this period did help the organized segment of air conditioner

manufacturing in India.

Table 4.1: Characteristics of Registered Air Conditioning Industry in India

(Value in Rs. Lakhs, others in Numbers)

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

4.2.2. Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation of

productivity ratios. In order to eliminate the price effect from the increasing value added, the gross

value added figures have been deflated by whole-sale Price Index (WPI). From the WPI, the price

index for the basic metals, alloys and metal products at 1993-94 base prices has been taken into

account for deflating the data on gross value added since it covers all categories of the products from

the sector.

Indicators 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Number of Factories 2755 2589 2735 2720 2547 2919 2752

Number of Persons Employed 109704 105114 110074 107446 101526 120394 117986

Gross Value Added (Constant Prices1993-94=100) 211119 237433 237772 166831 172768 203030 210588

Value of Output (Constant Prices 1993-94=100) 755264 819304 962167 860943 790936 979536 1037586

Capital Stock (Constant Prices 1993-94 = 100) 360369 261838 257609 213643 166341 189707 245680



4.2.3 Growth of Air Conditioner Sector

A period wise growth rate analysis of the organized segment air conditioner sector in India has

been presented in Table 4.2

Table 4.2: Growth of Organized Air Conditioner Sector

Indicators

Period I (1999-00 to 2002-

03)

Period II (2002-03

to 2005-06)

Period III (1999-00 to 2005-

06)

CAGR (%)

Gross Value Added (At Constant Prices) -7.55 8.07 -0.04

Value of Output (At Constant Prices) 4.46 6.42 5.44

No. of Factories (Nos) -0.43 0.39 -0.02

Persons Employed (Nos) -0.69 3.17 1.22

Capital Stock (Constant Prices 1993-94 = 100) -15.41 1.55 -7.32

Note: Labour Productivity has been estimated as GVA/Number of Persons Employed Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Value of Output (at constant prices) was found increasing during the 2002-03 to 2005-06 as

compared to 1999-00 to 2002-03 periods. The gross value added has shown negative growth

rates for the first period 1999-00 to 2002-03 and for the entire period 1999-00 to 2005-06. The

number of factories has considerably declined during both the periods at the rate of -0.43% and -

0.02%.

4.2.4 Partial and Total Factor Productivity Growth for Air Conditioner Sector In this section, analysis of partial productivities (labour and capital) and total factor productivity

growth (TFPG) has been given. The detailed methodology adopted for the estimation of partial

(labour & capital) and TFPG are given in Annexure 4. The estimated partial productivity ratios

such as labour and capital productivities and capital intensity figures are given in Table 4.3.



Table 4.3: Productivity Estimates for Labour and Capital inputs (Rs.)

Year Capital Productivity

Labour Productivity

Capital Intensity (Capital/Labour)

1999-00 0.59 192444 328492 2000-01 0.91 225881 249099 2001-02 0.92 216011 234033 2002-03 0.78 155270 198838 2003-04 1.04 170172 163841 2004-05 1.07 168638 157572 2005-06 0.86 178485 208228

Note: Productivity has been estimated as GVA/Factor input Source: Estimated from ASI- Summary results of factory sector, CSO. From Table 4.3 it may be noted that partial productivity estimations for labour and capital

productivity at the all India level have reported wide fluctuations during 1999-00 to 2005-06

period. Capital productivity was found fluctuating in the range of Rs. 0.59 to Rs. 1.07. The

labour productivity increased at a slow pace in the beginning 1999-00 but dipped to a lower

value of Rs. 155270 in 2002-03 and again slightly increased to 178485 in the year 2005-06

which is still lower than the initial figure of Rs.192444.

Table 4.4 provides year on year growth rate estimations for capital, labour and total factor

productivity growth. It may be noted that capital productivity growth during 1999-00 to 2002-03

was 13.73% while 2002-03 to 2005-06 period exhibited growth at the rate of 5.38%. However,

labour productivity growth reported negative growth for the period 1999-00 to 2002-03 at -

5.04% and positive growth for the perid 2002-03 to 2005-06 at 4.85% respectively. In the case of

Total Factor Productivity Growth we find average growth rate at -12.55% during 1999-00 to

2002-03 and 4.10% during 2002-03 to 2005-06.



Table 4.4: Labour, Capital and Total Factor Productivity Growth (%)

Year Capital

Productivity Growth

Labour Productivity

Growth Total Factor

Productivity Growth 1999-00 -- -- -- 2000-01 54.78 17.38 -24.34 2001-02 1.79 -4.37 0.21 2002-03 -15.40 -28.12 -13.52 2003-04 33.01 9.60 -18.12 2004-05 3.04 -0.90 14.65 2005-06 -19.91 5.84 15.78

Average for the Period 1999-00 to 2002-03 13.73 -5.04 -12.55

Average for the Period 2002-03 to 2005-06 5.38 4.85 4.10


Since the annual growth rates exhibit wide fluctuations, for getting a better picture of the growth

rate analysis it has been depicted in an index form in Table 4.5. Among the three growth rates

capital, productivity has reported the highest growth at 177.22 by 2004-05, while labour

productivity has reported 93.58 and Total Factor Productivity has grown to 58.88 for the 2004-05

year. Table 4.5: Index of Labour, Capital and Total Factor Productivity Growth

Year Capital Productivity Growth Index

Labour Productivity Growth Index

Total factor Productivity Growth Index

1999-00 100.00 100.00 100.00

2000-01 154.78 117.38 75.66

2001-02 156.57 113.01 75.87

2002-03 141.18 84.89 62.35

2003-04 174.18 94.48 44.23

2004-05 177.22 93.58 58.88

2005-06 157.32 99.42 74.66 Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector



Though TFP is lower as compared to Capital and Labour Productivity Growth, it may be noted

that technology is very critical to the growth of air conditioner sector in India. Therefore, it may

be noted that technology upgradation schemes are vital for making the sector more productive

and competitive in the global setting.

4.3 Refrigerator Sector 4.3.1 Key Features of the Registered Factory Sector An examination of the refrigerator sector (registered manufacturing) at the all India level

suggests that the Refrigerator sector of the Light Electrical Industry has experienced significant

decline in terms of Gross Value Added over the years (Table 4.6). However, compound annual

growth rate of employment during 1999-00 to 2002-03 has shown negative growth at an annual

rate of -7.17 per cent. By 2005-06 total employment, value of output and value added declined in

absolute terms as compared to 2002-03 levels.

In 2002-03 however, the Refrigerator sector has recovered. A comparison between the levels of

2000-01 and 2005-06 reveals that the value added and value of output has considerably declined

during this period (Table 4.6). The number of workers and the number of factories have also

decreased considerably during this period.



Thus, the above analysis suggests that the organized refrigerator sector in India has started

showing signs of growth in the recent years as compared to nineties. This probably indicates that

the measures adopted during economic liberalization did help the organized segment of

refrigerator manufacturing in India.

Table 4.6: Characteristics of Refrigerator Sector in India (Value in Rs. Lakhs, others in Numbers)


4.3.2 Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation of

productivity ratios. In order to eliminate the price effect from the increasing value added, the

gross value added figures have been deflated by using the whole-sale Price Index (WPI). From

the WPI, the price index for the basic metals, alloys and metal products at 1993-94 base prices

has been taken into account for deflating the data on gross value added since it covers all

categories of the products from the sector.

4.3.3 Growth of Refrigerator Sector

A period wise growth analysis of the organized refrigerator sector of Light Electrical Industry in

India has been presented in Table 4.7.

Indicators 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Number of Factories 651 784 630 752 662 706 687

Number of Persons Employed

42704 36986 30659 34163 29650 29524 32158

Gross Value Added (Constant Prices 1993-94=100)

74989 75343 55443 54808 50339 41783 41835

Value of Output (Constant Prices 1993-94=100)

345201 325196 264150 370151 308852 281653 262330

Capital Stock (Constant Prices 1993-94 = 100)

219618 154438 122302 170188 125475 94423 77962



Table 4.7: Growth of Organized Refrigerator Sector

Indicators

Period I (1999-00 to

2002-03)

Period II (2002-03

to 2005-06

Period III (1999-00 to

2005-06) CAGR (%)

Gross Value Added (At Constant Prices) -9.92 -8.61 -9.27

Value of Output (At Constant Prices) 2.35 -10.84 -4.47 No. of Factories (Nos) 4.92 -2.97 0.90 Persons Employed (Nos) -7.17 -2.00 -4.62 Capital Stock (Constant Prices 1993-94 = 100)

-8.15 -22.91 -15.85

Note: Labour Productivity has been estimated as GVA/Number of Persons Employed Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector Value of Output (at constant prices) was found to be decreasing for the 2002-03 to 2005-06 and

1999-00 to 2005-06 periods as compared to 1999-00 to 2002-03. The compound annual growth

rate for employment has shown negative trends for the three periods. Similar is the case with the

gross value added where it is also showing negative growth for all the three periods.

4.3.4 Partial and Total Factor Productivity Analysis of Refrigerator Sector In this section we analyze partial productivities (labour and capital) and total factor productivity

growth (TFPG). The detailed methodology adopted for the estimation of partial (labour &

capital) and TFPG are given in Annexure 4. The estimated partial productivity ratios for both

labour and capital factor inputs are given in Table 4.8.


Year Capital Productivity

Labour Productivity

Capital Intensity (Capital/labour)

1999-00 0.34 175602 514280 2000-01 0.49 203706 417557 2001-02 0.45 180838 398909 2002-03 0.32 160432 498164 2003-04 0.40 169776 423188 2004-05 0.44 141523 319818 2005-06 0.54 130092 242434

Note: Productivity has been estimated as GVA/Factor input Source: Estimated from ASI- Summary results of factory sector, CSO.



From Table 4.8 it may be noted that partial productivity estimations for labour and capital productivity at the all India level have reported wide fluctuations during 1999-00 to 2005-06 period. Capital productivity was found fluctuating in the range of Rs. 0.32 to Rs. 0.54 while labour productivity was found in the range of Rs. 130092 to Rs. 203706 during 1999-00 to 2005-06. Table 4.8 shows that the labour productivity increased at a slow pace in the beginning 1999-2000 to 2000-01 but dipped to a value of 180838 in 2001-02 and since then the labour productivity kept declining to a level of Rs. 130092 in 2005-06. Table 4.9 provides year on year growth rate estimations for capital, labour and total factor productivity growth. It may be noted that capital productivity growth during 2000-01 to 2002-03 was low as compared to 2003-04 to 2005-06 period exhibited high growth at the rate of 18.71% per annum. However, labour productivity growth reported negative growth for both periods at -2.17% and -6.30% respectively. In the case of Total Factor Productivity Growth we find annual average growth rate at -8.28% during 2000-01 to 2002-03 and -21.41% during 2003-04 to 2005-06.


Year Capital

Productivity Growth

Labour Productivity

Growth

Total factor Productivity

Growth 1999-00 -- -- -- 2000-01 42.88 16.00 -31.72 2001-02 -7.08 -11.23 -22.59 2002-03 -28.96 -11.28 29.47 2003-04 24.57 5.82 -27.79 2004-05 10.30 -16.64 -23.12 2005-06 21.26 -8.08 -13.33






capital productivity has reported the highest index at 162.98 by 2005-06, while labour

productivity has reported 74.60 and Total Factor Productivity has grown to 10.91 for the same

period.



Table 4.10: Index of Labour, Capital and Total Factor Productivity Growth Rates

Year Capital

Productivity Growth Index

Labour Productivity

Growth Index


Growth Index

1999-00 100.00 100.00 100.00

2000-01 142.88 116.00 68.28

2001-02 135.80 104.78 45.69

2002-03 106.84 93.49 75.15

2003-04 131.41 99.32 47.37

2004-05 141.71 82.68 24.24


Though TFP is lower as compared to Capital and Labour Productivity Growth, it may be noted

that technology plays a significant role in the growth of refrigerator sector in India. Therefore, it

may be noted that technology upgradation schemes are vital for making the sector more

productive and competitive in the global setting.



4.4 Washing Machines Sector 4.4.1 Key Features of the Registered Factory Sector An examination of the Washing Machine segment of the Light Electrical Industry (registered

manufacturing) at the all India level suggests that the sector has not experienced any significant

growth in terms of Gross Value Added over the years (Table 4.11). However, compound annual

growth rate of employment during 1999-00 to 2002-03 has shown positive trends at an annual

rate of 36.00 %. By 2005-06 total employment and value added declined in absolute terms as

compared to 2002-03 levels.

A comparison between the levels of 2000-01 and 2005-06 reveals that the value added and value

of output has started showing signs of recovery (Table 4.11). The number of workers has also

increased considerably during this period but the number of factories has shown a decline.

Thus, the above analysis suggests that the organized washing machine industry in India has

started showing signs of growth in the recent years as compared to nineties. This probably

indicates that the measures adopted during economic liberalization did help the organized

segment of washing machine manufacturing in India.

Table 4.11: Characteristics of Washing Machine Sector in India (Value in Rs. Lakhs, others in Numbers)


Indicators 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Number of Factories

1526

1382

1283

1321

1310

1279

1298

Number of Persons Employed

46382 33899 38269 116684 114167 46038 48321

Gross Value Added (Constant Prices 1993-94=100)

76958 67718 76557 71115 68876 66811 69283

Value of Output (Constant Prices 1993-94=100)

344017 296064 312917 310693 295567 330839 359619



4.4.2 Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation of productivity ratios. In order to eliminate the price effect from the increasing value added, the gross value added figures have been deflated by using the whole-sale Price Index (WPI). From the WPI, the price index for the basic metal, alloys and metal products at 1993-94 base prices has been taken into account for deflating the data on gross value added since it covers all categories of the products from the sector.

4.4.3 Growth of Washing Machine Sector

A period wise growth analysis of the organized washing machine sector of Light Electrical

Industry in India has been presented in Table 4.12.

Table 4.12: Growth of Organized Washing Machine Sector

Indicators

Period I (1999-00 to

2002-03)

Period II (2002-03

to 2005-06

Period III (1999-00 to

2005-06)

CAGR (%)

Gross Value Added (At Constant Prices) -2.60 -0.87 -1.74

Value of Output (At Constant Prices) -3.34 5.00 0.74

No. of Factories (Nos) -4.69 -0.58 -2.66

Persons Employed (Nos) 36.00 -25.46 0.68 Note: Labour Productivity has been estimated as GVA/Number of Persons Employed


Value of Output (at constant prices) has been found increasing continuously during the period

2002-03 to 2005-06. Nevertheless, the sector has experienced a great deal of recovery in the

decade and a half of liberalization. Internal liberalization and trade reforms have certainly helped

the washing machine industry to gain some market share in the world market. However, the

extent to which Indian washing machine industry can survive or grow or emerge as a leader

depends on its competitive potential. Since, the washing machine industry, be it organized or

unorganized, across the globe is basically capital intensive, the improvement in capital

productivity will primarily govern the competitiveness of the sector.



4.4.4 Partial and Total Factor Productivity Analysis of Washing Machine Sector

In this section we analyze partial productivities (labour and capital) and total factor productivity

growth (TFPG). The detailed methodology adopted for the estimation of partial (labour &

capital) and TFPG are given in Annexure 4. The estimated partial productivity ratios for both

labour and capital factor inputs are given in Table 4.13.


Year Capital Productivity Labour Productivity

1999-00 0.31 117592

2000-01 0.54 124171

2001-02 0.64 151335

2002-03 0.72 147836

2003-04 0.79 145197

2004-05 0.86 127303

2005-06 1.05 132934 Note: Productivity has been estimated as GVA/Factor input Source: Estimated from ASI- Summary results of factory sector, CSO. From Table 4.13 it may be noted that partial productivity estimations for labour and capital

productivity at the all India level have reported wide fluctuations during 1999-00 to 2005-06 period.

Capital productivity was found fluctuating in the range of Rs. 0.31 to Rs. 1.05 while labour

productivity was found in the range of Rs. 117592 to Rs. 151335 during 1999-00 to 2005-06. Table 4.14 provides year on year growth rate estimations for capital, labour and total factor

productivity growth. It may be noted that capital productivity growth during 2000-01 to 2002-03

exhibited growth rate at 34.74% while 2003-04 to 2005-06 period exhibited growth at the rate of

13.59% per annum. However, labour productivity growth reported positive growth for period

2000-01 to 2002-03 at 8.39% while negative growth for the period 2003-04 to 2005-06 at -

3.23%. In the case of Total Factor Productivity Growth we find annual average growth rate at -

25.20% during 2000-01 to 2002-03 and -8.05% during 2003-04 to 2005-06.




Year Capital Productivity Growth

Labour Productivity Growth

Total Factor Productivity Growth

1999-00 -- -- -- 2000-01 73.14 5.60 -54.59 2001-02 18.43 21.88 -5.34 2002-03 12.65 -2.31 -15.67 2003-04 10.40 -1.79 -9.74 2004-05 8.56 -12.32 -4.15 2005-06 21.81 4.42 -10.25

Average for the Period 2000-01 to 2002-03

34.74 8.39 -25.20

Average for the Period 2003-04 to 2005-06

13.59 -3.23 -8.05




capital productivity has reported the highest index at 244.99 by 2005-06, while labour

productivity has reported 115.47 and Total Factor Productivity has grown to 0.27 for the same

period. Table 4.15: Index of Labour, Capital and Total Factor Productivity Growth Rates

Year Capital

Productivity Growth Index

Labour Productivity

Growth Index


Growth Index 1999-00 100.00 100.00 100.00

2000-01 173.14 105.60 45.41

2001-02 191.57 127.47 40.07

2002-03 204.22 125.16 24.41

2003-04 214.62 123.37 14.67

2004-05 223.18 111.05 10.52




TFP for the sector is declining continuously as compared to Capital and Labour Productivity

Growth during the study period. It indicates that the technological progress is not taking place in

the washing machine segment in the country. It is a major area of concern. Therefore, it may be

noted that technology upgradation schemes are vital for making the sector more productive and

competitive in the global setting.



CHAPTER 5

COMPETITIVENESS OF LIGHT ELECTRICAL INDUSTRY 5.1. Introduction

In a scenario where the entire world is shrinking into a global village, all the economies whether

developed or developing need to fortify themselves for protecting their domestic manufacturing.

Globalization demands vibrant economies that perpetually strengthen themselves by remaining

competitive and bring drastic changes in their economies.

Despite some highly competent companies in India, the industry average level remains low when

benchmarked with other emerging economies including Thailand, Korea and China. The

situation may get worse if there is further delay in government support to industry. On the whole,

it may be noted that any lack of investment and preparedness across the industry with adequate

government support, it is quite possible that Indian industry and the national economy shall be

competitively disadvantaged relative to other countries. This would also imply job losses, factory

closures, operational losses of companies and depressed incomes impacting the entire economy.

In this chapter we analyze segment wise export and import of large home appliances such as Air

Conditioners, Refrigerators, Washing Machines, Vacuum Cleaners and Microwave Ovens from

India to the rest of the world. Competitiveness of each of the product segments have been

analyzed through estimated trade ratios for each of the product categories and for all the five

products as a whole.

5.2. Export Trends Table 5.1 reports export trend in air-conditioner sector in India. It may be noted that exports

were increasing continuously from 2000-01 and reached the highest level during 2003-04.

However, subsequent years witnessed a decline. On the other hand the export of refrigerator has

shown a continuous increase during the study period from 1996-97 to 2007-08. The exports of

microwave oven exhibited an increasing trend during the years 1996-97 to 2007-08 with wide

variations. The export trends for the vacuum cleaners during the years 1996-97 to 2000-01 was

reported at a negative annual growth rate of -20.40 percent while the second period during 2000-



01 to 2007-08 reported a positive annual growth of 26.93 percent. On the other hand the exports

of washing machine have shown an annual growth rate of 27.26 during 1996-97 to 2000-01 but it

has declined during 2000-01 to 2007-08 to 6.16 percent.

Aggregate export from India reported for all the five product categories together has shown a

healthy annual growth rate of 34.87 percent during the study period 1996-97 to 2007-08.

Table 5.1: Segment wise Export of Home Appliances – India Total (Rs. Lakhs)

Year Air Conditioner

Refrigerator Washing Machine

Vacuum Cleaner

Microwave Oven

Total

1996-1997 305 706 447 284 16 1759 1997-1998 326 1358 359 136 16 2195 1998-1999 728 1439 519 48 113 2847 1999-2000 333 1832 616 152 33 2965 2000-2001 1179 3117 1174 114 0 5584 2001-2002 2213 3949 2719 141 12 9034 2002-2003 4901 5940 2928 154 21 13943 2003-2004 12722 8355 3089 284 510 24960 2004-2005 12395 7660 3129 281 60 23525 2005-2006 8479 11539 1347 325 1548 23237 2006-2007 6643 21758 1289 164 1683 31537 2007-2008 10156 34661 1783 605 21 47226

CAGR 1996-97 to 2000-01

40.17 44.95 27.26 -20.40 -100 33.48

CAGR 2000-01 to 2007-08

36.02 41.07 6.16 26.93 - 35.66

CAGR 1996-97 to 2007-08

37.52 42.47 13.39 7.12 2.50 34.87

Source: dgft.delhi.nic.in

5.3. Import Trends Table 5.2 shows segment wise import of selected five large home appliances by India. It may be

seen from the table that growth rates for the imports of all the five products considered such as

air conditioner, refrigerator, washing machine, vacuum cleaner and microwave oven have shown

very high growth rates during the study period. A period wise analysis reveals that the first

period under study such as 1996-97 to 2000-01 reported higher relative growth as compared to

the second period i.e., 2000-01 to 2007-08. Among the five product categories, highest annual

growth rate for imports during 1996-97 to 2007-08 was reported for microwave ovens at 106.92



percent per annum while lowest import growth rate was reported for refrigerator at 10.20 per

annum. However, Import for all the five products taken together reported an annual growth rate

of 33.72 percent which is slightly lower than the export annual growth rate of 34.87 percent.

Table 5.2: Segment wise Import of Home Appliances – India Total (Rs.lakhs)


Refrigerator Washing Machine

Vacuum Cleaner

Microwave Oven

Total

1996-1997 558 3814 622 11 5 5010 1997-1998 875 5182 1242 36 297 7632 1998-1999 1164 7579 2332 65 351 11491 1999-2000 3448 9637 3019 350 1817 18271 2000-2001 5818 9177 5467 412 2978 23852 2001-2002 4779 10470 3320 296 2411 21276 2002-2003 5013 10314 1928 464 3024 20743 2003-2004 10027 9372 2082 513 3460 25454 2004-2005 14755 11864 4496 912 6372 38399 2005-2006 28375 7394 7175 1034 11015 54993 2006-2007 44469 11540 11592 1423 12729 81753 2007-2008 77351 11103 16360 2779 14885 122478

CAGR 1996-97 to 2000-01

79.69 24.55 72.18 147.39 394.01 47.71

CAGR 2000-01 to 2007-08

44.72 2.76 16.95 31.35 25.84 26.33

CAGR 1996-97 to 2007-08

56.57 10.20 34.61 65.35 106.92 33.72

5.4. Export Competitiveness of Large Home Appliances Table 5.3 reports the product segment wise export-import trade ratio for the large home

appliances such as Air Conditioners, Refrigerators, Washing Machines, Vacuum Cleaners and

Microwave Ovens.

In the case of Air Conditioners, it may be noted that the net exports during 2003-04 reported

positive as the trade ratio became more than one. However, the subsequent years reported

substantial decline in trade competitiveness as the trade ratio started declining consistently and it

reached a low 0.13 in the year 2007-08.



In the case of Refrigerators, the industry found to be trade competitive as the trade ratio show a

steady increase during the period 2000-01 to 2007-08. The trade ratio reached to a maximum

value of 3.12 in the year 2007-08.

In the case of Washing Machines, it may be noted that the net exports during 2002-03 and 2003-

04 reported positive as the trade ratio became more than one. However, the subsequent years

reported substantial decline in trade competitiveness as the trade ratio started declining

consistently and it reached a low 0.11 in the year 2007-08.

In the case of Vacuum Cleaner, it may be noted that there is substantial decline in the trade

competitiveness as the trade ratio declined tremendously from 25.78 in the year 1997-98 to a low

of 0.11 in the year 2006-07.

In the case of Microwave Ovens, it may be noted that there is substantial decline in the trade

competitiveness as the trade ratio declined from 3.20 in the year 1997-98 to a negligible export

of product in 2007-08 as compared to import of the product in the same period.

Table 5.3: Product Segment wise Export- Import Ratio of Home Appliances


Refrigerator Washing

Machine

Vacuum Cleaner

Microwave Oven

Total

1996-1997 0.55 0.19 0.72 25.82 3.20 0.35

1997-1998 0.37 0.26 0.29 3.78 0.05 0.29

1998-1999 0.63 0.19 0.22 0.74 0.32 0.25

1999-2000 0.10 0.19 0.20 0.43 0.02 0.16

2000-2001 0.20 0.34 0.21 0.28 0.00 0.23

2001-2002 0.46 0.38 0.82 0.48 0.00 0.42

2002-2003 0.98 0.58 1.52 0.33 0.01 0.67

2003-2004 1.27 0.89 1.48 0.55 0.15 0.98

2004-2005 0.84 0.65 0.70 0.31 0.01 0.61

2005-2006 0.30 1.56 0.19 0.31 0.14 0.42

2006-2007 0.15 1.89 0.11 0.12 0.13 0.39

2007-2008 0.13 3.12 0.11 0.22 0.00 0.39



From the above trade ratio analysis, it may be noted that the light electrical (large home

appliance) manufacturing industry needs a special package in the form of technological

advancement, R&D support and financial guidance from the government to make the industry

more productive and competitive.

5.5. Air Conditioners The exports of other window/wall types self-contained air conditioning machines have been

shown in Table 5.4 for the period 2003-04 to 2007-08 to the countries like China, Korea,

Malaysia, and Thailand.

The highest exports were reported to Korea in the year 2005-06 and to Thailand in 2004-05. The

total exports to the four countries were seen highest during 2005-06 whereas it has declined

during the period 2006-07 and 2007-08.

Table 5.4: Export of Other Window/Wall Types Self-contained Air Conditioning Machines H.S. Code: 84151090 (Rs. Lakhs)

Year China Korea Malaysia Thailand Total

2003-2004 0 1 2 0 3

2004-2005 1 0 0 87 88

2005-2006 11 234 1 4 250

2006-2007 0 11 0 0 11

2007-2008 0 1 8 11 20 Source: delhi.dgft.nic.in [ Similarly the imports of other window/wall types self-contained air conditioning machines have

been shown in Table 5.5 for the period 2003-04 to 2007-08 from the countries like China,

Korea, Malaysia, and Thailand.

The maximum imports were reported from China during 2007-08. It is being observed that the

imports from China were maximum during the period 2004-05 and 2005-06 as compared to other

countries. The total imports from the four countries were seen maximum during 2007-08 which

has shown continuous trend of increase since 2003-04.



Table 5.5: Import of Other Window/Wall Types Self-contained Air Conditioning Machines H.S. Code: 84151090 (Rs. Lakhs)


2003-2004 648 1148 69 572 2437

2004-2005 2315 340 84 1940 4679

2005-2006 4392 142 37 3608 8179

2006-2007 7409 162 303 7416 15290

2007-2008 31358 82 351 8268 40059 Source: delhi.dgft.nic.in

In Table 5.6 trade ratio (export/import) of other window/wall types self-contained air

conditioning machines has been calculated from total exports to the four countries and total

imports from these countries for the period 2003-04 to 2007-08. The highest trade ratio observed

was 0.0306 during 2005-06 and has gone to low of 0.0005 in 2007-09.

Table 5.6: Trade Ratio (Export/ Import) of Other Window/Wall Types Self-contained Air Conditioning Machines H.S. Code: 84151090

Year Total Export to four countries*

Total Import from four countries*

Total Trade Ratio: Export / Import

2003-2004 3 2437 0.0012

2004-2005 88 4679 0.0188

2005-2006 250 8179 0.0306

2006-2007 11 15290 0.0007

2007-2008 20 40059 0.0005 *China, Korea, Thailand and Malaysia Table 5.7 shows the country-wise export of split system air conditioning machines for the period

2003-04 to 2007-08. The highest exports were reported to Korea during 2005-06. The total

exports to the four countries were reported maximum for the year 2005-06 and it has declined

during 2006-07. There were hardly any exports to the four countries during 2007-08.



Table 5.7: Country wise Export of Split System Air Conditioning Machines H.S. Code: 84151010 (Rs. Lakhs)


2003-2004 0 0 36 17 53

2004-2005 1 196 0 0 197

2005-2006 1 376 5 53 435

2006-2007 0 1 0 1 2

2007-2008 0 0 0 0 0 Source: delhi.dgft.nic.in Table 5.8 shows the country wise imports of split system air conditioning machines from the

four countries for the period 2003-04 to 2007-08. The imports were reported maximum from

China for the period 2004-05 to 2007-08 and touched the value of Rs. 16593 lakhs during 2007-

08. The total imports from the four countries have shown steady increase for the entire period

from 2003-04 to 2007-08.

Table 5.8: Country wise Import of Split System Air Conditioning Machines H.S. Code: 84151010 (Rs. Lakhs)


2003-2004 995 247 6 3564 4812

2004-2005 3612 190 11 2802 6615

2005-2006 9236 244 37 5972 15489

2006-2007 11769 133 208 8877 20987

2007-2008 16593 212 487 10954 28246 Source: delhi.dgft.nic.in Table 5.9 trade ratio (export/import) of split system air conditioning machines for the four

countries for the period 2003-04 to 2007-08. The trade ratio is highest for the year 2004-05

and is observed to be declining in the subsequent years. The trade ratio has declined to zero

in 2007-08.



Table 5.9: Trade Ratio (Export/ Import) of Split System Air Conditioning Machines H.S. Code: 84151010




2003-2004 53 4812 0.0110

2004-2005 197 6615 0.0298

2005-2006 435 15489 0.0281

2006-2007 2 20987 0.0001

2007-2008 0 28246 0.0000 *China, Malaysia, Korea and Thailand From the above observations it can be noted that India is exporting very low volumes of air

conditioners to the four countries but the large chunk of it is being imported from the countries

like China, Thailand and therefore the sector is lagging behind in competitiveness.

5.6. Refrigerator The country wise exports of refrigerator (household compressor type refrigerator) has been

shown in Table 5.10 for the year 1996-97 to 2007-08 to the countries like China, Korea,

Malaysia and Thailand.

The maximum exports by India were reported to Thailand during 2002-03 and 2004-05 and

2005-06 as compared to other countries. The total exports to the four countries were seen highest

in the year 2002-03 whereas it has declined in the year 2003-04. There were no exports to these

countries during 1997-98, 1999-2000 and 2001-02. During 2006-07 and 2007-08 the major

exports were reported to Thailand.



Table 5.10: Country wise Export of Refrigerator (Household Compressor type refrigerator) H.S. Code: 84182100 (Rs. Lakhs)


1996-1997 0 0 34 0 34 1997-1998 0 0 0 0 0 1998-1999 0 0 1 0 1 1999-2000 0 0 0 0 0 2000-2001 0 1 0 0 1 2001-2002 0 0 0 0 0 2002-2003 0 1 0 179 180 2003-2004 14 0 39 50 103 2004-2005 0 0 0 148 148 2005-2006 45 1 0 105 151 2006-2007 0 0 0 87 87 2007-2008 0 0 0 44 44

Source: delhi.dgft.nic.in Similarly the country wise imports of refrigerator (household compressor type refrigerator) has been shown in Table 5.11 for the year 1996-97 to 2007-08 from the countries like China, Korea, Malaysia, and Thailand. The highest imports were reported from Korea during 1999-2000 while imports from Thailand were highest during 2006-07 and 2007-08 as compared to other countries. The total imports from the four countries were seen highest for the year 2007-08 touching the value of Rs. 7745 lakhs. Table 5.11: Country wise Import of Refrigerator (Household Compressor type refrigerator) H.S. Code: 84182100 (Rs. Lakhs)


1996-1997 0 1487 0 22 1509 1997-1998 0 2402 0 164 2566 1998-1999 1 1961 0 0 1962 1999-2000 11 6489 20 366 6886 2000-2001 0 5053 13 878 5944 2001-2002 54 5565 0 1002 6621 2002-2003 3 5183 0 1695 6881 2003-2004 302 3431 2 1741 5476 2004-2005 226 3120 1 651 3998 2005-2006 190 2417 104 1001 3712 2006-2007 356 1235 45 5068 6704 2007-2008 649 1475 0 5621 7745

Source: delhi.dgft.nic.in



The Table 5.12 shows the trade ratio (export/import) of refrigerator (household compressor type

refrigerator) for the Period 1996-97 to 2007-08. The highest trade ratio calculated observed is

0.0407 during 2005-06.

Table 5.12: Trade Ratio (Export/ Import) of Refrigerator (Household Compressor type refrigerator) H.S. Code: 84182100

Year Total Export to four countries

Total Import from four countries


1996-1997 34 1509 0.0225 1997-1998 0 2566 0.0000 1998-1999 1 1962 0.0005 1999-2000 0 6886 0.0000 2000-2001 1 5944 0.0002 2001-2002 0 6621 0.0000 2002-2003 180 6881 0.0262 2003-2004 103 5476 0.0188 2004-2005 148 3998 0.0370 2005-2006 151 3712 0.0407 2006-2007 87 6704 0.0130 2007-2008 44 7745 0.0057


The country wise exports of refrigerator (other household type refrigerator) has been shown in

Table 5.13 for the period 1996-97 to 2007-08 to the countries like China, Korea, Malaysia, and

Thailand.

The highest exports were reported to Malaysia during 2004-05. The total exports to the four

countries were seen highest during 2004-05 whereas it has declined in the year 2006-07 and

2007-08. There are hardly any exports to these countries for the period 1996-97 to 1999-2000

and 2006-2007 to 2007-08.



Table 5.13: Country wise Export of Refrigerator (Other Household type refrigerator)

H.S. Code: 84182900 (Rs. Lakhs)


1996-1997 0 0 0 0 0

1997-1998 0 1 1 0 2

1998-1999 0 0 0 0 0

1999-2000 0 0 0 0 0

2000-2001 0 0 0 4 4

2001-2002 0 0 0 12 12

2002-2003 0 0 0 1 1

2003-2004 0 0 2 0 2

2004-2005 0 0 18 2 20

2005-2006 1 12 0 0 13

2006-2007 0 0 3 0 3

2007-2008 0 0 0 0 0 Source: delhi.dgft.nic.in Similarly the country wise imports of refrigerator (other household type refrigerator) has been

shown in Table 5.14 for the period 1996-97 to 2007-08 from the countries like China, Korea,


The highest imports were reported from Korea during 1998-99 while the imports from Korea

were highest during 2006-07 and 2007-08 as compared to other countries. The total imports from

the four countries were seen highest for the year 1998-99 which touched to a value of Rs4500

lakhs. The total import value of Refrigerator was seen to be as low as Rs.1017 lakhs during

2003-04.



Table 5.14: Country wise Import of Refrigerator (Other Household type refrigerator) H.S. Code: 84182900 (Rs. Lakhs)


1996-1997 2 1599 0 0 1601

1997-1998 154 1723 0 1 1878

1998-1999 18 4466 1 15 4500

1999-2000 6 1976 0 0 1982

2000-2001 8 2495 0 52 2555

2001-2002 1 2200 0 415 2616

2002-2003 19 521 27 540 1107

2003-2004 66 535 2 414 1017

2004-2005 1770 1498 24 225 3517

2005-2006 432 1434 5 255 2126

2006-2007 297 2375 0 10 2682

2007-2008 419 1391 1 46 1857 Source: delhi.dgft.nic.in The Table 5.15 trade ratio (export/import) of refrigerator (other household type refrigerator) for

the period 1996-97 to 2007-08. The highest trade ratio observed to be 0.0061 during 2005-06. It

has shown a sudden decrease in the year 2006-07 and 2007-08.

Table 5.15: Trade Ratio (Export/ Import) of Refrigerator (Other Household type refrigerator)

H.S. Code: 84182900 Year Total Export to

four countries* Total Import from

four countries* Total Trade Ratio:

Export / Import

1996-1997 0 1601 0.0000 1997-1998 2 1878 0.0011 1998-1999 0 4500 0.0000 1999-2000 0 1982 0.0000 2000-2001 4 2555 0.0016 2001-2002 12 2616 0.0046 2002-2003 1 1107 0.0009 2003-2004 2 1017 0.0020 2004-2005 20 3517 0.0057 2005-2006 13 2126 0.0061 2006-2007 3 2682 0.0011 2007-2008 0 1857 0.0000

*China, Korea, Thailand and Malaysia



5.7. Washing Machine

The country wise exports of other machines, dry linen capacity <= 10 kg has been shown in

Table 5.16 for the period 1996-97 to 2007-08 to the countries like China, Korea, Malaysia, and

Thailand.

The highest exports were reported to China during 2003-04. The total exports to the four

countries were seen highest during 2003-04 whereas it has declined in the year 2006-07 and

2007-08. There were no exports to these countries during 1996-97 and 1999-2000.

Table 5.16: Country wise Export of Other Machines, dry linen capacity <= 10kg H.S. Code: 84501900 (Rs. Lakhs)


1996-1997 0 0 0 0 0

1997-1998 0 1 0 4 5

1998-1999 2 0 0 0 2

1999-2000 0 0 0 0 0

2000-2001 0 17 0 5 22

2001-2002 0 1 16 0 17

2002-2003 0 1 0 80 81

2003-2004 426 0 0 0 426

2004-2005 0 3 17 41 61

2005-2006 0 1 0 13 14

2006-2007 0 1 0 1 2

2007-2008 0 1 1 0 2 Source: delhi.dgft.nic.in Similarly the country wise imports of other machines, dry linen capacity <= 10kg has been

shown in Table 5.17 for the period 1996-97 to 2007-08 from the countries like China, Korea,


The highest imports were reported from China during 2007-08 while the imports from China

were also highest in the years 2005-06 and 2006-07 as compared to other countries. The total

imports from the four countries were seen highest for the year 2007-08 and it has been increasing

since 2005-06.



Table 5.17: Country wise Import of Other Machines, dry linen capacity <= 10kg H.S. Code: 84501900 (Rs. Lakhs)

Year China Korea Malaysia Thailand Total 1996-1997 0 25 0 0 25 1997-1998 6 43 0 0 49 1998-1999 143 138 0 0 281 1999-2000 13 6 0 0 19 2000-2001 272 353 1 0 626 2001-2002 190 61 0 0 251 2002-2003 66 35 0 24 125 2003-2004 37 42 0 12 91 2004-2005 910 14 3 16 943 2005-2006 1914 61 4 327 2306 2006-2007 2282 1 3 362 2648 2007-2008 4574 1 2 144 4721

Source: delhi.dgft.nic.in Table 5.18 shows the trade ratio (export/import) of other machines, dry linen capacity <= 10kg for the period 1996-97 to 2007-08. The highest trade ratio is 4.6813 during 2003-04. The total exports were much higher than total imports during that year hence trade ratio was coming out to be so high. It has shown a sudden decrease in the year 2006-07 and 2007-08. Table 5.18: Trade Ratio (Export/ Import) of Other Machines, dry linen capacity <= 10kg H.S. Code: 84501900




1996-1997 0 25 0.0000 1997-1998 5 49 0.1020 1998-1999 2 281 0.0071 1999-2000 0 19 0.0000 2000-2001 22 626 0.0351 2001-2002 17 251 0.0677 2002-2003 81 125 0.6480 2003-2004 426 91 4.6813 2004-2005 61 943 0.0647 2005-2006 14 2306 0.0061 2006-2007 2 2648 0.0008 2007-2008 2 4721 0.0004




The country wise exports of other machines, with Built-in centrifugal drier of a dry linen

capacity not exceeding 10kg has been shown in Table 5.19 for the period 1996-97 to 2007-08 to

the countries like China, Korea, Malaysia, and Thailand.

The highest exports were reported to Thailand during 2001-02. The total exports to the four

countries were seen highest during 2001-02. There were no exports to these countries during

most of the years.

Table 5.19: Country wise Export of Other Machines, with Built-in centrifugal drier of a dry linen capacity not exceeding 10kg H.S. Code: 84501200 (Rs. Lakhs)


1996-1997 0 0 0 0 0

1997-1998 0 0 0 0 0

1998-1999 0 0 0 0 0

1999-2000 0 0 0 0 0

2000-2001 0 0 0 0 0

2001-2002 0 0 0 28 28

2002-2003 0 0 0 0 0

2003-2004 0 0 7 17 24

2004-2005 0 0 0 7 7

2005-2006 0 0 0 0 0

2006-2007 0 0 0 0 0


Similarly the country wise imports of other machines, with Built-in centrifugal drier of a dry

linen capacity not exceeding 10kg has been shown in Table 5.20 for the period 1996-97 to 2007-

08 from the countries like China, Korea, Malaysia, Thailand and similarly it has also been sum

total.

The highest imports were reported from China during 2007-08 while imports from China were

also highest during 2006-07 as compared to other countries. The total imports from the four

countries were seen highest for the year 2007-08 and it has been increasing since 2005-06.



Table 5.20: Country wise Import of Other Machines, with Built-in centrifugal drier of a dry linen capacity not exceeding 10kg H.S. Code: 84501200 (Rs. Lakhs)


1996-1997 0 93 0 0 93

1997-1998 0 0 0 0 0

1998-1999 0 0 0 0 0

1999-2000 0 78 0 0 78

2000-2001 611 69 0 0 680

2001-2002 0 0 0 0 0

2002-2003 20 0 0 0 20

2003-2004 49 0 0 0 49

2004-2005 126 0 0 0 126

2005-2006 324 0 0 0 324

2006-2007 2345 0 1 0 2346


In Table 5.21 trade ratio (export/import) of other machines, with Built-in centrifugal drier of a

dry linen capacity not exceeding 10kg has been calculated from total exports to the four

countries and total imports from these countries for the period 1996-97 to 2007-08. The highest

trade ratio calculated was 0.4898 during 2003-04. The trade ratio is coming out to be zero for

most of the years as either exports are nil or both exports and imports are nil during those years.



Table 5.21: Trade Ratio (Export/ Import) of Other Machines, with Built-in centrifugal drier of a dry linen capacity not exceeding 10kg H.S. Code: 84501200




1996-1997 0 93 0.0000 1997-1998 0 0 0.0000 1998-1999 0 0 0.0000 1999-2000 0 78 0.0000 2000-2001 0 680 0.0000 2001-2002 28 0 0.0000 2002-2003 0 20 0.0000 2003-2004 24 49 0.4898 2004-2005 7 126 0.0556 2005-2006 0 324 0.0000 2006-2007 0 2346 0.0000 2007-2008 0 3780 0.0000


The country wise exports of fully automatic machines of dry linen capacity <=10 kg has been shown in Table 5.22 for the period 1996-97 to 2007-08 to the countries like China, Korea, Malaysia and Thailand .The highest exports were reported to Thailand during 2004-05. The total exports to the four countries were seen highest during 2004-05. Table 5.22: Country wise Export of fully automatic machines of dry linen capacity <=10 kg H.S. Code: 84501100 (Rs. Lakhs)

Year China Korea Malaysia Thailand Total 1996-1997 0 0 0 0 0 1997-1998 0 0 0 0 0 1998-1999 9 0 0 0 9 1999-2000 0 0 0 0 0 2000-2001 0 0 0 27 27 2001-2002 0 0 0 67 67 2002-2003 0 1 0 76 77 2003-2004 0 0 0 98 98 2004-2005 0 1 0 177 178 2005-2006 0 1 7 0 8 2006-2007 0 0 0 0 0 2007-2008 4 15 0 0 19




Similarly the country wise imports of fully automatic machines of dry linen capacity <=10 kg

has been shown in Table 5.23 for the period 1996-97 to 2007-08 from the countries like China,

Korea, Malaysia, Thailand and similarly it has also been sum total.

The highest imports were reported from China in the year 2007-08 and also imports from China

were highest in the year 2005-06 and 2006-07 as compared to other countries. The total imports

from the four countries were seen highest for the year 2007-08 and it has been increasing since

2004-05.

Table 5.23: Country wise Import of fully automatic machines of dry linen capacity <=10 kg



1996-1997 0 212 0 0 212

1997-1998 168 791 0 0 959

1998-1999 591 1098 0 0 1689

1999-2000 701 1826 0 0 2527

2000-2001 1097 1829 0 0 2926

2001-2002 900 1033 0 0 1933

2002-2003 126 574 0 156 856

2003-2004 280 312 2 525 1119

2004-2005 1639 537 3 221 2400

2005-2006 2788 184 3 71 3046

2006-2007 4063 105 0 412 4580

2007-2008 4853 218 0 478 5549 Source: delhi.dgft.nic.in In Table 5.24 trade ratio (export/import) of fully automatic machines of dry linen capacity <=10

kg has been calculated from total exports to the four countries and total imports from these

countries for the year 1996-97 to 2007-08. The highest trade ratio calculated was 0.0900 and was

seen in the year 2002-03.



Table 5.24:Trade Ratio (Export/ Import) of fully automatic machines of dry linen capacity <=10 kg

H.S. Code: 84501100




1996-1997 0 212 0.0000 1997-1998 0 959 0.0000 1998-1999 9 1689 0.0053 1999-2000 0 2527 0.0000 2000-2001 27 2926 0.0092 2001-2002 67 1933 0.0347 2002-2003 77 856 0.0900 2003-2004 98 1119 0.0876 2004-2005 178 2400 0.0742 2005-2006 8 3046 0.0026 2006-2007 0 4580 0.0000 2007-2008 19 5549 0.0034

*China, Korea, Thailand and Malaysia 5.8. Vacuum Cleaners The country wise exports of vacuum cleaners has been shown in Table 5.25 for the year 1996-97

to 2007-08 to the countries like China, Korea, Malaysia, Thailand and it has also been sum total.

The highest exports were reported to Thailand in the year 2007-08. The total exports to the four

countries were seen highest in the year 2007-08. There were no exports reported to Korea during

most of the years.



Table 5.25: Country wise Export of Vacuum Cleaners



1996-1997 0 0 0 54 54

1997-1998 23 0 0 0 23

1998-1999 0 0 0 0 0

1999-2000 0 0 0 0 0

2000-2001 0 6 0 0 6

2001-2002 0 0 0 0 0

2002-2003 0 0 0 4 4

2003-2004 23 0 2 1 26

2004-2005 1 0 6 1 8

2005-2006 15 0 12 1 28

2006-2007 0 0 4 0 4

2007-2008 1 0 2 116 119 Source: delhi.dgft.nic.in Similarly the country wise imports of vacuum cleaners has been shown in Table 5.26 for the

period 1996-97 to 2007-08 for the countries like China, Korea, Malaysia, Thailand.

The highest imports were reported from China in the year 2007-08 and also imports from China

were highest in the year 2005-06 and 2006-07 as compared to other countries. The total imports

from the four countries were seen highest for the year 2007-08 and it has been increasing since

2004-05. There were no imports from Thailand during all the years since 1996-97.



Table 5.26: Country wise Import of Vacuum Cleaners

H.S. Code: 85091000 (Rs. Lakhs) Year China Korea Malaysia Thailand Total

1996-1997 0 0 0 0 0

1997-1998 0 0 0 0 0

1998-1999 2 0 0 0 2

1999-2000 6 0 0 0 6

2000-2001 47 46 1 0 94

2001-2002 50 98 2 0 150

2002-2003 115 107 3 0 225

2003-2004 332 31 5 0 368

2004-2005 634 76 2 0 712

2005-2006 792 5 7 0 804

2006-2007 926 59 10 0 995

2007-2008 1268 90 75 0 1433 Source: delhi.dgft.nic.in In Table 5.27 trade ratio (export/import) of vacuum cleaners has been calculated from total

exports to the four countries and total imports from these countries for the year 1996-97 to 2007-

08. The highest trade ratio calculated was 0.0830 and was seen in the year 2007-08. Table 5.27: Trade Ratio (Export/ Import) of Vacuum Cleaners

H.S. Code: 85091000




1996-1997 54 0 0.0000 1997-1998 23 0 0.0000 1998-1999 0 2 0.0000 1999-2000 0 6 0.0000 2000-2001 6 94 0.0638 2001-2002 0 150 0.0000 2002-2003 4 225 0.0178 2003-2004 26 368 0.0707 2004-2005 8 712 0.0112 2005-2006 28 804 0.0348 2006-2007 4 995 0.0040 2007-2008 119 1433 0.0830




5.9. Microwave Ovens

The country wise exports of microwave ovens has been shown in Table 5.28 for the year 1996-

97 to 2007-08 to the countries like China, Korea, Malaysia, Thailand and it has also been sum

total.

As we can see from the table there are almost nil exports of microwave ovens to the four

countries. The total exports to the four countries were seen highest in the year 2001-02 and 2002-

03. There were no exports reported to China and Thailand during all the years.

Table 5.28: Country wise Export of Microwave Ovens H.S. Code: 85165000 (Rs. Lakhs)


1996-1997 0 0 0 0 0

1997-1998 0 0 0 0 0

1998-1999 0 0 0 0 0

1999-2000 0 0 0 0 0

2000-2001 0 0 0 0 0

2001-2002 0 1 1 0 2

2002-2003 0 1 1 0 2

2003-2004 0 0 1 0 1

2004-2005 0 0 0 0 0

2005-2006 0 0 0 0 0

2006-2007 0 0 0 0 0

2007-2008 0 0 0 0 0 Source: delhi.dgft.nic.in Similarly the country wise imports of microwave ovens has been shown in Table 5.29 for the

period 1996-97 to 2007-08 for the countries like China, Korea, Malaysia, Thailand.

As we can see from the table there was much more imports of microwave ovens than their

exports. The highest imports were reported from China in the year 2007-08 and also imports

from China were highest from 2002-03 to 2006-07 as compared to other countries. The total

imports from the four countries were seen highest for the year 2007-08 and it has been increasing

since 2004-05. There were no imports from Thailand during all the years since 2002-03.



Table 5.29: Country wise Import of Microwave Ovens H.S. Code: 85165000 (Rs. Lakhs)


1996-1997 0 0 0 0 0 1997-1998 0 269 0 0 269 1998-1999 1 337 0 0 338 1999-2000 207 1152 0 89 1448 2000-2001 767 1524 0 265 2556 2001-2002 552 836 63 171 1622 2002-2003 1893 124 156 70 2243 2003-2004 2736 172 0 222 3130 2004-2005 3815 73 342 1806 6036 2005-2006 6619 12 770 3349 10750 2006-2007 8054 21 734 3556 12365 2007-2008 9929 44 969 3468 14410

Source: delhi.dgft.nic.in In Table 5.30 trade ratio (export/import) of microwave ovens has been calculated from total exports to the four countries and total imports from these countries for the year 1996-97 to 2007-08. The highest trade ratio calculated was 0.0012 and was seen in the year 2001-02. The trade ratio for most of the years is coming out to be zero as the total exports for these years are reported to be nil. Table 5.30: Trade Ratio (Export/ Import) of Microwave Ovens

H.S. Code: 85165000 Year Total Export to

four countries* Total Import from

four countries* Total Trade Ratio:

Export / Import

1996-1997 0 0 0.0000 1997-1998 0 269 0.0000 1998-1999 0 338 0.0000 1999-2000 0 1448 0.0000 2000-2001 0 2556 0.0000 2001-2002 2 1622 0.0012 2002-2003 2 2243 0.0009 2003-2004 1 3130 0.0003 2004-2005 0 6036 0.0000 2005-2006 0 10750 0.0000 2006-2007 0 12365 0.0000 2007-2008 0 14410 0.0000




5.10. Conclusions

From the competitive analysis, it may be noted that the light electrical (large home appliance)

manufacturing industry needs a special package in the form of technological advancement, R&D

support and financial guidance from the government to make the industry more productive and

competitive.

The competitiveness in the Indian light electrical industry needs to be placed within the context

of the restructuring taking place in the global light electrical industry. This restructuring is

brought about primarily by changes in demand and technology, which require different

configuration of capabilities, and which result in organizational changes. In the past decade, a

similar change is taking place in technology as well as market demand, which is changing the

contours of the global light electrical industry. The customer tastes and preferences are changing;

and finally, growth in emerging markets, coupled with technological changes with respect to

material used and cost efficiency, are making it feasible to manufacturers in countries like China. These changes are resulting in standardization of product platforms by global manufacturers,

who are aggressively focusing on the emerging markets, while giving rise to a “niche market”

which gives opportunity for domestic manufacturers to gain market share. This is a systemic

change, which is leading to a change in industrial structure, even though it may appear to be

more concentrated with few manufacturers. Systemic change requires simultaneous coordinated

adjustments in many different spheres of activity, which is easier under unified ownership. This

is because the dynamic transaction costs of informing and persuading many independent agents

is high. However, given the idiosyncratic nature of tastes and preferences, capabilities with

respect to knowledge of local market are dispersed, and coordinating these capabilities under

unified ownership will be costly. Under such circumstances, indigenous firms in emerging

markets have a role to play, which will depend on how fast they are able to develop and match

the capabilities that are necessary to enter the global value chain.



CHAPTER 6

FIELD SURVEY FINDINGS: REFRIGERATOR, AIR-CONDITIONER, WASHING MACHINE,

VACUUM CLEANER AND MICROWAVE OVEN

6.1 Profile of Large Home Appliance Manufacturing Units

National Productivity Council has carried out a nationwide survey across various Light Electrical Manufacturing units (Large Home Appliances like Air Conditioners, Refrigerators, Washing Machine, Vacuum Cleaners and Microwave Oven) to identify major constraints that are hindering the growth of manufacturing units in India in terms of productivity and export competitiveness. The field survey has been carried out across various states in India with a view to provide sector specific policy recommendations for enhancing productivity and export competitiveness of the large home appliances sector in the country. The survey of the manufacturing units has been carried out with a structured questionnaire (Annexure 1). List of units included in the field survey are given in Annexure 5. The field survey tries to capture firm level information such as turnover, employment, domestic and foreign trade, product description, cost related information, factors affecting productivity, factors responsible for competitiveness and specific suggestions from each of the units. The field survey covers total 70 manufacturing units spread across various states in India. State wise distribution of the responding manufacturing units are given in Table 6.1. Table 6.1: Distribution of Manufacturing Units: NPC Field Survey

S.No. States No. of Units Percentage 1 Andhra Pradesh 7 10.00 2 Delhi/NCR 24 34.29 3 Haryana 2 2.86 4 Karnataka 10 14.29 5 Maharashtra 12 17.14 6 Tamil Nadu 8 11.43 7 Uttar Pradesh 2 2.86 8 West Bengal 5 7.14 Total 70 100

Source: NPC Field Survey, July-September 2009



6.2. Product Category wise distribution of the manufacturing units Table 6.2 provides the distribution of manufacturing units according to five product categories. Table 6.2: Distribution of Manufacturing Units - Product category wise

In the following section we analyze the findings of the field survey in terms of five large home

appliance categories.

6.3. REFRIGERATOR

6.3.1. General Profile of Respondents This section analyzes the finding of the field survey conducted at different manufacturing

locations in India. The field survey includes 16 major manufacturers of refrigerators in India.

The survey was conducted by NPC field survey team during July-August 2009. Six states have

been covered in the field survey and a total 16 manufacturing units have been considered (Table

6.3) for detailed interview using structured questionnaire (Annexure 1). The manufacturing units

have been established in the range of 1969 to 2004 period. Among the manufacturing units 56%

Sl. No Product No. of Units1 Refrigerator 16 2 Air Conditioner 19 3 Washing Machine 11 4 Vacuum Cleaner 14 5 Microwave Oven 10

Total 70



of them belong to proprietorship firms while 25% of them are partnership firms and the

remaining 19% of them are private limited companies.

Table 6.3: Refrigerator units surveyed: Statewise

States No. of Units Percent Andhra Pradesh 3 18.8 Delhi 6 37.5 Haryana 1 6.3 Karnataka 2 12.5 Maharashtra 2 12.5 Tamil Nadu 2 12.5 Total 16 100

There is hardly any merger and acquisitions reported among the surveyed units. More than 77%

of the units are having quality accreditations of which 80% of them are having ISO 9000.

6.3.2. Employment Trend In regard to the pattern of employment it is reported that 87.5% of the units reported that this

trend is on the increase. A significant proportion of the employees are skilled. All the

manufacturing units reported increase in wages and salaries.

6.3.3. Domestic Market Trend

More than 76% units have reported that their market share is in the range of 0-10% only (Table

6.4). About 75% of the manufacturing units have reported that proportion of domestic sales to

total sales is over 51% (Table 6.5).



Table 6.4: Market share of Refrigerator

Response Percent 0-10% 76.9

11-25% 7.7

51% & above 15.4

Table 6.5: Proportion of Domestic Sales to Total Sales

Response Percent

0-10% 6.3

11-25% 12.5

26-50% 6.3

51% & above 75.0

Most of the manufacturing units (81%) reported an increase in domestic demand of the product.

For 46% of the units, the domestic demand increase was in the range of 11-25%.

In the case of local competition it reported to be medium by 75% units (Table 6.6). Only 25%

units reported that it is intense. As regards to foreign competition, 40% units reported that it is

intense.



Table 6.6: Local and Foreign Competition

Response Local (%) Foreign (%)

Low - 20.0

Intense 25.0 40.0

Medium 75.0 40.0

Among units surveyed, only 15.4% units reported that they are exporting to other countries.

However, 44.4% units reported that they are importing from other countries (Table 6.7). In the

case of import, about 50% units reported that the import is in the form of completely knocked

down (CKD) form for more than 51% imports (Table 6.8).

Table: 6.7: Refrigerator Units: Import

Response Percent

Yes 44.4

No 55.6

Table: 6.8: Complete Knock Down (CKD)

Response Percent0-10% 30.0

11-25% 20.0 51% & above 50.0

However, semi-knocked down form was reported in the range of 0-10% by more than 80%

manufacturing units. Low cost of production in India is considered to be a favorable environment in the age of

competitiveness. As 42% of manufacturing units supported the claim, 50% of units say that some

or the other government policies are helping the Indian industry to grow (Table 6.9).



Table: 6.9: Government Policies & Growth of Industry

Response Percent Yes 50.0 No 50.0

According to 67% units registered, the Government interface in business is satisfactory (Table

6.10). Moreover, 58% units believed that Government is friendly towards the investors (Table

6.11).

Table: 6.10: Government Interface with business/private sector

Response Percent

Average 66.7

Poor 33.3

Table: 6.11: Government friendly towards investor

Response Percent

Yes 57.1 No 42.9

As regards to get clearances to start manufacturing in India, it was reported by 67%

manufacturing units that it takes 3-5 months while 20% of them reported that it takes 10-12

months (Table 6.12)

Table: 6.12: Clearance to start manufacturing unit in India

Response Percent

3-5 months 66.7

6-9 months 6.7

10-12 months 20.0

more than one year 6.7



6.3.4. Productivity and Competitiveness According to 94% units infrastructure needs fast improvement as at present poor infrastructure a

major constraint affecting the overall business efficiency and competitiveness. About 70% units

felt that the infrastructure in competing countries are good and has been helping the industries to

grow at faster pace (Table 6.13).

Table: 6.13: Availability and quality of basic Infrastructure in India and Competing countries

Response India (%) Competing Countries (%)

Poor 33.3 7.7

Reasonable 60.0 15.4

Good 6.7 69.2

Excellent - 7.7

India manufacturers lack competitiveness due to the multiplicity of taxes. The tax regime in

India is very high as compared to competing countries. About 69% of the units reported that the

tax rates in India are high and procedures are complex. On the other hand, 59% units reported

that taxes in competing countries are low and procedures related to taxes are uniform and simple

(Table 6.14).

Table: 6.14: Taxes and other controls in India and Competing Countries:

Response India Competing Countries

Low - 58.3 Moderate 25.0 41.7

High 68.8 - Very High 6.3 -

About 54% manufacturing units believed that the cost of production is low in competing

countries as compared to India because of the availability of raw material in good quality with

reasonable price, and good infrastructure supported by government policies (Table 6.15).



Table: 6.15: Cost of Production In Competing Countries Responses of Refrigerator Units

Response Percent

Low 53.8 Moderate 38.5

High 7.7

Global financial crisis, according to 54% units, has not made adverse effect on their business.

Exports and domestic demand for the product was not seriously affected by the global economic

crisis (Table 6.16).

Table: 6.16: Any affect of Global Financial Crisis on company


6.4. AIR CONDITIONERS

6.4.1. General Profile of Respondents This section analyzes the finding of the field survey conducted at different manufacturing

locations in India. The field survey includes 19 major manufacturers of refrigerators in India.

The survey was conducted by NPC field survey team during July-August 2009. Six states have

been covered in the field survey and a total 19 manufacturing units have been included (Table

6.17) for detailed interview using structured questionnaire (Annexure 1). The manufacturing

unites have been established in the range of 1957 to 2003 period. Among the manufacturing units

42% of them belong to proprietorship while 16% of them are partnership and the remaining 32%

of them are private limited companies.



Table 6.17: Air-Conditioners units surveyed: Statewise

States Frequency Percent Andhra Pradesh 1 5.3 Delhi 6 31.6 Haryana 1 5.3 Karnataka 3 15.8 Maharashtra 4 21.1 Tamil Nadu 1 5.3 West Bengal 3 15.8 Total 19 100.0



6.4.2. Employment Trend It is reported a significant proportion of the employees is skilled. However, 63.2% of the units

have made appointments on contractual basis. All the manufacturing units reported increase in

wages and salaries.


More than 72.2% units have reported that their market share is in the range of 0-10% only.

Domestic sales to total sales have been reported more than 51% by 74% of the manufacturing

units (Table 6.18 and Table 6.19).



Table 6.18: Market Share of Air Conditioners

Response Percent

0-10% 72.2 11-25% 22.2

51% & above 5.6


Response Percent 11-25% 15.8 26-50% 10.5

51% & above 73.7



In the case of local competition it reported to be medium by 61% units. Only 22% units reported

that it is intense. As regards to foreign competition, 59% units reported that it is intense (Table

6.20).


Response Local Foreign

Intense 22.2 58.8

Medium 61.1 29.4

Low 16.7 11.8



Among units surveyed, only 31% units reported that they are exporting to other countries.

However, 31% units reported that they are importing from other countries (Table 6.21). In the

case of Import, about 43% units reported that the import is in the form of completely knocked

down (CKD) firm for more than 51% imports (Table 6.22).

Table: 6.21: Import: Responses of Air Conditioner Units

Response Percent

Yes 30.8

No 69.2


Response Percent

0-10% 42.9

11-25% 14.3

51% & above 42.9

However, semi-knocked down firm was reported in the range of 0-10% by more than 85%

manufacturing units.

Low cost of production in India is considered to be a favorable environment in the age of

competitiveness. More than 50% of manufacturing units supported the claim. More than 56% of

units say that some or the other government policies are helping the Indian industry to grow

(Table 6.23).

Table: 6.23: Government Policies & growth of Industry


According to 72% registered units, the Government interface with the business is satisfactory

(Table 6.24). Moreover, 60% units believed that Government is friendly towards the investors

(Table 6.25). But investors complain that to start a unit in India normally it takes around 3-



5months (41% surveyed) in India as compared to 1-2 months in competing countries (Table

6.26).


Response Percent

Excellent 5.6

Average 72.2 Poor 22.2


Response Percent

Yes 60 No 40


Response Percent

3-5 months 41.2

6-9 months 11.8

10-12 months 29.4


6.4.4. Productivity and Competitiveness

Infrastructure in India is considered to be in terrible conditions. 78% units considered that the

Infrastructure have to be improved as faster rate as this is one of the major cause which is

affecting the overall business and Indian industry. About 80% units felt that the infrastructure in

competing countries is excellent and has been helping the industries to grow at smoother and

faster pace (Table 6.27).



Table: 6.27: Avalability and quality of basic Infrastructure in India and Competing Countries

Response India Competing

Countries Poor 11.1 6.7


Good 11.1 60.0

Excellent 11.1 20.0

India manufacturers lack competitiveness due to the multiplicity of taxes and are considered to

be complicated. The tax regime in India is very high as compared to competing countries. The

thought can be drawn from the fact that 63% of the units believed that the tax rates to be high

and complex as compared to 81% units considered that taxes in competing countries are low and

procedures related to taxes are uniform and simple (Table 6.28).

Table: 6.28: Taxes and other controls in India and Competing Countries


Countries Low - 81.3

Moderate 36.8 12.5 High 42.1 6.3

Very High 21.1 -

75% manufacturing units considered that the cost of production is low in competing countries as

compared to India because of the availability of quality raw material availability with reasonable

price and good infrastructure supported by government policies (Table 6.29).

Table: 6.29: Cost of Production In Competing Countries

Response Percent


High 12.5



Global financial crisis according to 22.2% units didn’t put much effect on their business. Exports

and fall in domestic demand for the product is hardly affected by the global economic crisis

(Table 6.30).

Table: 6.30: Effect of Global Financial Crisis on company


6.5. WASHING MACHINES

6.5.1. General Profile of the Respondents

This section analyzes the finding of the field survey conducted at different manufacturing

locations in India. The field survey includes 11 major manufacturers of washing machines in

India. The survey was conducted by NPC field survey team during July-August 2009. Six states

have been covered in the field survey and a total 11 manufacturing units have been considered

(Table 6.31) for detailed interview using structured questionnaire (Annexure 1). The

manufacturing unites have been established in the range of 1975 to 2006 period. Among the

manufacturing units 46% of them belong to proprietorship while 9% of them are partnership and

the remaining 36% of them are private limited companies.

Table 6.31: Washing Machines units surveyed: Statewise

States Frequency Percent

Andhra Pradesh 2 18.2 Delhi 3 27.3

Karnataka 2 18.2 Maharashtra 2 18.2 Tamil Nadu 1 9.1 West Bengal 1 9.1

Total 11 100.0





6.5.2. Employment Trend It is reported that 81.8% units have employed people on contractual basis. It is learnt that this

trend is on the increase. A significant proportion of the employees are skilled. All the

manufacturing units have reported an increase in wages and salaries.


More than 63.6% units have reported that their market share is in the range of 0-10% only.

Domestic sales to total sales have been reported more than 51% by 54.5% of the manufacturing

units (Table 6.32 and Table 6.33).

Table 6.32: Market share of Washing Machines

Response Percent

0-10% 63.6 11-25% 18.2

51% & above 18.2




Response Percent 11-25% 9.1 26-50% 36.4

51% & above 54.5 Most of the manufacturing units (63.6%) reported an increase in domestic demand of the

product. For 50% of the units, the domestic demand increase was in the range of 0-10%.

In the case of local competition it reported to be medium by 36.4% units. More than 64% units

reported that it is intense. As regards to foreign competition, 50% units reported that it is intense

(Table 6.34).



Intense 63.6 50

Medium 36.4 40

No Competition - 10

Among units surveyed, only 33.3% units reported that they are exporting to other countries.

However, 22.2% units reported that they are importing from other countries (Table 6.35). In the





Table: 6.35: Import: Responses of Washing Machine Units

Response Percent

Yes 22.2

No 77.8


Response Percent

0-10% 25

51% & above 75





units say that some or the other government policies are helping the Indian industry to grow

(Table 6.37).

Table: 6.37: Government Policies & Growth of Industry

Response Percent Yes 60 No 40

According to 77.8 % registered units, the Government interface with the business is satisfactory




6.40).




Response Percent



Response Percent

Yes 60 No 40


Response Percent

1-2 months 9.1

3-5 months 45.5

6-9 months 9.1

10-12 months 18.2



Infrastructure in India is considered to be in terrible conditions. 88% units considered that the




faster pace (Table 6.41)

Table: 6.41: Avalability and quality of basic Infrastructure in India and Competing Countries:




Good 11.1 44.4










Low - 25.0 Moderate 27.3 50.0

High 54.5 25.0 Very High 18.2 -

66% manufacturing units considered that the cost of production is low in competing countries as

compared to India because of the availability of quality raw material availability with reasonable

price and good infrastructure supported by government policies (Table 6.43).


Response Percent


High 33.3

Global financial crisis according to 45.5% units didn’t effect on their business. Exports and fall

in domestic demand for the product is hardly affected by the global economic crisis (Table

6.44).





6.6. VACUUM CLEANERS



locations in India. The field survey includes 14 major manufacturers of Vacuum Cleaners in


have been covered in the field survey and a total 14 manufacturing units have been considered


manufacturing unites have been established in the range of 1981 to 2007 period. Among the

manufacturing units 14% of them belong to proprietorship, 7 % of them belong to public limited

while 14% of them are partnership and the remaining 64% of them are private limited

companies.

Table 6.45: Vacuum Cleaners units surveyed: Statewise

States Frequency Percent Delhi 3 21.4

Karnataka 2 14.3 Maharashtra 3 21.4 Tamil Nadu 5 35.7 West Bengal 1 7.1

Total 14 100.0

There is hardly any merger and acquisitions reported among the surveyed units. Around 43% of

the units are having quality accreditations of which 63% of them are having ISO 9000.



6.6.2. Employment Trend

The pattern of employment shows that 87.5% of the units employed people on contractual basis.

However, a significant proportion of the employees are skilled. It may be noted that the there is a

considerable increase in wages and salaries.


More than 35.7% units have reported that their market share is in the range of 0-10% only

(Table 6.46). Domestic sales to total sales have been reported more than 51% by 50% of the

manufacturing units (Table 6.47).

Table 6.46: Market share of Vacuum Cleaner

Response Percent

0-10% 35.7 11-25% 28.6 26-50% 21.4

51% & above 14.3


Response Percent 0-10% 14.3 11-25% 28.6 26-50% 7.1

51% & above 50





In the case of local competition it reported to be medium by 50% units. Only 28.6% units

reported that it is intense. As regards to foreign competition, 36% units reported that it is intense

(Table 6.48).



Intense 28.6 35.8

Medium 50.0 50.0

Low 21.4 7.1

No Competition - 7.1





Table: 6.49: Import: Responses of Vacuum Cleaner

Response Percent

Yes 75.0

No 25.0


Response Percent

0-10% 30.8

11-25% 30.8

51% & above 38.5

However, semi-knocked down firm was reported in the range of 0-10% by more than 54.5%






units say that some or the other government policies are helping the Indian industry to grow.

Table: 6.51: Government Policies & growth of Industry


According to 76.9% registered units, the Government interface with the business is satisfactory

(Table 6.52). Moreover, 76.9% units believed that Government is friendly towards the investors



6.54).


Response Percent


Table: 6.53: Government friendly towards Investor

Response Percent

Yes 76.9 No 23.1


Response Percent

1-2 months 27.3

3-5 months 45.5

6-9 months 18.2

10-12 months 9.1



6.6.4. Productivity and Competitiveness Infrastructure in India is considered to be in terrible conditions. 85% units considered that the




faster pace (Table 6.55).

Table: 6.55: Avalability and quality of basic Infrastructure in India and Competing Countries

Response Percent Competing

Countries Reasonable 84.6 16.7

Good 15.4 50.0

Excellent - 33.3

India manufacturers lack competitiveness due to the multiplicity of taxes and are complicated tax

regime. On the other hand, 57% of the units covered under the survey reported that the tax rates

in India is quite high while tax rates in competing countries are low and procedures related to

taxes are uniform and simple (Table 6.56).



Low - 46.2 Moderate 42.9 35.8

High 42.9 - Very High 14.3 -

About 75% manufacturing units believed that the cost of production is low in competing

countries as compared to India because of the availability of quality raw material with reasonable

price along with good infrastructure supported by government policies (Table 6.57).




Response Percent


High 25.0

According to 42 % units, global financial crisis has not made much effect on their business. They

have reported that exports and fall in domestic demand for the product are hardly affected by the

global economic crisis (Table 6.58).



6.7. MICROWAVE OVEN



locations in India. The field survey includes 10 major manufacturers of microwave ovens in


have been covered in the field survey and a total 10 manufacturing units have been covered


manufacturing units were established during 1938 - 2007. Among the manufacturing units 10%

of them are proprietorship firms while 20% of them are public limited companies and the

remaining 70% of them are private limited companies.

Table 6.59: Units under Field Survey: State wise Distribution

States Frequency Percent Andhra Pradesh 1 10

Delhi 6 60 Karnataka 1 10

Maharashtra 1 10 West Bengal 1 10

Total 10 100.0





6.7.2. Employment Trend

The results of the survey show that there is an increasing trend among the manufacturing units to

appoint employees on a contract basis. About 80% of the units reported that appointments are

made on contractual basis. While significant proportions of the employees are skilled, an

increase in wages and salaries are reported by the respondents.


More than 33.3% units have reported that their market share is in the range of 0-10% only

(Table 6.60). Over 51 % manufacturing units have reported that the proportion of domestic sales

to total sales has been reported is about 50% (Table 6.61).

Table 6.60: Market share of Microwave Oven

Response Percent

0-10% 33.3 11-25% 33.3 26-50% 33.3



Table 6.61: Proportion of Domestic Sales to Total Sales: Microwave Oven

Response Percent 0-10% 20.0 11-25% 20.0 26-50% 10.0

51% & above 50.0 Most of the manufacturing units (80%) reported an increase in domestic demand of the product.


In the case of local competition it reported to be medium by 40% units. Only 30% units reported

that it is intense. As regards to foreign competition, 50% units reported that it is intense (Table

6.62).



Intense 30 50.0

Medium 40 20.0

Low 20 20.0

No Competition 10 10.0







Table: 6.63: Import: Responses of Microwave Oven Units

Response Percent

Yes 50.0

No 50.0


Response Percent

0-10% 33.3

11-25% 16.7

51% & above 50.0





units say that some or the other government policies are not enough for growth of Indian industry

(Table 6.65).

Table: 6.65: Government Policies and Growth of Industry

Response Percent

Yes 11.1 No 88.9

According to 72% registered units, the Government interface with the business is satisfactory




6.68).




Response Percent



Response Percent

Yes 28.6 No 71.4


Response Percent

1-2 months 25.0

3-5 months 50.0

6-9 months 12.5



About 66% units reported that the infrastructure is a major constraint and it has to be improved

in order to improve the competitiveness of industry. On the other hand, 80% units felt that the

infrastructure in competing countries is excellent and has been helping the industries to grow at

smoother and faster pace (Table 6.69).

Table: 6.69: Avalability and quality of basic Infrastructure in India and Competing Countries:




Good 33.3 25.0

Excellent - 12.5









Response Percent Competing

Countries Low - 81.3

Moderate 36.8 12.5 High 42.1 6.3

Very High 21.1 -

About 75% manufacturing units reported that the cost of production is low in competing

countries as compared to India because of the good infrastructure supported by government

policies, availability of quality raw material with reasonable price (Table 6.71).


Response Percent


Global financial crisis, according to 50% units, had made an adverse effect on their business.

However, another 50 percent reported that export as well as the domestic demand for the product

is hardly affected by the global economic crisis (Table 6.72).

Table: 6.72: Effect of Global Financial Crisis on company: Responses of Microwave Oven

Units




6.8. Conclusion

Refrigerator and Air Conditioners The domestic market is dominated by the presence of key international players, a few of whom

are setting up manufacturing facilities for greater cost-effectiveness. These external factors have

fuelled intense competition, generating pressure on margins. The combination of greater

competition and sharp increase in input costs is therefore putting pressure on margins in the

refrigeration and air conditioner industry, thereby offsetting the positive effect of strong growth.

There has been an unprecedented spurt in global prices of metals. The labour market is also

causing an annual increase in salaries, thereby increasing the cost pressure. Manufacturing costs

are going up substantially. There is non-availability of skilled manpower because of which R&D

is not taking place. Poor government spending on rural and small town electrification program

are major concerns.

Washing Machine

In view of the global slowdown, the consumer sentiments are getting muted as a result of which

it is expected that overall spending go down and so as demand for the products. Poor government

spending on rural and small town electrification program are major concerns. There is severe

volatility in the metals market, particularly for steel, copper and aluminum, with unpredictable

forward movements causing difficulty in factoring them for pricing purposes.

Vacuum Cleaner

The domestic market is dominated by the presence of key international players, a few of whom

are setting up manufacturing facilities for greater cost-effectiveness. These external factors have

fuelled intense competition, generating pressure on margins. Poor government spending on rural

and small town electrification program are major concerns. Present industry production level in

India is extremely small due to the high prices of finished products.

Microwave Oven

There is a need for a mechanism to ensure the standards of performance and safety. The

manufacturing technology is primarily based on modest investments on in-house equipment for

assembly & quality control. Present industry production level in India is extremely small due to

the high prices of finished products. There is little evidence of R&D activity at national level in



the field of microwave systems. The present R&D activity of indigenous manufacturers of

microwave ovens is aimed at development of components/parts locally. Poor government

spending on rural and small town electrification program are major concerns.



CHAPTER 7

SUMMARY OF DIAGNOSTIC CASE STUDIES 7.1. Introduction The diagnostic case studies have been conducted in order to find out the problems and issues

faced by the manufacturing units from the product categories such as Air Conditioners,

Refrigerators, Washing Machines, Microwave Ovens and Vacuum Cleaners. In this chapter we

summarize major areas of concern with respect to each of the manufacturing units selected from

five large home appliances categories (Report II: Diagnostic Case Studies). The case studies

have been developed based on a detailed checklist (Annexure 2).

Details regarding product categories and manufacturing units are given below.

Product Category Manufacturing Unit

Air Conditioner Manufacturing Unit 1 , Mumbai , Maharashtra Manufacturing Unit 2, Mumbai, Maharashtra

Refrigerators Manufacturing Unit 3 , NOIDA, Uttar Pradesh Manufacturing Unit 4, Aurangabad , Maharashtra

Washing Machines Manufacturing Unit 5,Gurgaon, Haryana Manufacturing Unit 6, NOIDA, Uttar Pradesh

Microwave Ovens Manufacturing Unit 7 , NOIDA, Uttar Pradesh Manufacturing Unit 8, Mumbai, Maharashtra

Vacuum Cleaners Manufacturing Unit 9 Mumbai, Maharashtra Manufacturing Unit 10: NOIDA, Uttar Pradesh

7.2. Manufacturing Unit 1: Mumbai, Maharashtra Product Category: Air Conditioner

• It was established in 1943. It is India’s largest air conditioning manufacturing company.

It is an end to end solution provider in the field of air conditioning and commercial

refrigeration as a manufacturer, contractor, after sales service provider. Company is

having a turnover of Rs 2270 crores with net profit of Rs.174 crores and market

capitalization of Rs 4275 crores with 2500 employees. It operates in three lines of



business i.e. cooling products, professional electronics, industrial system and medical

electronic, material testing and test and measuring instruments.

• The company operates in three lines of businesses Central Air-conditioning Systems,

where it design, engineer, manufacture, Install central air-conditioning plants, packaged

air conditioners and ducted, Split air conditioners, catering to IT&ITES, retail malls,

multiplexes, hospitals etc.

• Products, medical electronics, material testing and test and measuring instruments. The

Company has four manufacturing facilities located at different parts of the country. The

company has a total workforce of 2000 employees and has Network of 23 offices.

• Conservation of energy: Energy consumption in the Company’s manufacturing facilities

is not a major cost factor. Moreover, the Company is committed to maximize energy

savings. Further, the Company has an Energy Management team, comprising over 30

BEE certified energy auditors who carry out energy audits and conserve energy for the

Company’s customers.

• Research & Development: With unprecedented increase in the raw material costs, the

focus was on design optimization and adoption of alternate technologies and raw

materials. This approach helped in cost reduction and increased profitability. A

performance test lab was set up at the Himachal plant, for validating performance of star

rated products.

• Technology absorption, adaptation and innovation: Efforts continued in strengthening the

R&D facilities in order to reduce cost of production and provide a comprehensive range

of products to suit the market needs. This also enabled provision of energy efficient

equipment, widening the export opportunities, import substitution and adaptation of

imported technology to suit the Indian market.

• The units strength lies in its trained personnel, priority service, preventive checks,

genuine spares, extended life and seasonal settings. Their competitive advantage lies in

technical competitive, credential of over 6 decades with vast pool of talented engineers

and energy efficient and differentiated products.

• Short term liquidity has fallen which indicates that composition of cash is increasing over

the years in current assets and percentage increase in current liabilities has also increased.

Company has started retaining more and as a result dividend payout ratio is falling.



• The Company continues to satisfactorily address the various financial risks relating to

interest rates, exchange rates and credit risks as well as operating risks arising out of high

input costs, changes in technology, customer preferences, increasing size and complexity

of contracts and competitive pressures.

• While the strong fundamentals of the Company and its sound financial base have placed

it in a strong position to face, the overall uncertain economic scenario coupled with local

and global inflation and the high price of oil are causes for concern and consequently a

slowdown in the economy impact the growth of the Company to some extent in the

coming year.

• Environment, Health & Safety (EHS) has gained relevance as a new management

discipline in recent times. In order to improve its performance in the EHS domain, the

Company decided to provide a corporate focus by creating a new department called

'Environment, Health & Safety'. The EHS Department will be responsible for creating

standards and conducting workshops to sensitize all employees and business partners on

the EHS norms to be followed in the course of business.

7.3. Manufacturing Unit 2: Mumbai, Maharashtra Product Category: Air Conditioner

• This company was set up in 1954 in Bombay. In the 1960s, it started manufacturing air-

conditioning and refrigeration equipment. Gradually, it became a leading player in the

Indian AC market. By 2006, the company was second in the retail AC market and its

electromechanical division was the fastest growing and the highest revenue earning

division in the company.

• The business segments of the Company are: (A) Electro-mechanical Projects and

Services (B) Engineering Products and Services (C) Unitary Cooling Products for

Comfort and Commercial Use.

• Company has a turnover of Rs.30861 million (USD 722 million) with operating profit of

Rs 2778 million (USD 65 million) and net profit of Rs.2084 million (USD 49 million).

• Company’s strength lies in the design and manufacture of industrial equipment,

management and execution of air conditioning and public works projects sourcing,



installation and servicing of technology-based systems, representation of global

technology leaders and serving diverse industrial sectors and applications.

• Company’s came up with the big bang strategy to revitalize every facet of AC business

product channel, systems, service, cost and brand. The company used to offer dividend of

12% in 2000 which increased to 135% in 2008.

• The market has become highly competitive in the MEP domain, with a large number of

players of international stature competing in the domestic market. This could lead to

pressure on margins. To avert this outcome, the Company has re-modeled its

organizational structure, with a focus on contract management and strong design support

to meet the requirements of various applications.

• The Company’s decision to pursue MEP as a provider of integrated customized solutions

was timely. The Company’s domestic Electro-mechanical business ended the year with

an all-time high order book. The orders secured include 65% of the stadium projects for

the prestigious Commonwealth Games 2010, as well as Waterside Tech Park, Kolkata.

Also noteworthy has been the execution of the single largest Variable Refrigerant Flow

(VRF) installation in India, with a capacity of 3000 tons of refrigeration (TR), for TCS’

Kensington IT Park, at Powai.

• The Indian room air conditioner industry grew by 28%, reflecting the strong growth of

the economy and the changing perceptions of consumers, who increasingly see air

conditioners as a necessity rather than a luxury. Within the category, Split Air

Conditioners grew by 45% while Window Air Conditioners grew by 17%. The market for

air conditioners is expected to continue growing at over 20% in volume and the product

mix is likely to shift in favour of splits over window air conditioners.

• The Company’s domestic Electro-mechanical business has established nationwide

footprint of its energy-efficient and eco-friendly technologies and continues to promote

widespread acceptance of ‘Green’ products and services. Its network of System Solution

Providers has been drawn into this effort, which is consistent with the Company’s

dedication to the principles of sustainability in business and especially the ‘Green’

movement in India, spearheaded by the Indian Green Building Council, of which the

Company is a founder member.



• In preparation for an eventual economic upturn, the Company has rigorously pursued its

quality drive and became the first India-based recipient of the ISO 9001:2000

certification from TUV NORD, encompassing design, marketing, installation,

commissioning and servicing of electro-mechanical and refrigeration projects, inclusive

of manufacture of air conditioning and refrigeration products.

• A major challenge is the steep inflation rate. There has been an unprecedented spurt in

global prices of metals like copper and steel – major raw material constituents of air

conditioners and commercial refrigeration products. The tight labour market is also

causing an annual increase in salaries of about 15%, thereby increasing the cost pressure.

Manufacturing costs are therefore going up substantially.

• The domestic market is dominated by the presence of key international players, a few of

whom are setting up manufacturing facilities for greater cost-effectiveness. These

external factors have fuelled intense competition, generating pressure on margins. The

combination of greater competition and sharp increase in input costs is therefore putting

pressure on margins in the air conditioning and refrigeration industry, thereby offsetting

the positive effect of strong growth in sales volumes.

7.4. Manufacturing Unit 3: NOIDA, Uttar Pradesh Product Category: Refrigerator

• Established in 1997, the company is a wholly owned subsidiary. In India for a decade

now, it is the market leader in consumer durables and recognized as a leading technology

innovator in the information technology and mobile communications business.

• The company has established its first manufacturing plant in 1998 with an investment of

Rs. 5 billion. In its first year, it recorded a turnover of Rs. 1.25 billion, and by 1999, its

turnover increased to Rs. 10.56 billion. By 2001, the unit became India's fastest growing

electronics, home appliances and computer Peripherals Company. By the end of 2003, it

emerged as the market leader in consumer electronics and home appliances. Innovative

and customer friendly products, along with competitive pricing and vast distribution

network enabled it to become market leader in its business.



• To meet the growing demand for its products, the company started its second

manufacturing plant in 2004. By the end of 2004, the company had more than 50 million

customers and its turnover was more than Rs. 65 billion.

• Product localization - Product localization is a key strategy used. It came out with Hindi

and regional language menus on its TV.

• Regional distribution model - This has resulted in quicker rotation of stocks and better

penetration into the B, C and D class markets.

• Leveraging India’s IT advantage – The company has awarded a contract to develop IT

solutions. The project involves development and support for ERP,SCM, CRM and IT-

enabled services.

7.5. Manufacturing Unit 4: Aurangabad, Maharashtra Product Category: Refrigerator

• In 1985, through a technical tie-up with Toshiba Corporation of Japan, this company

launched India’s first world class Color Television. Today, the company is India’s

leading manufacturer of Consumer electronic products.

• The company is now a global player, the first Indian company to win the prestigious CE

approval for exporting its Color TV to Europe. The unit is now entering world market

with its operations in the Middle East, Europe, Indonesia and South Africa.

• Refrigerators are one of the most sought after appliances in Indian middle class homes.

The refrigerator market is estimated at around 5.3 million units in 2008 exhibiting a

growth of 8% over the previous year. Direct cool segment remains the dominant sector

with a total contribution of 75% to the sales. However, frost free segment is witnessing

the highest growth in the category and is expected to take over direct cool sales in coming

years. Frost free segment would contribute 37% of the total sales in coming years.

• The Company gives utmost importance to conservation of energy. The Company believes

that using energy more efficiently is a simple way to conserve it. As such, the Company

continues to take conscious efforts to minimize energy consumption. The Company has

been taking more and more efforts on innovation and improvement so as to further reduce

energy consumption.



• The Company has applied the concept of Resource Productivity at its manufacturing

facilities. The Company extracts the most value from its resources, making the best use of

renewable resources and minimizing waste produced. The Company aims at drive down

of costs by reducing waste and pollution and by creating opportunities for growth through

process and product innovations.

• Research and Development activities are the strength of the Company, with the help of

which the Company has continued its growth path in the Consumer Electronics & Home

Appliances business segment. A number of new technologies have been introduced in

Consumer Electronics & Home Appliances. As a result of Research and Development,

the Company is able to introduce innovative models of products with advanced

technology to fulfill the requirements of its customers.

• To sustain its competitiveness in the domestic and international markets, the Company

has broadened its scope of activity of process research. Considering the fast-growing &

changing TV market, R&D activity has been focusing on the image quality improvement

and the cost reduction to make product competitive.

• Health and Safety of employees and maintenance of healthy and safe working conditions

are on top of the agenda of the Company at its manufacturing facilities even though it is a

legal responsibility of any organization. The Company firmly believes that poor health

and poor safety leads to illness, accidents and significant costs for business. The

Company takes all the precautions to provide healthy atmosphere and safety working

conditions to the employees at all level.

• In view of the global slowdown, the consumer sentiments are getting muted as a result of

which it is expected that overall spending go down and so as demand for the Company’s

products.

• The regulatory environment continues to be uncertain and changes from time to time can

delay the projects.

• Poor government spending on rural and small town electrification program and Poor

distribution network are major concerns.



7.6. Manufacturing Unit 5: Gurgaon, Haryana Product Category: Washing Machine

• This company is a joint venture between a MNC and an Indian company and started its

operation in India in the late 1980s. In Washing Machines, the high rate of growth

witnessed continued, across all segments. The product portfolio was expanded with the

introduction of a front load fully automatic range in the highly salient <6 kg capacity. A

Fully Automatic Dryer was also introduced to complement the range and establish as a

complete Fabric Care brand in appliances.

• Benefits/ achievements derived as a result of the R&D: Lower running cost to the

consumer due to increased energy efficiency. Increased product performance, 6th sense

intelligent cooling. Better space management options for the consumer. Washing

frequency is reduced by providing bigger capacity.

• There is severe volatility in the metals market, particularly for steel, copper and

aluminum as well as PVC, with unpredictable forward movements causing difficulty in

factoring them for pricing purposes.

• The estimated growths in the Refrigerator and Washer category have been 13% and 14%

respectively. As in the previous year, the growths have been higher in Frost Free (20%)

and Fully Automatic (28%) segments of these two categories, and we expect this trend -

of a more buoyant growth in high-end formats - to continue.

• The Air Conditioner and Microwave markets have been growing at an estimated rate of

20% + and this growth is expected to be robust, even if the rate of growth drops as the

categories mature. Growth is being driven by Split AC format in Air Conditioners and by

Convection models in Microwave. The high-end cooking market comprising of Built-In

hobs, hoods, ovens and dishwashers, currently niche and sold through specialized

channels, will grow in line

7.7. Manufacturing Unit 6: NOIDA, Uttar Pradesh Product Category: Washing Machine

• During the financial year 2007-08, the turnover of the Company increased to Rs.1655.06

crore. The profit before tax stood at Rs. 40.55 crore as against Rs. 51.42 crore in the



previous financial year. The profit after tax for the financial year ended March 31, 2008

stood at Rs. 34.59 crore as against Rs. 34.12 crore in the previous financial year.

• The company recognizes that a vigorously intelligent research initiative works at two

ends: cost reduction through effective process improvement and value-addition through a

sustained ability to put innovative and customized products in line with customer needs.

A team of dedicated engineers is at work at the Research and Development Centres,

making products with the help of the latest technology, satisfying customer expectations.

• The Company is conscious about its responsibility to conserve energy, power and other

energy sources wherever possible. It lays great emphasis towards a safe and clean

environment and continues to adhere to all regulatory requirements and guidelines. This

is ensured through the adoption of the latest techniques of production which helps in

better productivity levels, timely maintenance and upgradation of machines and

equipments to ensure that energy consumption is at the minimal level possible, on-the-job

training to production team members to conserve energy.

• At the Research and Development Centre, new, innovative and quality products in the

field of consumer electronics are developed to provide better customer value for money.

Products are developed through customer research and customer centric innovation.

• The company has not imported any technology. However, the management believes that

information technology can be extensively used in all spheres of its activities to improve

productivity and efficiency levels. The company has already implemented SAP, a

customized ERP module, at all its branches and manufacturing facilities.

• With stiff competition, the consumer durables industry faces a persistent pressure on

margins due to its inability to pass on input cost rises to consumers. The interest rates

have moved up, which is a cause of concern. Hence the Company's future profitability

may come under pressure. However, the company is confident that interest rates will

come down on par with prevailing international rates.

7.8. Manufacturing Unit 7: NOIDA, Uttar Pradesh Product Category: Microwave Ovens

• This company, a subsidiary of the overseas unit has been operating in India since 1995.



• It is a leading provider of high tech consumer electronics, home appliance, IT and

telecom products in the country.

• The company has set up manufacturing facilities for color televisions, microwave ovens,

washing machines, air conditioners, color monitors and more recently, refrigerators in the

country. It has a plant in India. The revenue for 2005 was US$ 1086 million.

• The company used creativity to strengthen the foundation for global leadership. Fueled

by creativity, its ambition to become one of the world’s top companies has driven

continuous improvement in every area of their organization thanks to hard work and

success in attracting the best and brightest people, pursuing innovative R&D, and

building a strong, distinctive brand.

• It has launched its sustainability strategy in 1996. Over the years, the company has

implemented ISO 14001- and OHSAS 18001-certified integrated environment, safety,

and health (ESH) management systems.

• The company is actively involved in a number of initiatives to mitigate climate change.

Launched in 2002 as part of their efforts to voluntarily reduce greenhouse gas (GHG)

emissions, Catch CO2 project has enabled it to progressively lower the carbon footprint of

each manufacturing process.

7.9. Manufacturing Unit 8: Mumbai, Maharashtra Product Category: Microwave Ovens

• This manufacturing unit was started as a joint venture between an Indian company with a

multinational company.

• It went on to manufacture of washing machines and air conditioners. The multinational

exited from the joint venture in 2001. In 1993, the company entered into a manufacturing

and marketing alliance with another MNC. A new company, with each company holding

50%, was incorporated. The entire distribution network was transferred to this company

and the joint venture was entrusted with the task of marketing both the brands.

• The joint venture manufactures and/or markets various consumer durables and industrial

products. It offers appliances, including refrigerators, washing machines, air conditioners,

microwave ovens, and DVD players; office and home furniture, such as desking, seating,

open plan office systems, computer furniture, and storages, as well as living, dining, and



bedroom furniture; locks, including furniture locks, mechanical and electromechanical

door locks, door controls, and architectural and glass hardware; and security equipment

and solutions, such as safe deposit lockers, cash boxes and coffers, data/ATM safes,

burglary and fire resisting safes, video door phones, CCTV system, and access control

systems.

7.10. Manufacturing Unit 9: Mumbai, Maharashtra Product Category: Vacuum Cleaners

• The company acquired reputation for high quality products and excellent customer/dealer

relations.

• The company is a joint venture and it first launched the Vacuum cleaners in India in 1984

• Leaders in domestic and industrial Water Purification Systems, Vacuum Cleaners, Air

Purifiers & Security Solutions. The company is a pioneer in Direct selling - Asia's

Largest Direct Sales Organization

• Customer family now numbers over 6 million - enduring relationships as "Friends for

Life" and has operations in over 131 cities & 398 towns across India.

• The company name itself is a Business Super brand

o Ranked among India's Most Admired Consumer Durable Companies

o Best Employers (4 times in a row)

o Winner of 'Most Admired Knowledge Enterprise' MAKE- Asia Awards

o Winner of awards on Customer Responsiveness

7.11. Manufacturing Unit 10: NOIDA, Uttar Pradesh Product Category: Vacuum Cleaners

• The company is a leading Manufacturer of Cleaning machines.

• The line of activity, in which company is engaged, is having a very positive trend and the

requirements are growing in the fast growing economy and with the increase in

awareness towards cleaning in the modern India.

• The company is extensively working in the area of Manufacturing of cleaning machines

for own brand as well for other established brands. The company is focusing on

manufacturing and installation of specialized cleaning plants. The company is also



engaged in manufacture and trading in specialized Flame Proof and other specialized

lights and other Interior jobs for projects like Airports etc.

• From the sales figures for the last 5 years it is found that the company is more or less

stagnant in terms of performance.

• The company is of the view that government should interface with the business and

proactively engage in promoting domestic manufacturers as it is being done by

competing countries.

• The company is already affected by global financial crisis and reported marginal fall in

exports and domestic sales during the study period.



CHAPTER 8

SWOT ANALYSIS OF LIGHT ELECTRICAL INDUSTRY

8.1. Air Conditioner

Strengths

• Large customer base both rural and urban India. • Increased acceptability due to change in environmental conditions • Availability of all the major brands • Presence of established distribution networks in both urban and rural areas • Foreign joint venture

Weaknesses

• Weak Component base • Poor technological innovation base • High power consumption and requirement of continuous power supply • Seasonal demand of the product due to weather conditions • Import of split air-conditioners from competing countries.

Opportunities

• India's accelerated growth as an economic super-power • More Energy efficient technologies available • Changing dynamics due to increasing FDI inflows • Shift of public perception on the product from being a luxury item to necessity • Other government projects e.g. Metro rail

Threats

• Waste Disposal amongst the most critical • Availability of power • International policies on environment • Unavailability of skilled labour force • Import requirement of integral components • Rising cost of inputs • Expectation of highly energy efficient, low/zero noise, environment efficient product



8.2. Refrigerator Strengths

• Generation of Employment in the rural & urban areas • Energy saving, efficient refrigerators produced in the country • Existence of the product since long time

Weaknesses

• Need to Regularly update the technology • Difficult to adapt to the international market - little efficient breakthrough among

international competitors

Opportunities

• India's emergence as an economic super-power • Upliftment of middle class • Changing dynamics due to increasing FDI inflows • Easy availability of finance has stimulated consumers to buy durables. • Safeguard against use of Dangerous electrical appliances

Threats

• Seasonal demand • Availability of power • Fiscal Policy including taxes & duties • International policies on environment • Waste Disposal amongst the most critical

8.3. Washing Machine

Strengths

• Changing dynamics due to increasing FDI inflows • Generation of Employment

Weaknesses

• Weak Component base • Need to regularly update technology • Stagnation of research & development activities in the development process of the sector



Opportunities

• More Energy conservation technologies needs to be included • Easy availability of finance has stimulated consumers to buy durables. • Easier to enter global market

Threats

• Waste Disposal amongst the most critical • Availability of power • International policies on environment • High sensitivity to international market fluctuations

8.4. Vacuum Cleaner

Strengths

• Availability of cheap labor & Mindset • Vacuum cleaners are suitable for long-distance shipping, as the shipping cost per unit is

relatively low. • The growing demand for vacuum cleaners with high environmental performance has

created a new market niche. • The strongest growth has been for vacuum cleaners with innovative functions and higher

prices.

Weaknesses

• More Energy conservative technologies needs to be included • Increased awareness of health issues is generating demand for products that clean the air,

have low noise levels, and are ergonomically designed.

Opportunities

• India's accelerated growth as an economic super-power • New & Niche market • Changing dynamics due to increasing FDI inflows • Safeguard against use of Dangerous electrical appliances • Easy availability of finance has stimulated consumers to buy durables.



• Growing numbers of consumers also want more than one vacuum cleaner in the home: a cordless unit for limited daily cleaning, and a larger more powerful vacuum cleaner for cleaning the entire home.

Threats

• Pressure from the government • Waste Disposal amongst the most critical • Customers are looking for vacuum cleaners that are energy-efficient, are produced by

sustainable production systems, and are made of recyclable materials.

8.5. Microwave Oven

Strengths

• Changing dynamics due to increasing FDI inflows • Generation of Employment • Home microwave applications are expected to grow in the coming decade as a result of

the increasing consumer demand for convenient and safe food products of high nutritional value and organoleptic quality

Weaknesses

• Weak Component base • Need to regularly update the technology • Inadequate indigenous vendor base for quality components for manufacture of

microwave ovens. • Inability to allocate sufficient funds for in-house research & development

Opportunities

• More Energy conservative technologies needs to be included • Easy availability of finance has stimulated consumers to buy durables. • Inadequate user awareness of microwave cooking

Threats

• Waste Disposal amongst the most critical • Availability of power • International policies on environment • The focus of customers is shifting on energy efficient appliances. Providing such

appliances at competitive price is a challenge.



CHAPTER 9

FACTORS CONSTRAINING GROWTH OF LIGHT ELECTRICAL INDUSTRY

9.1. Electrical Energy Generation Review Electricity generation during the month of January 09 has been 61163 MU against the target of

66735 MU representing an achievement of 91.7% of the target (Table 9.1). The energy

generation growth has been 1.38% with reference to generation during Jan. 2008. Generation

achievement during the period April 08 – Jan. 09 has been 93.0% of the target and growth rate

was 2.53% with respect to generation during the corresponding period last year. Table 9.1: Electricity Generations – Target & Achievement (Jan 2009)

The details of energy generation during the month of Jan. 09 and the period April 08 – Jan. 09

are given in Table 9.2.

Table 9.2: Electricity Generation – Target & Achievement (Cumulative period April 2008 to Jan. 2009)



It may be seen that during the month of Jan. 09, the growth of 4.26% has been achieved in

thermal generation whereas there was reduction in generation from hydro electric stations mainly

due to less water inflows and from nuclear power plants due to low availability of fuel. During

the period April 08 – Jan. 09, the growth in thermal generation has been 5.56% whereas there has

been decline in hydro and nuclear generation due to the reasons stated above.

The monthly and cumulative growth in the generation during the period April 08 to Jan 09 is

given in the graph below:

The fuel-wise components of thermal generation during the period April’ 08- Jan. ’09 are given

in Table 9.3. Table 9.3: Fuel-wise components of thermal generation



The actual energy generation from the hydro electric stations during the month of Jan 2009 was

5.60% less than the target for the month. It may be mentioned that the low rainfall received

during the monsoon this year resulted in lower overall hydro energy generation in the country

and its uneven distribution in the country resulted in varying degree of shortages in realizing

hydro energy targets excepting in the northern region where targets were exceeded. (Table 9.4)

Table 9.4: Hydro energy Generation

It may be seen from above that the April 08-Jan 2009 generation in Southern region almost

corresponds to the target generation which is on account of higher level of hydro generation

during the period of April – May/June 08 due to better water availability of the previous

hydrological year.

The storage position of 32 major reservoir based hydroelectric stations which account for about

51% of the total hydro installed capacity in the country are monitored in the CEA. The storage

position at these reservoirs gives indication of the trend in the generation during the next few

months prior to the onset of next monsoon. The analysis of data indicates that the present storage

position of the reservoirs in the Northern, western and North-Eastern Regions as obtaining at the

end of January 2009 has generally been almost similar to the last year, whereas the storage

position of the reservoirs in Southern and Eastern regions is much below the level obtaining

during the last year. The reservoir levels and the corresponding storage position of major

reservoirs is given in Annexure 6. The region wise position of the energy content in the

reservoirs is summarized in Table 9.5.



Table 9.5: Energy Content in the Reservoirs – Region wise

It may be mentioned that the water releases from most reservoirs in the Northern region are

controlled by irrigation requirement which impact the hydro generation. The hydro generation in

Northern Region during Jan 09 was about 20% higher than the last year’s generation during the

month. The energy content in the reservoirs of Northern Region was 31% higher towards Dec 08

end as compared to the same period during the previous year. As a result of higher withdrawals

from reservoirs during the month of Jan 09, the energy content in the reservoirs which had

generally been higher than the last year’s level has gone 5% below the last year level by the end

of month.

The reasons for low growth rate during the current year (April’08 –Jan.’09) in comparison to the

corresponding period last year are as under:

• Delay in achieving commercial operation of some of new thermal generating units

synchronised during 2006-07 and 2007-08. Generation capacity of 125 MW synchronised

in 2006-07 and 750 MW synchronised in 2007-08 are yet to achieve commercial

operation.

• The lower generation from lignite based units at NLC’s Neyveli complex in Tamil Nadu

due to shortage of lignite on account of slow progress in land acquisition for expansion of

mining activities and strike by contract workers of lignite mine during April 2008 & June

2008 resulting in loss of generation of about 1939 MU.



• Loss of generation due to shortage of coal. Actual coal receipts during the period April 08

– Jan.’09 have been 87% of linkage. As on 31st Jan 09, out of 77 thermal power stations,

37 stations had critical stock of less than 7 days including 22 stations with coal stock less

than 4 days. Actual coal stock at the stations was 7.8 million tonnes which was adequate

for seven days requirement only. The loss of generation due to coal shortage reported by

NTPC, DVC, M.P, Maharashtra, Orissa and West Bengal has been 9718 MU during the

2008-09 (till date).

• Although total generation from Gas Turbine Stations increased by about 7.2%, the

shortfall w.r.t target was about 7290 MU. � Shortage of 9485 MU as compared to last

year in hydro generation as mainly been due to low water inflow as discussed in the

preceding paragraphs.

• The loss of generation at nuclear power stations due to non availability of fuel has been

1825 MU compared with last year. Had there been no loss of generation due to

constraints in fuel supplies (Coal / lignite / gas /LNG /nuclear fuel) it would have been

possible to achieve growth rate of 6.45%. An analysis of shortfall in generation with

reference to targets is given in Table 9.6.

PLF of thermal stations during the month of Jan.’09 was 81.2% against a target of 77.6% and the

cumulative PLF during April 08-Jan.’09 was 75.8% as against a target of 78%. This has been

mainly due to:-

• Lacking performance of some of the new thermal generating units synchronized during

2006-07 & 2007-08 due to non completion of balance of plants works.

• Loss of generation due to shortage of coal. NTPC, DVC, M.P, Maharashtra, Orissa,

WBPDCL reported loss of 9718 MU so far during April 08– Jan’09.

• Poor quality of coal. During monsoon, supply of wet coal caused operational problems

resulting in partial loading of the generating machines.



Table 9.6: Shortfall in Generation S.No. Category Energy (MU) Shortfall in Generation - Reasons 1. Lacking performance of some of the new Thermal

power Stations commissioned during the year 2006-07 and 2007-08 (enclosed at Annexure 7)

14631

2. Long duration of forced outages, unscheduled and extended planned maintenance of some thermal stations and coal shortage (enclosed at Annexure 8)

17020*

3. Delay in commissioning of units during the year 2008-09

14895

4. Shortfall due to gas availability i) Central Sector ii) Others

6436 854

5. Shortfall due to non availability of nuclear fuel 3264 6. Hydro generation – poor hydrology 4887 Total shortfall due to above reasons (a) 59217 Generation where targets were exceeded 1. Import above target from Hydro stations in Bhutan 372 2. Generation above target from existing thermal

stations i) Stations achieving more than target and

operating above 90% PLF (enclosed at Annexure 9)

ii) Others

11635 1885

Energy generation due to above (b) 13892

Net shortfall in generation (a) – (b) 45325

*Out of this 9718 MU reported due to shortage of coal during April 08- Dec.’08 so far.



CHAPTER 10

SUMMARY OF FINDINGS: STUDY OF MAJOR ASIAN TRADE

PARTNERS 10.1. Introduction

In this chapter we present the summary of major findings from the study of large home

appliances segment of Light Electrical Industry reported from competing countries such as

China, Korea, Malaysia and Thailand. This chapter also discusses various aspects related to

energy efficiency norms and labeling adopted by these countries.

Detailed report is given separately as Report III – A Study of Major Asian Trade Partners. 10.2. China: Chinese large home appliances manufacturers are able to significantly undercut

prices offered by foreign competitors over a wide range of products including microwave ovens,

air conditioners, refrigerators and washing machines. As a result of the “China Price,” China has

captured more than a third market for air conditioners, refrigerators, washing machines, vacuum

cleaners and microwave ovens.

The Eight major “economic drivers” of the China Price can be identified as follows:

1. Low wages 2. Counterfeiting and piracy 3. Minimal worker health & safety regulations 4. Lax environmental regulations & enforcement 5. Export industry subsidies 6. A highly efficient “industrial network clustering” 7. The catalytic role of foreign direct investment (FDI) 8. An undervalued currency

Among developing countries, the openness of China’s trade and industrial policy are often cited

as its comparative advantage. While interventionist government policies are often noted as

adversely affecting economic efficiency, these policies have worked for China’s manufacturing

sector. Shanghai area is considered one of the most robust manufacturing centers for electronics

and automotive parts.



The Chinese government has led investment in the manufacturing sector by giving preferential

loans to targeted industries. In recent years, the government has promoted growth in the value

added manufacturing industries such as electronics and automotive components. Tools used to

promote the electronics industry include public research, trade protection, sector-specific

financial incentives, selective government procurement, and control of foreign participation,

relaxed antitrust regulation, and the provision of training and education for sector-specific skills.

By welcoming foreign investment, China’s open-door policy has added power to the economic

transformation. In 2005, China received $153 billion in foreign direct investment. This foreign

money has built factories, created jobs, linked China to international markets, and led to

important transfers of technology.

One of the most important success factors is China’s superior infrastructure. It is especially

essential in manufacturing. Good roads are needed to transport raw materials and finished

products. Resources such as power supply are needed to prevent the interruption of production.

China invests heavily in maintaining its transport system. It makes enormous efforts to lower

congestion levels on main railways. Additionally, China has built 25,000 km of four- to six-lane,

access-controlled expressways in the past 10 years.

Having a stable power supply is very vital to manufacturing efficiency. To prevent power

shortages, China is continuing to invest in power generating structures. The Chinese government

continues to pay close attention to investing in infrastructure such as roads and transportation

systems, manufacturing machinery, and communications systems.

Cheap labor is one of the main draws for firms relocating to China. Firms come in search of

human resources. One of the reasons global electronics and car manufacturers are relocating its

headquarters to Beijing and Shanghai is to access the readily available supply of cheap, skilled

human capital.

In addition to its vast supply of cheap but skilled human capital, China has large numbers of

foreign educated people coming back from Silicon Valley and other centers of innovation. China



currently has 1,731 universities and continues to build more universities and trade schools. In

terms technical resources, China adds 600,000 new engineers every year.

10.2.1. Lessons from Chinese Industry:

In capital intensive industries, government interventions such as preferential industrial and fiscal

policies are needed to channel growth.

• Foreign direct investment is important in facilitating technology transfer and capital

investments.

• Manufacturing sector requires good infrastructure such as transport system and power supply.

• Investment in tertiary education is vital in the promotion of hi-tech industries because human

capital is the key in a firm’s expansion strategy.

10.3. Thailand

At present, the electrical, electronics and allied industries have an important role in driving the

growth of the Thai economy. The industry has gone through different development stages.

Currently it is in the reconstructing era .Many industries have improved their manufacturing

efficiency and technology for entering into the digital era. Wireless computer system has become

more important. Electrical and Electronic industries have reconstructed their efficiency for

increasing their competitiveness. After the entry into the era of producing for exports, the

electrical and electronic industries in Thailand have grown up significantly. The air-conditioning

and refrigeration industry is one of the export potential industries of Thailand as the product

range could serve customers in both the tropical (Cooling mode) and temperature zone (Heating

&Cooling mode). Synergy among major exporters of electrical and electronics products has propelled the

combined value of Thai exports to top 1.5 trillion baht in 2008, an increase of 5% over the

previous year . The major rethink of strategies was responsible for the rosy export outlook. Declining orders

from their major overseas market, such as Japan, the European Union and the United states, in



the fourth quarter of 2008 have prompted Thai manufacturers to revise their strategies, with the

focus on acquiring new potential markets, such as India, the middle-east and Africa. Foremost of

these is India, where 250 million people have good purchasing power. Radio TV & Electronics

and office & Home Appliances are produced primarily for exports: these industries are generally

through ways for re-exporting (high import content relative to value added)

Electrical and Electronic Development Strategies of Thailand are:

• Improve industrial competitiveness • Moving industrial structure into high value added products • Products design and innovation initiative • Human resources & Technology knowledge development • Domestics supply chain linkages • New /Emerging market expansion & local branding • Encourage best practices & good management for Thai small & medium enterprises

Over the past 30 years, Thailand’s Electrical and Electronics and allied industries have

continually grown as they have enhanced their competitiveness in terms of both manufacturing

capacities and export potential. There are two major clubs which are basically working for the

further promotion of Thailand’s electrical and electronics and allied industries. These are (1)

Electrical, Electronics &Allied Industries Club (EEAIC) and (2) Air Conditioning &

Refrigeration Industries Club

In fact, Air Conditioning and Refrigeration Industry Club acts as a representative of the members

of the club in coordinating policy and operation between members and the state. It also promotes

product quality and reliable standards and seek support channels for market expansion for local

industrial products in both domestic and international markets.

10.4. Malaysia Malaysia’s exports declined by 22.6% to RM45.1 billion and imports also decreased by 20.8% to

RM36.0 billion, year on year basis during 2008 and 2009. However, electrical & electronic

products continued to be the top export revenue earner, accounting for RM18.6 billion or 41.2%

of total exports, recorded a decline of RM3.8 billion (17.1%) over the corresponding month last

year. For a month on month basis, electrical & electronic products recorded an increase of



RM795.4 million (4.5%). Electrical & electronic products, valued at RM98.7 billion, remained

as Malaysia’s leading exports earner and accounted for 39.4% of total exports during the first

half of 2009. However, exports revenue from this category of products declined by RM26.5

billion or 21.2% from a year ago. The major component namely electronic integrated circuits,

which accounted for 29.4% of total exports of electrical & electronic products, down by 12.1%

to RM29.0 billion. Malaysia’s top ten exports destinations were the Republic of Singapore, the

United States of America, and the People’s Republic of China, Japan, Thailand, Hong Kong, the

Republic of Korea, Australia, India and Netherlands. These countries accounted for RM178.3

billion or 71.2% of Malaysia’s total exports during the period of January - June 2009. The top

ten import sources of Malaysia were the People’s Republic of China, Japan, the United States of

America, the Republic of Singapore, Thailand, the Republic of Indonesia, the Republic of Korea,

the Federal Republic of Germany, Taiwan and Hong Kong. The imports from these countries

amounted to RM143.9 billion or 75.2% of Malaysia’s total imports in the first half of 2009.

10.5. Republic of Korea Republic of Korea was one of the least developed countries in terms of industrial development in

the early 1960s. It has been transformed into one of leading industrial countries in the world

during the last 45 years. Korea started export-oriented industrialization, based on processing and

assembly manufacturing with matured technologies from advanced countries. In order to

overcome the narrow domestic market, large enterprises were promoted. These large enterprises

utilized OEM for foreign companies and the technological support from them so that the large

Korean enterprises secured processing and assembly technologies to certain extent.

10.6. Energy Efficiency Standards and Labeling: International Scenario

Broadly speaking, endorsement labels and comparison label are two distinct types of energy

labels in use around the world. Endorsement labels are a seal of approval indicating that products

meet certain specified criteria. Typically they are applied to the top-tier of energy-efficient

products in the market. An example of an endorsement label for energy efficiency is the U.S.

ENERGY STAR label initiated in 1992. During the past decade, a number of endorsement labels

have been developed and implemented in developing countries. China initiated energy –efficient

endorsement-labeling program in 1998. Comparison label shows the relative energy use of a



product compared to other models available on the market. Categorical labels, Continuous labels

and Information-only labels are three sub-categories of comparative labels: Categorical labels

use a step-ranking system to indicate relative energy use compared to other models in the market.

This type of labeling is being followed in EU, Thailand, Iran, Korea, and India etc. A few

countries, like Australia, have initiated half –step ranking, thus effectively doubling the number

of qualifying categories. Continuous labels use a bar graph or scale to show the range of models

available in the market. This scale allows consumers to see where the labeled unit fits into the

full range of similar models. This type of label is used in USA and Canada. Information-only

labels (as in the Philippines) give data on the technical performance of the labeled product but

offers no simple way (such as ranking system) to compare energy performance among products.

10.6.1. CHINA

China promulgated the Energy conservation Law of the People’s Republic of China (the Energy

conservation law for short) in 1998, and the revised version of the Energy Conservation law was

implemented in April, 2008. The aim and objectives of the Energy Conservation law are to

a) Promote energy saving of the whole society b) Increase the efficiency of energy utilization c) Protect and improve the environment d) Promote the overall and sustainable development of the society. e) Encourage rational use of energy and energy conservation

China attaches much importance to energy conservation and takes many measures such as

energy efficiency standards, energy labeling system etc. In the Eleventh Five Year Plan of China,

it is targeted to achieve 20% energy saving per unit of GDP.

The development history of China’s energy efficiency standards: In 1990, China implemented

the first batch of energy efficiency standards which included 9 categories of household

appliances such as household refrigerators, room air conditioners, washing machines etc. these

standards specified the maximum allowable values of energy consumption or the minimum

allowable values of energy efficiency, and the test methods for these products, and the main

purpose of these standards was to eliminate the high-energy-consuming household appliances

from the market.



The energy grade index is used to express the energy efficiency level of a product. Normally, the

energy efficiency of a product is graded from 1 to 5. Grade 1 is the most efficient and grade 5 is

set at the minimum allowable value of energy efficiency. In special cases, the energy efficiency

level of a product can also be set as 3 or 4 grade criteria, where grade 1 also is the most efficient. Energy efficiency index is the minimum allowable value of energy efficiency to be implemented

3-5 years after the promulgation of the energy efficiency standard.

The energy efficiency standards under development are: Household appliances, including

microwave ovens, electric water heaters, set top boxes etc

The functions of energy efficiency standards in China’s energy conservation efforts are as

follows:

(i) New measure for the government to control the market under the conditions of market economy;

(ii) To eliminate the products with high energy consumption from the market. (iii) To mitigate the supply and demand contradiction of energy , and ensure sustainable

development of the economy; (iv) To meet the requirements of international trade, and it is the technical tie of the activities

of international market economy; (v) To improve the environmental protection; (vi) One of the main foundations for China to carry out the work of energy conservation.

Its major characteristics are small investment, take effect quickly and great influence China

formally implemented the energy labeling system in March, 2005. The first labeled two products

are room air conditioners and household refrigerators. In March, 2007, household washing

machines and unitary air conditioners were included.

10.6.2. INDIA

India promulgated the Energy conservation act, 2001 with the aim and objective of reducing the

overall energy consumption in Indian economy by promoting market in favour of energy

efficient equipments, products, services and technologies. Bureau of Energy Efficiency (BEE),



the statutory body under Ministry of Power, Government of India, was set up in 2002 to facilitate

this process. BEE has initiated many policy measures toward this avowed goal. Market

transformation policies are being structured by BEE to promote manufacture, purchase, and use

of the energy-efficient products, services, and/or practices.

The goals are to:

• Enhance market share for energy-saving products, services, and technologies. • Encourage market mechanisms to promote efficiency; • Reduce overall energy intensity of India’s growth, without compromising the quality; • Leverage technological and other best practices through bilateral and multilateral

engagements; • Prepare domestic industry to challenges in this area in global markets to retain

competitiveness. 10.6.3. THAILAND

The Electricity Generating Authority Thailand (EGAT) initiated the refrigerator labeling

program in September 1994 and refrigerators have been labeled since February 1995 with focus

on residential refrigerators. In 1998, labels have been made mandatory for single-door, 5-6 ftÂ³

(140-170 litre), manual-defrost models and expanded to include two-door and larger sizes

models for voluntary labeling.

A rating system is introduced. Using a scale of 1 to 5, where 5 is the highest efficiency level and

3 is the average of all model tested. The label also shows consumers the average energy

consumption per year (kWh/year) and the average electricity bill per year (Baht/year) for that

unit under specified condition. A tested refrigerator may receive a ranking number of 1, 2, 3, 4,

or 5 depending on its efficiency value compared to the average efficiency value within one of the

size categories .Level 5 - Annual electricity consumption is at least 25% below the mean

consumption of tested refrigerators. Level 4 - Annual electricity consumption is 10% to 25% less

than the mean consumption of tested refrigerators. Level 3 - Annual electricity consumption is

between Â± 10% of the mean consumption of tested refrigerators. Level 2 - Annual electricity

consumption is 10% to 25% more than the mean consumption of tested refrigerators.



Level 1 - Annual electricity consumption is at least 25% more than the mean consumption of tested refrigerators. Labeling Requirements: The average refrigerator efficiency value is specified to Thai CFC and non-CFC refrigerators of various sizes. An "efficiency value" is defined as the ratio of the capacity of the refrigerator (volume; in litres)

to the amount of energy consumption (kWh) per day (24 hours); thus the units are litres/kWh. A

higher efficiency value indicates a more efficient refrigerator

10.6.4. MALAYSIA

The energy efficiency rating and labeling program for domestic refrigerators was introduced in

2005 and made it open to all manufacturers for implementation on voluntary basis. The ranking

of refrigerators for all tested models is based on the Star Index, which will determine the star

ranking of specific models for 1 and 2 -door type’s domestic refrigerators. The least energy

efficient products are labeled with a “One star” and the most efficient products with a “Five Star”

rating. The “Star” rating for each model is shown by the comparative label that will be used for

models approved by the Energy Commission. An Endorsement label by Energy Commission

will be used and only applicable for products with the approved “Five Star” rating. These labels

would be affixed on energy efficient refrigerators by the manufacturers. The comparative

ranking of refrigerators was based on the results of energy performance of refrigerators that had

been tested by SIRIM.

10.6.5. KOREA

The Ministry of Commerce, Industry and Energy (MOCIE), through Korea Energy Management

Corporation (KEMCO), operates three energy efficiency programs to facilitate products

embodying low energy input. These three programs are "Energy Efficiency Standards and

Labeling Program", "Certification of High Efficiency Energy-using Appliance Program",

"Energy-Saving Office Equipment and Home Electronics Program". The objective of these

programs is to stimulate manufacturers to improve their products' efficiency by giving incentives

and to induce consumers to purchase more energy efficient products available in the market

place. Energy efficiency standards & labeling program was started in 1992 to encourage the

efficiency in the production, to use of energy and to help consumers choose more energy



efficient goods through appliances with energy efficiency label. This programme shows the

energy efficiency grade of the model from 1 to 5. Energy Efficiency Standards are divided into

"Minimum Energy Performance Standards" aiming at stopping manufacture and sale of products

embodying high energy inputs and "Target Energy Performances Standards" designed to give

manufacturers to achieve higher efficiency. The objectives of Energy Efficiency rating labeling

Program are to induce manufacturers to consistently make products with high energy efficiency,

to stimulate importers to introduce more energy-efficient products into the domestic market and

to help consumers choose more energy-efficient goods



CHAPTER 11

CONCLUSIONS AND RECOMMENDATIONS

The analysis of the Light Electrical Sector has revealed the major factors hindering productivity

and competitiveness of the sector. To tackle these hindrances, and enhance the productivity and

competitiveness of the sector, a number of strategic initiatives need to be taken up by different

agencies, industry associations and government. In order to become competitive in the world

market, light electrical manufacturing firms need to formulate strategies based on market

intelligence, demand forecasting and competitive pricing of the rival’s products.

11.1. Policy Guidelines for Skill Development and Training of Manpower

Majority of the home appliance manufacturers surveyed by NPC have expressed their concern

that the availability of quality manpower for their industry is declining and there is shortage of

skilled and trained personnel. The attrition rate is also high as the industry salary packages are

not competitive with ITES sector. The current educational system and the training institutes are

unable to meet the requirement of sector. Further the course curriculum is theoretical and in plant

training of students is missing in most of the institutes.

It is suggested that more number of Industrial Training Institutes (ITI) be opened and the Course

Curriculum of ITIs should be redesigned and continuously updated to meet the changing

requirement of light electrical industry. Industry Associations may be involved in developing

course curriculum and in plant training be made compulsory part of course curriculum.

Industry/corporate bodies may be encouraged through tax benefits/ payment of management fee

to adopt government run ITI or diploma colleges for effective and efficient management. Private

Engineering /Management Institutes may be encouraged to run courses.

The manufacturers may sponsor either one or two centers or some students through fellowship in

the technical institutes and get them trained according to their requirement. This may partially

solve the problem of unavailability of technical manpower. Course curriculum needs to be

designed to cater to the requirement of the industry. Ministry of HRD and Industry Associations

need to take a pro-active stand in development of such curriculum.



The manufacturing firms may undertake the development of human capital by adopting institutes

such as ITIs/IITs or can open similar kind of recognized institutes for running courses.

11.2. Infrastructure Development

Lack of adequate physical infrastructure like transport system, roads, ports, airports etc.

adversely affect the competitiveness and productivity of the manufacturing sector. Uninterrupted

power supply is a necessary condition for operation of manufacturing units as power fluctuations

can lead to breakage of entire system. Many of the respondents to the survey have shown their

dissatisfaction with the existing availability and quality of infrastructure.

It has been suggested by industry associations that preferential pricing on land, building and

infrastructure etc., are required to save the industry. For example, in China land and power are

assured by Government. Industry and industry association has been supported by Government in

China. There is need for active government support for the survival of domestic manufacturing

in India.

It is important that Government should prepare a time bound plan to upgrade physical

infrastructure to ensure long term competitiveness and sustained development of light electrical

manufacturing sector. Adoption of Private–Public–Partnership (PPP) model can facilitate faster

and cost effective development of infrastructure. Financial incentives be given to manufacturing

units for establishing and maintaining of backup power units and for utilizing non-conventional

energy sources.

11.3. Raw Material, Components & Machinery Some of the raw materials like Polypropylene are being manufactured by a single company

(monopoly) and as a result price is exorbitantly high. Due to the unavailability of good quality of

aluminum, copper tubes, gear boxes and other components several Indian manufacturers are

forced to import from countries like China. Domestic component manufacturers may be given

adequate support to overcome these constraints.

The manufactures of large home appliances are generally dependent on imported raw material as

the availability of good quality raw material is a serious problem. Due to the unavailability of



good quality of aluminum, copper tubes, gear boxes and other components and subassemblies

are forced to import from the countries like China and assembled in India to produce finish

product. The Quality of these imported raw materials available in local markets is not fully

reliable.

Government can evolve necessary mechanisms such as removal of safeguard duties on certain

raw materials such as Aluminum and Polypropylene. An agency may over see the pricing of raw

material to ensure abnormal fluctuations in raw material prices.

The domestic manufacturers of Air Conditioners reported problems in getting good and quality

Copper Tube in India hence they are relying on imports from China. Even 40 percent of the main

component is imported by most of the manufacturers. Even this is same in the case of

compressors. Rotary compressors which are considered to be more energy efficient than

reciprocating compressors are mainly being imported from China. These compressors are cost

effective as well. Only the reciprocating compressors which are used in Refrigerators are being

manufactured in India. Nowadays, due to the adoption of energy efficiency norms, the

production of reciprocating compressors is declining in India. Cooling coil and condenser etc.,

cost about 60 percent of the windows and split ACs. Most of the Indian manufacturing units

producing reciprocating compressors were reported to be taken over by large MNCs.

Weak supply chain network and lack of vendor support also affects the quality, productivity and

competitiveness of the products. Manufacturing units directly importing raw materials face delay

in import clearances which slows down completion of time bound projects as well as export

production by these units. Government should ensure hassle free import of raw material and

components by streamlining the import policy and systems and through simplification of import

procedures. Maritime Transport is a critical infrastructure for the development of Logistics and

Supply Chain Management. It influences the pace, structure and pattern of development.

Ministry of Shipping may undertake appropriate action plans for hassle free Handling of raw

material and finished products at the ports.

The Light Electrical Industry is a highly capital intensive industry and also the obsolescence is

very high. The industry is competing with major players in countries like China, Malaysia,



Thailand and South Korea. Thus, there is the imperative to continuously upgrade manufacturing

facilities in line with the latest technological developments. Importing is considered to be

cheaper than manufacturing locally by many manufacturers in India.

It is recommended that the government should promote modernization of units through a special

scheme with fiscal incentives and minimum import duties. Special Financing Schemes need to be

formulated for encouraging the entrepreneurs in the manufacturing sector. Depending on the

needs and performance of existing manufacturers, special loans may be granted for technology

up gradation, infrastructure building or expansion of business.

11.4. Building a Global Supply Chain Network The competitiveness of light electrical industry could be enhanced only through strengthening

the global supply chain network as the industry is highly dependent on the import of raw

materials. The cost of the supply network or logistic management network also needs to be

assessed through value chain analysis. Unless it is intervened at the right time there will be a

spiraling effect (e.g., rise in price of raw materials leading to high cost of production, that would

result in either rise in product price or incurring of loss by the manufacturer) that would hinder

the competitiveness of both the product and the firm. However, while calculating cost, the

efficiency and reliability of the supply chain also need to be considered, as most of the products

require handling with care and to be delivered in time.

11.5. R&D and Technology Up gradation

A tech-savvy customer would always like to possess electronics products built on latest available

technology. Hence, product differentiation is a necessary condition for competitiveness of

electrical Industry as a successful differentiator would not only attract new customers but also

invokes a competitive reaction that will encourage others towards vertical movement in the

product market.



The one liner by Onida “Owner’s Pride and Neighbour’s Envy” is a good example to understand

consumer’s psychology. However, there needs to be continuous R& D leading to innovation and

product differentiation based on technology. This will help a manufacturer to become the market

leader as it would be very difficult for its competitors to replicate the product without violating

IPR norms. Thus the right mix of unique and innovative products that are acceptable to the

consumers is critical to sustain and augment profits in the long run. Government of India may

encourage R&D activities through establishment of technology parks and industry- technical

college compulsory interactive projects for the development of the industry.

Government should strengthen Research and Development in manufacturing sector especially

the applied research like product development through special grants to leading Research

Institutes/Universities and Technical Institutes like IITs/ ITIs. Special schemes may be

formulated to promote the development of Indigenous Technology to reduce dependence on

imported equipments and components. Development of incubators should be promoted and the

linkages between Government Agencies, Universities, as well as Industry and other stakeholders

like NGOs and industry associations need to be strengthened. Doctoral/Post Graduate

Programmes in Electrical industry oriented curricula may be developed with attractive

Fellowships to attract best talent for the courses/programmes.

Window Air Conditioners are mainly assembled in India while about 60 percent of Split Air

Conditioners are still being imported from the countries like China mainly. For the Window Air

Conditioners the rotary compressors are being imported mainly from China. It may be noted that

40% of the manufacturing cost of Air Conditioners is for the compressor alone. And about 16%

of the total value addition is being made by the industry in India. During the research the fact

came out that most of the companies are importing full unit from the countries like China and

selling in their brand name which in ways loosing the development of manufacturing units in

India. Since the cost of production is high in India due to low technological levels and poor

infrastructure, Ministry of Industry and Commerce can evolve appropriate financial support

schemes for manufacturing units so that the current level of technology can be upgraded to

global standards.



Since productivity estimations based on Labour and Total Factor Productivity Growth rates have

been found quite low in electrical sector, there is a need for substantial up gradation of skill

levels and technological knowhow (R&D activities) in this sector for further value addition at the

domestic level.

11.6. Implementation of Quality Standards/ Certification and Energy Efficiency Standards labeling Programme

Quality standards and systems are critical for ensuring the quality of electrical products.

Government needs to promote implementation of standards and certification. Incentives may be

given to small scale enterprises for getting quality system certification. Special Cells at

regional/state level needs to be created that would work as facilitating centers for implementation

of standards and getting certification. Quality Council of India, Bureau of Indian Standards (BIS)

can help manufacturing units to get Quality Accreditation like ISO 9000/ 14000.

Encourage application of total quality and productivity programs like Total Preventive

Maintenance (TPM), Continuous Improvement Program (CIP), minimum waste of energy,

materials and time, zero defects and other aspects of quality to reduce production inefficiencies

and enhance the competitiveness of firms. To reach out to companies, productivity centres and

technical institutes and centres should be in a position to provide effective and competent

extension services. Moreover, energy efficient appliances reduce the usage power consumption leading to

substantial saving on electricity usage. It is important to induce manufacturers to consistently

make products with high energy efficiency and help consumers to choose more energy-efficient

goods. A financial incentive scheme, preferably in the form of subsidy may be extended to

domestic manufacturers in maintaining energy efficiency standards. Bureau of Energy Efficiency

can facilitate the manufacturing units particularly the SMEs to acquire star ratings.

11.7. FDI in Light Electrical Sector Light Electrical manufacturing sector has a great growth potential in India and export market.

Government needs to promote modern manufacturing processes and infrastructure requirements.

Promotional activities need to be undertaken to attract FDI and MNCs to start manufacturing



units in India. “INDIA ADVANTAGE” needs to be promoted. Manufacturing units producing

large home appliances and also the components manufacturing units may be given special tax

benefits.

11.8. Policy for Disposal of e-waste

Since disposal of e-waste by individuals is not always possible, the manufacturers need to take

care of it through schemes like exchange offer. This would help them not only in getting back the

old products for scientific disposal and creating safe environment but also help in sales

promotion. Policies for safe disposal of e-waste i.e., electronic and some of the electrical

equipment that is no longer useful but may or may not be re-usable needs to be formulated on

priority in consultation with all the stakeholders. Once formulated, implementation of these

policies should be strictly enforced else it would be unsustainable to be competitive in the

manufacturing of products in the changing environment scenario.

Since disposal involves additional cost and environmental clearances, Ministry of Environment

and Forests and Pollution Control Bards need to undertake suitable measures for disposal of e-

waste with emphasis on the aspect of safety and sustainability.

11.9 Fiscal Incentives

Indian manufacturers are not able to compete with other competing countries due to multiple

taxes. Therefore, fiscal incentives like rationalization of tariff on raw materials and capital goods,

lowering of excise duty on components, introduction of full Value Added Tax (VAT) etc., in

conjunction with free environment to the manufacturers, speed of business, proper

communication, power supply, strong engineering and design base, adequate R&D facilities etc.,

are key to a successful and competitive electrical industry. Ministry of Finance can evolve

strategies and schemes for providing Fiscal Incentives to Light Electrical (large home

appliances) manufacturers.

As compared to Indian Government support schemes for the industry, it was reported that the

measures adopted by the competing countries like China is more supportive to local



manufacturers through various schemes such as subsidy for rural consumers for the purchase of

home appliances etc.

The interest component of loan of SMEs in setting up manufacturing plants may be fully or

partially subsidized. Plant modernization support may be extended to Indian manufacturers. In

India the rate of interest is quite high at 15% as compared to countries like US where the rate of

interest is 2-3%. It has been reported by many manufacturers that the return on capital is not

good enough in India to go for higher levels of investment in plant and machinery.

The observation made on excise duty came out to be painful for the small manufacturers since

same 8.24 percent excise duty including cess has been imposed on companies irrespective of

their turnovers. For example a company with turnover of Rs.100 crores as well as Rs.1.5 crores

pays the same rate of excise duty. Over and above this rate they have to pay 12 percent VAT

also. Thus the total excise duty becomes more than 20 percent while the customs duty is

approximately at 22 percent.

The interest rates should be made comparable to agriculture loans, so that industry can become

competitive as the loans provide by the financial institutions are quite high at 18 percent per

annum. SIDBI is offering loan for a minimum value of 40 lakhs on which they are charging

15% for construction loan and 8% for machinery loans. There is substantial scope for

compressor manufacturing in the domestic market.

Goods and Service Tax (GST) a comprehensive value added tax on services and goods is

welcome by the industry against the prevailing non-uniform taxes across the states in India.

11.10. Changing character of Refrigeration Manufacturing in India

Earlier Refrigerator industry was mainly operating at the local level not having much brand

value. However, recently the character got changed as the 90 percent manufacturing is in the

organized sector with high brand value while only 10 percent remains at the local level. The cost

difference between the branded and the local make was in the range of Rs.8000 per piece earlier

while the cost difference came down substantially. As a result of that the small manufacturers

stopped production since they are not able to produce quality products at low cost.



Another area where there is significant change in the character of production has taken place

where small manufacturers have become channel partners to major producers as ancillaries or

component manufacturers.

Since refrigerators are bulk items, currently about 80-90 percent refrigerators are manufactured

in India. It is recommended by the industry associations that different duty structures can be

introduced for different components. Many foreign manufacturers have set up their

manufacturing plants in India. Currently the domestic value addition is estimated at 80-90

percent.

11.11. Market Segmentation In developing economies like India, manufacturers of large home products while designing and

pricing their products need to take into consideration some key determinants of demand like

existing socio-economic disparity and rural-urban divide. Market segmentation may also be done

based on purchasing power of the majority of potential customers, available infrastructure like

power supply or voltage fluctuations etc., in that particular area.

11.12. Quality & Price Discrimination The sovereignty of consumers is quite evident through their revealed preference in favour of

economically rational decisions. The price of the products need to be competitive but not at the

cost of quality. A single low quality product is enough to spoil the reputation of a manufacturing

firm and will result in destroying the market demand for all other products of the brand in the

long run.

However, base models of an appliance with some key features may be placed on the shelves at

lower rates than the similar available products of the competing firms. This will help firm in

capturing the market sentiments of the India’s vast population. Simultaneously, to target the rich

and elite class, exclusive models/ products need to be designed with advanced technology. Such

products may be priced at high premium, as they would give the owner a sense of pride.



11.13. Customer Relationship Management Customer Management or Customer Care is a crucial differentiator in the manufacturing

industry. Distribution network could be an excellent source of competitive advantage for a

manufacturer of large home appliance. Manufacturers need to build a good after sales service

network, along with strong brand positioning, to take care of customers. Consumer helpline

should address the complaints at the earliest.

11.14. Labour Relations Labour policies available in the country are not conducive for manufacturing as compared to

other competing countries. Legislate flexible labour policy to enable manufacturers to restructure

labour force in response to market needs.

11.15. Productivity Enhancement for Raising Profit Margins

Manufacturers need to take special care towards efficient utilization of plant and machinery,

reduction in waste etc. It would result in raising the productivity level of the firms and lowering

the cost of production, thereby increasing the profit margins. A part of enhanced profit may be

passed to the customers through lowering of product prices. This would certainly make

indigenous products more competitive in the domestic market and reduce import substitution.

11.16. Contract Manufacturing Indian entrepreneurs or companies may explore the opportunities of functioning as Electrical

manufacturing services (EMS) companies to larger Original Equipment Manufacturers (OEMs).

In this case, OEMs would provide Indian EMS with a full range of services like contract design,

prototyping, final system assembly, configuration, order fulfillment, and repair and after-market

services. Further, being part of OEMs, Indian EMS could be able to reap other benefits such as

research and product development, brand building, sales and marketing network of OEMs.



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Annexure -1 Survey Questionnaire: Company/Manufacturing Unit

National Productivity Council is carrying out a nationwide survey of manufacturing units from Light Electrical Manufacturing Sector on behalf of Ministry of Commerce and Industry, GoI. The objective of this survey is to identify and understand major concerns and issues of the sector that affect productivity and export competitiveness of the sector. The study would come out with sector specific recommendations with a view to enhance productivity and export competitiveness of the sector.

(Please fill as per instructions given with each question.

Write codes/ values in the box provided at the right hand side)

General information

1.0 States and Union Territories Code :(1=Andhra Pradesh, 2=Delhi, 3=Gujarat, 4=Haryana, 5=Karnataka, 6=Kerala, 7=Punjab 8=Maharashtra, 9=Rajasthan, 10=Tamil Nadu, 11=Uttar Pradesh, 12=West Bengal)

2.0 Product Category (1= Refrigerators, 2 = Air Conditioners, 3 = Washing Machines, 4 = Micro-wave Ovens, 5=Vacuum Cleaners)

Company Related Information

3.0 Company/Manufacturing Unit specific informationCompany Name & Address: ---------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

Contact Person’s Name---------------------------------------------------------------------------

Telephone, if any: --------------------------------------------------------------------------------

e-mail address, if any:----------------------------------------------------------------------------

Website, if any:-----------------------------------------------------------------------------------

3.1 Year of Establishment

3.2 Nature of the company (1=Public Limited, 2=Private Limited, 3=Partnership, 4=Proprietorship, 5=Government Owned)

3.3 Did your company acquire any firm in other countries? (1=No acquisition, 2= Full ownership, 3=less than or equal to 50% ownership, 4=more than 50% ownership)

3.3.1 Does your company have merger with any other firm in India? (1= yes, 2=No)

3.4 Does your unit have Quality Accreditations? (1= yes, 2=No)

3.4.1 If yes, please specify the name of the accreditation: (1=ISO 9000, 2= ISO 14000, 3=ISO 27000, 4=OHSAS 18000, 5=HACCP, 6=Others, specify)



Employment Related Information

4.0 The contractual/daily wage employees during the last ten years (1=Increased, 2=decreased, 3=No change)

4.1 What is the estimated percentage of skilled employees? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

4.1.1 What is the estimated percentage of non-skilled employees? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

4.2 Growth in wages/salary in the organization during the last ten years. (1= Increased, 2= Decreased, 3=No Change)

4.3 If Increased, please specify the range of increase in wages/ salary during the last ten years? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

4.4 If decreased, please specify the range of decrease in wages/ salary during the last ten years? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

Domestic Market Related Information

5.0 What is the market share of your product? Please specify the range (1=1-5%, 2=6-10%, 3=11-25%, 4=26% & above)

5.1 What is the percentage of Domestic Sales to Total Sales (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

5.2 Growth in the domestic demand of your products during last ten years. (1= Increased, 2= Decreased, 3=No Change)

5.2.1 If Increased, please specify the range of increase in the domestic demand of your products? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

5.2.2 If decreased, please specify the range of decrease in the domestic demand of your products in the last ten years? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

5.3 Extent of competition in the domestic market from local companies? [1=Intense (>20 players), 2=Medium (10-20 Players), 3=Low (0-10 Players), 4=No Competition]

5.3.1 Extent of competition in the domestic market from foreign companies? [1=Intense (>20 players), 2=Medium (10-20 Players), 3=Low (0-10 Players), 4=No Competition]

Trade Related Information

6.0 Is your organization engaged in Exports (1=Yes, 2= No)

6.0.1 If yes, what is the percentage of Export to Total Sales(1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

6.1 Growth in export during the last ten years. (1=Increased, 2= Decreased, 3=No Change,)

6.1.1 Please specify the range of increase in export during the last ten years? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & Above)

6.1.2 Please specify the range of decrease in export during the last ten years? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

6.2 Is your organization engaged in Imports? (1=Yes, 2= No)

6.2.1 If yes, what is the percentage of Import to Total Sales(1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

6.2.2 Please specify the type of Import? (1=Full product, 2=Component, 3=Raw materials )

6.2.3 How much percentage of your sales belong to Complete Knock Down (CKD) category? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)

6.2.4 How many percentage of your sales are Semi Knock Down (SKD) category? (1=0-10%, 2=11-25%, 3=26-50%, 4=51% & above)



6.3 Please specify the major country from where you are importing finished products. __________________________________________________________

6.4 Please mention your export destinations

Product Description Countries you are exporting to

6.4.1 Please mention the competitive advantage of competing Countries (1=Low Cost of Production, 2= Capital Intensive Production, 3=Large scale operations, 4=Latest Technology, 5=better Quality of product, 6=Other, specify

6.5 The factor (s) affecting imports (1= Import pricing Scheme,2= Import licenses, 3=Import quotas, 4=Import prohibition, 5=Quantitative safeguard measures, 6=Export restraint arrangement,7=Non trade Barriers, 8=Any other, specify)

6.6 The factor (s) affecting exports (1=Export taxes, 2= Export quantitative restriction, 3=Certification, 4=Inspection fee, 5=State trading administration, 6=Dual pricing schemes, 6=Non trade barriers,7=Any other, specify)

Factors responsible for Competitiveness

7.0 Availability of Raw materials for production.1=Imported, 2=Within country, 3=Within Region/State, 4=Other

7.1 Are there policies made by the government which help in growth in your Industry? (1=Yes, 2=No)

7.2 What are the support measures taken by the government? (1=Purchase preference policy, 2=Price preference policy, 3=others)

7.3 Has removal of Quantitative Restrictions helped your company? (1=Yes, 2=No)

7.4 What are the marketing constraints for the your Industry (Please Specify)

7.5 Are you satisfied with the Government’s interface with business/private sector? [1=Excellent, 2=Average, 3=Poor]

7.6 Do you consider government friendly towards investor?(1=Yes,2=No)

Competitive advantage of Competing Countries

8.0 Clearance to start a manufacturing unit in India takes. (1=1-2 months, 2=3-5 months, 3=6-9 months, 4=10-12 months, 5=more than one year)

8.1 A clearance to start a manufacturing unit in competing country takes. (1=1-2 months, 2=3-5 months, 3=6-9 months, 4=10-12 months, 5=more than one year)

8.2 Availability and quality of basic infrastructure such as power, water, road, rail etc. in India.(1=poor, 2=reasonable, 3=good, 4=excellent)

8.3 Availability and quality of basic infrastructure such as power, water, road, rail etc. in your unit.(1=poor, 2=reasonable, 3=good, 4=excellent)

8.4 Availability and quality of basic infrastructure such as power, water, road, rail etc. in competing country.(1=poor, 2=reasonable, 3=good, 4=excellent)

8.5 Taxes and other controls in India (1=low, 2=moderate, 3= high, 4=very high)

8.6 Taxes and other controls in competing countries. (1=low, 2=moderate, 3= high, 4=very high)



8.7 Cost of production in India. (1=low, 2=moderate, 3=high, 4=very high)

8.8 Cost of production in competing country. (1=low, 2=moderate, 3=high, 4=very high)

Marketing Strategy & Distribution Channel

9.0 What is the type of Distribution channel (Please Specify)(1=Wholesale, 2= Retail, 3=others)

9.1 What are the incentives to wholesale distributors (Please Specify) (1=Credit, 2=Commission)

9.2 What are the incentives to Retailers (Please Specify)(1=Credit, 2=Commission)

9.3 How are you giving after sales service to buyers(1=Direct, 2=Franchise, 3=Sales Representatives)

9.4 How many years of warranty for the product?(1=0-2, 2=2-5, 3=5-10, 4=above 10)

9.6 Which are the main states your products are sold (Please Specify)

Global Financial Crisis

10.0 Did your company get affected during the global financial crisis? (1=Yes, 2=No)

10.0.1 If yes, (Please Specify).

__________________________________________________________

10.1 Whether the exports from your company decreased due to the global financial crisis? (1= yes, 2= No)


__________________________________________________________

10.2 Do you expect fall in domestic business and export in the coming years? (1= yes, 2= No)


___________________________________________________________

10.3 Have you evolved any strategy to counter global financial crisis? (1= yes, 2= No)

10.3.1 Please explain your current business strategy.

___________________________________________________________

10.4 Do you think better Corporate governance can improve the effectiveness of the business? (1= yes, 2= No)

10.4.1 If yes, Please Explain __________________________________________________

General Question

11.0 What are your strategies/suggestions to improve Productivity and Competitiveness of your Industry? (Please mention a few)

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________



11.1 Policy Interventions urgently required for enhancing productivity and competitiveness of your sector.

(Please mention five)

1.

2.

3.

4.

5.

11.2 Any other comments: (Please specify)

______________________________________________________________________________________________________________________________________________________

12.0 Data on production and other related variables during last ten years.

Sr. No. Years Sales Value (Rs. Lakhs)

Production Cost (Rs. Lakhs)

Export (Rs. Lakhs)

Import (Rs. Lakhs

1 1998-99

2 1999-00

3 2000-01

4 2001-02

5 2002-03

6 2003-04

7 2004-05

8 2005-06

9 2006-07

10 2007-08

11 2008-09



12.1 Data on production and other related variables during last ten years.

Sr. No. Years Employees/

workers

(Number)

Wages/

Salaries

(Rs. Lakhs)

Capital

Investment

(Book Value) (Rs. Lakhs)

1 1998-99

2 1999-00

3 2000-01

4 2001-02

5 2002-03

6 2003-04

7 2004-05

8 2005-06

9 2006-07

10 2007-08

11 2008-09

Thank you

Name of the Official/Investigator: -----------------------------------------------

Signature : ---------------------------------------------------------

Place of Survey : ----------------------Date: ----------------------------



Annexure- 2

Format for developing Diagnostic Case Studies

• Name of the manufacturing unit:

• Address:

• Company background

• Present status of the company

• Products

• Objective of the company

• Human Resource Management(management, employees, incentive system etc)

• Business model used-marketing strategy (market share, channels of distribution, pricing.

sales, service, brand loyalty)

• Analyzing past and present strategies adopted by the unit to face opening up of trade

under WTO and its impact.

• Productivity model

• Financial valuations(finance and accounting ability to raise short term as well as long

term capital, accounting practices, tax planning ,cost band barrier to entry)

• Factor productivity/factor ratios

• External influence

• Competitive analyses(forces driving competition, gaining competitive advantage, generic

competitive strategies such as overall cost leadership, product differentiation, focus on

product segment or market segment, etc)

• SWOT analyses

• Manufacturing scenario during the last 10 years



Annexure-3 India-Thailand Consolidated List of Items for Early Harvest Scheme (EHS)

S. No. H.S. Code DESCRIPTIONS 1 080450 EX. FRESH MANGOSTEENS, MANGOES 2 080610 FRESH GRAPES 3 080810 APPLES 4 081060 EX. FRESH DURIANS 5 081090 EX. FRESH RAMBUTANS, LONGANS,

POMEGRANATES 6 100110 DURUM WHEAT 7 100190 OTHER WHEAT AND MESLIN 8 160411 SALMON, WHOLE OR IN PIECES BUT NOT MINCED,

PREPARED OR PRESERVED 9 160413 SARDINES, SARDENELLA AND BRISLING OR SPRATS,

WHOLE OR IN PIECES BUT NOT MINCED, PREPARED OR PRESERVED

10 160415 MACKERAL WHOLE OR IN PIECES BUT NOT MINCED, PREPARED OR PRESERVED

11 160510 CRAB PREPARED OR PRESERVED 12 250100 SALT (INCL TABLE SALT & DENATRD SALT) & PURE

SODIM CHLRDE W/N AQS SOLN SEA WTR 13 261000 CHROMIUM ORES & CONCENTRATES 14 281119 OTHER INORGANIC ACIDS 15 281820 OTHER ALUMINIUM OXIDE 16 281830 ALUMINIUM HYDROXIDE 17 291739 OTHR ARMTC PLYCRBOXYLC ACIDS THR

ANHYDRDS HALIDES PEROXIDES PEROXYACDS & THR DRVTVS

18 390210 POLYPROPYLENE, IN PRIMARY FORMS 19 390690 OTHER ACRYLIC POLYMERS IN PRIMARY FORMS. 20 390710 POLYACETALS IN PRIMARY FORMS. 21 390730 EPOXIDE RESINS IN PRIMARY FORMS. 22 390740 POLYCARBONATES IN PRIMARY FORMS. 23 390760 POLYETHYLENE TEREPHTHALATE IN PRIMARY

FORMS. 24 390799 SATURATED POLYALLYL ESTERS AND OTHER

SATURATED POL 25 390810 POLYAMIDE-6,-11,-12,-6,6,-6,9,-6,10 OR -6,12,IN

PRIMARY FORMS 26 390890 OTHER POLYAMIDES IN PRIMARY FORMS. 27 390950 POLYURETHANES IN PRIMARY FORMS. 28 391990 OTHER SELF-ADHESIVE PLATES, SHEETS, FILM, FOIL,

TAPE, STRIP AND OTHER FLAT SHAPES OF PLASTICS 29 441219 OTHR PLYWD COMSSTNG ONLY SHTS OF WOOD OF



THIKNESS OF EACH SHEET NT EXCD 6 MM 30 710310 PRECIOUS STONES (OTHER THAN DIAMONDS) AND

SEMIPRECIOSSTONES, UNWORKED OR SIMPLY SAWN OR ROUGHLY SHAPED

31 710490 OTHER SYNTHETIC OR RECONSTRUCTED PRECIOUS OR SEMIPRECIOUS STONES

32 710510 DUST AND POWDER OF DIAMONDS 33 711319 ARTICLES OF JEWELLERY AND PARTS THEREOF, OF

OTHER PRECIUOS METAL, WHETHER OR NOT PLATED OR CLAD WITH PRECIUOS METAL

34 720150 ALLOY PIG IRON: SPIEGELEISEN 35 720711 PRDCTS CONTNG BY WT<0.25% CRBN,OF RCTNGLR

(INCL SQR)CRS-SCTN;WDTH<TWICE THE THCKNS 36 720719 OTHR PRDCTS CONTNG BY WT<0.25% OF CARBON 37 722619 FLT-ROLD PRDCTS OF SILICON ELECTRICL STL OTHR

THN GRAINORIENTED 38 722990 OTHER WIRE 39 730792 THREADED ELBOWS, BENDS AND SLEEVES OF IRON

OR STEEL 40 732020 HELICAL SPRINGS, OF IRON OR STEEL 41 732690 OTHER ARTICLES OF IRON OR STEEL WIRE, NOT

FORGED 42 760110 ALUMINUM, NOT ALLOYED 43 760120 ALUMINUM ALLOYS 44 840490 PARTS OF THE ITEMS OF 840410 & 840420 45 840991 PARTS SUITABLE FOR USE SOLELY OR PRINCIPALLY

WITH SPARKIGNITION INTERNAL COMBUSTION PISTON ENGINES

46 841360 OTHER ROTARY POSITIVE DISPLACEMENT PUMPS 47 841381 OTHER PUMPS 48 841451 TABLE,FLOOR,WALL,WINDOW,CEILING/ROOF

FANS,WTH SLFCNTND ELCTRC MOTOR OF OUTPT<=125 W

49 841459 OTHER FANS 50 841490 PRTS OF AIR/VACUM PUMPS,CMPRSSRS & FANS 51 841510 WINDOW/WALL TYPES SELF-CONTAINED AIR

CONDITIONING MACHINES 52 841821 COMPRESSION-TYPE REFRIGERATORS, HOUSEHOLD 53 841990 PRTS OF MCHNRY,PLNT/LBRTRY EQMPMNT ETC OF

THE ITEMS OF HDG 8419 54 842199 OTHR PARTS OF FLTRNG/PURFYNG MCHNRY 55 842390 WEIGHNG MCHN WEIGHTS & PRTS OF THE MCHNRY 56 842549 JACKS, HOISTS, OF A KIND USED FOR RAISING

VEHICLES 57 843221 DISC HARROWS



58 843780 OTHER MACHNRY FOR CLNG,SRTNG/GRADNG SEEDS 59 844820 PRTS & ACCSSRS OF MCHNS OF HDG. NO.8444/OF

THEIR AUXLRY MCHNRY 60 844833 SPINDLES,SPINDLE FLYERS,SPINNING RINGS AND

RING TRAVELLERS 61 847141 OTHR DGITL AUTOMATIC DATA PROCESNG MACHNS

COMPRISNG IN SAMEHOUSNG A CENTRLPROCESNG UNIT & INPUT & OUTPUT UNIT,WH/NOT COMBIND

62 847190 OTHER 63 847290 OTHR OFFICE MACHINES 64 847751 MCHNRY FR MOULDNG/RETREADNG PNEUMTC

TYPES OR FR MOULDNG/OTHRWSE FORMNG INNR TUBES

65 847989 OTHR MCHN &MCHNCL APPLNCS OF HDG 8479 66 847990 PARTS OF MACHINES OF HDG 8479 67 848079 OTHR MOULDS FOR RUBBER/PLASTICS 68 848180 OTHER APPLIANCES FOR PIPES, BOILER SHELLS,

TANKS, VATS OR THE LIKE 69 848210 BALL BEARINGS 70 848350 FLYWHEELS AND PULLEYS, INCLUDING PULLEY

BLOCKS 71 850431 OTHR TRNSFRMRS HVNG A PWR HNDLNG CAPACITY

NOT EXCDNG1 KVA 72 851220 OTHER LIGHTING OR VISUAL SIGNALLING

EQUIPMENT 73 851711 LINE TELPHON SET WTH CORDLESS HAND SETS. 74 851790 PARTS OF TELEPHONIC/TELEGRAPHIC APPARATUS 75 852390 OTHER PREPARED UNRECORDED MEDIA 76 852812 RECEPTN APARTS FOR TV ETC COLOUR 77 852910 AERIALS & AERIALS REFLECTORS OF ALL KINDS

PRTS SUITABLE FR USE THEREWTH 78 853400 PRINTED CIRCUITS 79 854011 CATHODE-RAY TV PICTURE TUBES, INCLUDING

VIDEO MONITORCATHODE- RAY TUBES-COLOUR 80 870840 GEAR BOXES 81 903289 OTHR ATMTC RGLTNG/CNTRLNG

INSTRMNTS&APPRTS 82 903290 PARTS AND ACCESSORIES OF INSTRMNTS OF 9032 83 910211 WRST-WTCHS,ELECTRLY OPERATED,W/N

INCRPRTNG STOPWTCH FCLTY WITH MCHNCL DISPLAY ONLY

84 940190 PARTS OF SEATS, WHETHER OR NOT CONVERTIBLE INTO BEDS



[ ]

] [ ×

Annexure - 4

Methodology Adopted for Partial and Total Factor Productivity Estimations

Productivity can be measured in terms of both partial and total factor productivity methods. Most commonly used partial productivity measures are Labour Productivity and Capital Productivity estimations. The partial productivities are measured as a ratio of Gross Value Added per worker or per unit of capital invested.

The partial productivity methodology is based on the premise ‘ceteris paribus’ that only two factor inputs used in the production process such as labour and capital. Details regarding the data construction and estimation procedures are given as below.

A. Labour Productivity • Labour input is considered as the total number of persons engaged in the production process. The data has been compiled from Annual Survey of Industries Summary results for Factory Sector data base for various years. The Gross Value Added data has been first deflated by the whole sale price index for the sports goods. The formula for calculating the labour productivity can be given as follows:

Labour Productivity (LP) = ((Gross Value Added/Price Index) x 100) Number of Persons Engaged

Labour Productivity Growth

• Once the labour productivity has been calculated, we can estimate annual labour productivity growth using the growth rate estimation formula :

Labour Productivity ═ Labour Productivity t – Labour productivity t-1 100 Growth Labour Productivity t-1

Labour Productivity Growth Index:

To understand the trends in Labour Productivity Growth, we can construct year to year growth rates as an index of Labour Productivity Growth Rate. Initial value of the series is considered equal to 100 and the subsequent years Labour Productivity Growth Rates are added to it cumulatively. This will provide us an index of Labour Productivity Growth for the sports goods sector for the years starting from 1995-96 to 2005-06.



[ ]

] [

Capital Productivity

Since capital investment is given as the book value in the ASI data, we have to estimate the capital stock in operation for every year. The Capital stock estimation follows the procedure given below.

• Capital Stock Estimation

To calculate capital stock we have used Perpetual Inventory Method. Capital stock has been estimated from the book value of Gross Fixed Capital compiled from the ASI Database.

• Fixed capital data from ASI for the sports goods sector taken for the years 1995-2006. • The book value of fixed capital at 1995-96 is multiplied by Gross net ratio of capital for

getting initial year capital stock. • Incremental capital during the year 1996-97 at constant prices (deflated with the

machinery and machine tools prices at 1993-94 prices) is added to the initial year capital stock of 1995-96 for getting the capital stock for 1996-97at constant prices.

Incremental capital = ((Fixed capital 1996-97 - Fixed capital 1995-96)

To calculate the capital productivity we have divided Gross Value Added at constant prices by the estimated fixed capital. The formula used to calculate the capital productivity is as follows:

Capital Productivity= (Gross Value Added at constant prices) Capital stock at constant prices

Capital Productivity Growth

Capital Productivity Growth Rate = Capital Productivity t - Capital Productivity t-1 x 100

Capital Productivity t-1



[ ]

Capital Productivity Growth Index

As in the case of Labour Productivity Growth Index, Capital Productivity Growth Index is also constructed on a scale 100.

Gross Value Added Growth Rate = GVAt – GVA t-1 x 100

GVA t-1

B. Total-Factor Productivity Growth (TFPG)

Total Factor productivity Growth has been estimated using the Divisia index method. Here, it is considered that Total Factor Productivity Growth is the result of technical progress. Technical progress or TFPG is estimated as a residue of the difference between output growth rates and input growth rates.

o o

TFPG= GVA – [WL x Labour Productivity Growth + WK x Capital Productivity Growth]

Where

WL + WK = 1

and

WL = Wage Share in Total Cost

WK= Capital Share in Total Cost

Total-Factor Productivity Growth Index

As in the case of Labour and capital productivity, Total Factor Productivity Growth Index can also be constructed with base 100 for the initial year and adding the subsequent growth rates cumulatively.



Annexure -5

LIST OF UNITS SURVEYED FOR THE FIELD STUDY Refrigerator

1. Muskan Equipments Company , New Delhi 2. Bharat Refrigeration Mfg. Co. , New Delhi 3. R.K.Rerigerators, New Delhi 4. Royal refrigeration works, New Delhi 5. Alpine Refrigeration Co. , Bangalore 6. Krishna Agro Industries Corporation , Chennai 7. V Priya Electronics , Hyderabad 8. Shaheen Electrical Engineering Co., Hyderabad 9. Vandana Refrigeration, Hyderabad 10. Ambience Industries, Bangalore 11. Santha Engineering , Chennai 12. Pole Star Coils (P) Ltd , Mumbai 13. Fidvi Refrigeration Industries ,Mumbai 14. Frigoglass india pvt Ltd , Haryana 15. Hindustan Refrigeration Stores , Uttar Pradesh 16. Airtech Cooling Process (Pvt) Ltd , New Delhi

Air Conditioners

1. Lloyd Electric & Engineering Ltd , New Delhi 2. Adcon Services, New Delhi 3. Oasis Appliances , Haryana 4. CAS Engineers Pvt. Ltd , New Delhi 5. K.M.Tooling Solutions , New Delhi 6. Coolvin HVAC Systems Pvt Ltd 7. Air Blow System , Mumbai 8. Ajanta Engineering Works , Bangalore 9. Kool Nest Pvt Ltd. , Bangalore 10. Himigiri Airconditioning Co. Pvt Ltd , Kolkatta 11. Sidwal Refrigeration , New Delhi 12. Arwa Machine Tools , Mumbai 13. Indo Western Refrigeration Pvt Ltd , Mumbai



14. Marshal Cooling Corporation , Kolkatta 15. Temp AIR , Kolkatta 16. Frizair , Hyderabad 17. Thermoplast Industries , Mumbai 18. Everest Aircon , New Delhi 19. Systematics Engineering , Chennai

Washing Machine

1. Maharaja Appliances Ltd , New Delhi 2. Mega Engineering Works , Andhra Pradesh 3. R.N. Engineering , Bangalore 4. Oskar International , New Delhi 5. Innomation , Hyderabad 6. Stefab India Limited, Kolkatta 7. Super Fab India, Uttar Pradesh 8. Ramsons , Bangalore 9. Vihar Engineering, Mumbai 10. R.M.Engineering , Mumbai 11. Aster Technologies Pvt ltd, Uttar Pradesh

Microwave Oven

1. Aution Instruments & Controls Pvt. Ltd. , New Delhi 2. Remson Appliance Pvt. Ltd., New Delhi 3. GEM Empire Home Appliances Ltd, New Delhi 4. Shiva Appliances, Kolkatta 5. Lords Enterprises (India), New Delhi 6. Cata Appliances Ltd, New Delhi 7. Sri Saibaba , Hyderabad 8. Bajaj Electricals Ltd, Mumbai 9. Enerzi Microwave Systems Pvt Ltd, Bangalore 10. Mahto Kitchen Care, New Delhi



Vacuum Cleaners

1. Inventa Cleantec Pvt. Ltd., Uttar Pradesh 2. Secure Net Appliances Pvt. Ltd. , New Delhi 3. Sam System & Services , Bangalore 4. Charnock Equipments Pvt Ltd, Bangalore 5. Innovative Cleaning Systems Pvt Ltd, Mumbai 6. Soma Specialites Pvt Ltd , Mumbai 7. Shivam Cleaning Product Pvt Ltd, New Delhi 8. Mitsoni Appliances , New Delhi 9. Altomech , Coimbatore 10. Roots Multiclean Ltd, Coimbatore 11. Cleantek, Coimbatore 12. Prime Power Products , Chennai 13. Jaipan Industries Limited , Mumbai 14. Dynavac India Private Limited, Coimbatore



Annexure -6

Storage Position of Major Reservoirs based Projects in the Country

S.

No.

Reservoir

Installed Capacity

Full Reservoir

Level

Minimum Draw Down Level

Effective Capacity

Annual Design Energy

Potential

Energy Content at

F.R.L.

Present Reservoir

Level (29.01.2009)

Energy Content at

Present Level

(29.01.2009)

% Energy Content w.e.to

Content at FRL

(29.01.2009)

Reservoir Level on the

same day Last Year

29.01.2008)

Energy Content on (29.01.2008)

% Energy Content w.e.to

Content at FRL

(29.01.2008)

MW M M MCM MU MU M MU (5) M MU (%)

Northern Region

1 Bhakra 1325 513.59 445.62 4604.97 5282 1728.8 493.61 875.09 50.62 485.15 615.67 35.61

2 Pong 396 426.72 384.05 3974.43 1123 1084 4111.71 487.2 44.54 397.96 160.24 14.78

3 Ranjit Sagar 600 527.91 487.91 1196.16 1507 390.3 500.28 104.04 3.00 498.19 83.64 21.43

4 R.P. Sagar 172 352.81 343.81 1326.7 459 175.66 345.03 20.38 11.60 352.08 154.89 88.18

5 Rihand 300 268.22 252.98 1740.66 920 860.5 259.08 256 29.75 257.49 178.88 20.79

6 Ram Ganga 195 366 323 757.09 164 480.8 349.39 207.96 43.26 354.98 282.38 58.73

7 Tehri 1000 829.79 740.04 1287.37 309 1291.49 800.36 670.11 51.89 829.79 1286.6 99.62

Total (N Region) 3991 9764 6011.55 2620.8 43.60 2762.3 45.95



Western Region

8 Sardar Sarovar 1450 138.68 110.84 519.57 5469 1817.55 119.66 304.8 16.77 121.72 410.66 22.59

9 Ukai 305 105.16 82.3 1063.08 1080 813.08 101.39 555.76 68.35 101.72 540.3 66.45

10 Gandhi Sagar 115 399.9 381 925.11 420.48 725 384.9 60.68 8.37 390.62 210.62 29.05

11 Indira Sagar 1000 262.14 243.24 281.34 2628 1316.123 250.31 267.96 20.36 249.06 233.74 17.76

12 Bhira 150 606.03 590.09 429.43 790 618.8 601.59 417.23 67.43 601.49 412.94 66.73

13 Koyna 1960 667.91 609.6 1511.6 3130 3126.1 654.86 2702.6 86.45 651.25 2299.41 73.56

Total (W Region) 4980 13517.48 6416.68 4308.93 51.20 4107.67 48.80

Southern Region

14 Machkund 114.75 835.2 513.59 346.2 670 551.6 835.09 398.33 72.21 837.48 516.05 93.56

15 Nagarjuna Sagar

810 179.83 150.88 2257.43 2237 1398.13 159.75 304.14 21.75 160.72 342.53 24.50

16 Srisallam 1670 269.75 243.84 265.99 4300 1391.84 266.06 999.73 71.83 266.7 1061.52 76.27

17 Almatti 290 59.62 505.97 1442.58 483 175.35 513.72 42.23 24.09 513.93 47.22 26.93

18 Katinadi Supa 1220 563.88 513.52 19168.68 542 2885 538.99 1020.95 35.39 549.92 1707.3 59.18

19 Sharavathy 1006.2 564.43 522.73 1329.83 5564 4557.03 546.16 2319.08 60.89 548.91 2949.12 64.72

20 Idamalayar 75 169 114.99 308.85 380 254.45 147.37 114.15 44.86 154.41 154.63 60.77

21 Idukki 780 732.35 694.94 283.18 2396 2146.32 715.55 939.55 43.77 723.49 1452.47 67.67

22 Madupatty 2 1599.38 1554.48 30.04 6.4 77.4 1597.25 64.6 83.46 1597.25 68.83 68.93

23 Sabarigiri 300 981.46 908.3 265.07 1338 764 974.8 646.95 84.68 974.8 563.38 73.74

24 Kundah Group 555 1315 1270 1157 742 58.43 1157 91.10



25 Mathura 240 240.79 211.23 410.53 790 204 233.07 36.44 17.86 233.07 107 52.45

26 Periyar 7202.95 46.33 33.53 80.27 409 216 37.61 7.24 3.35 37.61 53.57 24.80

Total (S Region) 20432.4 15891.12 7635.41 48.06 10180.59 64.06

Eastern Region

27 Balimela 510 462.08 438.91 149.23 1183 897.75 455 193.52 21.56 455 524.41 58.41

28 Hirakud 331.5 192.02 179.83 1316.28 1174 372.28 189.05 184.09 49.45 189.05 213.11 57.24

29 Indravati 600 641.84 625 130.67 1962 1213.13 635.56 291.19 24.00 635.54 303.54 25.02

30 Rengali 250 123.44 109.72 1565.1 525 275 115.68 107.11 38.95 115.68 74.32 27.03

31 Upper Kolab 320 857.78 843.78 84.09 832 540 852.59 192.88 35.72 862.59 256.94 47.58

Total (E Region) 2011.5 5676 3298.16 965.79 29.37 1372.32 41.61

North Eastern

32 Loktak 105 768.5 766.01 450 339 768 121.59 35.87 768 129.02 38.06

Total (NE Region) 105 450 339 121.59 35.87 129.02 38.06

Total (All India) 18290.45 49839.88 33956.48 15656.52 46.1 18551.9 54.62



Annexure -7

Generation Performance of New Thermal Units during Apr. ’08- Jan ‘09

SR. NO.

NAME OF STATIONS

UNIT NO.

CAPACITY (MW)

Syncronization date COD DATE

Generation during Apr-Dec 2008-09

Remarks

Planned Actual Target Actual Shortfall (A) THERMAL

Units Commissioned during year : 2006-07 1 KAHALGAON

STPS 5 300 31.3.07 1.8.08 3067 1847 1220 Piping etc.

2 MEJIA TPS 5 350 30.3.07 29.2.08 1470 816 654 Problem in new 3 GIRAL

LIGNITE 3 1 125 28.2.07 March 09 412 335 77 Frequent checking in second

pass of boiler 4 PARICHHA

TPS Extn. 4 210 28.12.06 1.12.07 1250 911 339 The unit was running on

partial load due to non completion of

5 NEW PARLI 1 250 16.02.07 1.11.07 1682 834 748 Unscheduled TOTAL 1335 7781 4743 3038 UNITS COMMISSIONED DURING YESR : 2007-08 1 SIPAT STPS 4 50 27.5.07 20.06.08 3076 2968 108 Delay in COD as unit was

resynchronized on 06.05.06 after

2 KAHALGAON STPS

6 500 16.3.08 31.12.08 2559 372 2187 Non-readiness of burkers, feeders

3 MERA TPS 6 250 1.10.07 24.9.08 1470 698 772 COD delayed due to delay in supply and erection by BHEL

4 GHTP II 3 250 3.1.08 1548 1053 495 COD delayed due to delay in supply and erection by BHEL.

5 YAMUNA NAGAR TPP

1 300 13.11.07 16.10.08 1826 1439 387 Delay in COD is forced outage

6 YAMUNA NAGAR TPP

2 300 29.3.08 24.06.08 1826 1266 560 Delay in stabilization

7 SANJAY GANDHI TPS

5 500 18.6.07 27.06.08 2944 2161 783 Delay in COD due to non- of cost handling plant

8 PARAS EXP 1 250 31.5.07 31.03.08 1582 773 809 Pre beater structure damage 9 RAYALSEEMA 4 210 20.11.07 20.11.07 1394 1367 27



TPS 10 BELLARY TPP 1 500 3.12.07 Feb.2009 2839 721 2118 Non-reachgness of cost

handling plant 11 SANTALDIH

TPP 5 250 7.11.07 Feb.2009 1495 222 1273 Non readiness of

DM,WT,plants, coal oils etc. 12 SAGARDIGHI

TPP 1 300 21.12.07 1.9.08 1665 949 716 Delay in COD due to turbine

rectification works 13 BAKRESHWAR 4 210 23.12.07 31.10.08 1230 377 853 Completed in oct 06 14 DUR GAPUR

TPS EXTN. 7 300 24.11.07 30.04.08 1637 1132 505 Forced outage

TOTAL 4620 27091 15498 11593

Units expected / commissioned during year : 2008-09 1 SIPAT 5 500 JUNE08 13.8.08 1.1.09 1509 401 1108 DELAY IN COD due to non

readiness of CHP & coal feeding

2 SIPAT 1 660 AUG 08 MARCH 10 800 0 800 Delay in synchronisation 3 KAHALGAON

STPS 7 500 MAY 08 MAY’09 1654 0 1654 Delay in synchronisation

4 CHANDRAPURA TPS

7 250 APR 08 APR’09 992 0 992 Delay in synchronization due to slow erection & supply of equip

5 CHANDRAPURA TPS

8 250 AUG 08 JULY’09 407 0 407 Delay in synchronisation

6 BHILLAI IMPORT

2 0 JUNE 08 MARCH’09

656 0 656 Nonreadiness of CHP,AHPEFO systems etc

7 GHTP II 4 250 APR 08 31.7.08 28.11.08 1012 362 650 Delay in synchronization/ COD

8 CHABRA TPS 1 250 SEP 08 APR 09 415 0 415 Delay in synchronization/ COD

9 CHABRA TPS 2 250 DEC 08 139 0 139 Delay in synchronization 10 GIRAL LIGNITE 2 125 MAY 08 MARCH’09 290 0 290 Delay in synchronization

due to items deliary and rectification

11 SURATGARH TPP

6 250 OCT 08 200 0 200 Delay in synchronization/ COD

12 KUTCH LIGNITE EXT.

4 75 MAR 08 22.10.08 FEB’09 399 0 399 Synchronization on oil in dec’08



13 AMARKANTAK TPS

5 210 FEB 08 15.6.08 MARCH’09 1038 0 1038 Non-readiness of cost handling plant and ash handling plant

14 TROMBAY TPS 8 250 AUG 08 MARCH’09 621 0 621 Delay in synchronization 15 SURAT LIGNITE

EXT. 3 125 SEP 08 160 0 160 Delay in synchronization

16 LANCO AMARKANTAK PATHADI TPS

1 300 MAR08 230 0 230 Delay in synchronization

17 SAGARDIGHI TPP

2 300 MAR 08 20.7.08 4.11.08 1425 604 821 Cost shortage

18 BARKESHWAR 5 210 MAY 08 MARCH’09 1030 0 1030 Non readiness of ash handling plant

19 VIJAYVADA TPP

4 500 DEC 08 JUNE’09 515 515 Delay in synchronization

TOTAL 5255 13492 1367 12125



Annexure – 8

Statement of Shortfall in Generation (April 08-Jan.09) Existing Thermal Stations vis-à-vis Target UTILITY/STATION CAPACITY TARGET ACTUAL SHORTFALL REMARKS

MW MU MU MU

NTPC FARAKKA STPS 1600 9716 8777 939 Coal shortage TALCHER STPS 3000 19577 18201 1376 Coal shortage KAHALGAON 1-4 840 5372 5060 312 Coal shortage DVC BOKARO B 630 3350 2846 54 Extended planned

maintenance of unit-2 DURGAPUR 340 1834 1509 325 Forced outages & coal

shortage MEJIA 1-4 840 5242 4649 593 Forced outages & coal

shortage NLC NEYVELI ST-I 600 3127 2784 343 Shortage of lignite NEYVELI ST-II 1470 7886 7091 795 Shortage of lignite VPGCL MUZAFFARPUR 220 454 130 324 Stabilization problem

after refurbishment etc. HPGC FARIDABAD EXT. 180 598 409 189 Forced Outage PANIPAT 1360 8205 7852 353 Delay in restoration of

unit-1 after R&M works

UPRVUNL OBRA 1362 4874 4360 514 Delay in restoration of

unit 1&2 after R&M works, Unscheduled RLA of unit 9

PARICHHA 1-3 430 2062 1653 409 Forced outages due to turbine vibration problems & coal shortage

CSEB KORBA-II 200 1312 1179 133 Forced outages GMDCL AKRIMOTA LIGNITE 250 1076 859 217 Unscheduled planned

maintenance of unit - 2 GSECL UKAI 850 4229 3956 273 Delay in stabilization

of unit1 after R&M works Unscheduled R& M works of unit2

SIKKA REP 240 1321 1159 162 Forced outages MPPGCL AMARKANTAK EXT. 240 1039 830 209 Forced outages SANJAY GANDHI 1-4 840 4684 4246 438 Coal shortage



SATPURA 1142 6485 6046 439 Forced outages & coal shortage

MAHAGENCO CHANDARAPUR 2340 13505 12364 1141 Partial loading due to

poor coal quality BHUSAWAL 475 2740 2515 225 Forced outages KORADI 1040 5568 4877 691 Long duration forced

outage of unit 4 due to turbine vibration trouble

NASIK 880 4840 4539 301 Unscheduled capital mtc. Of unit-1

PARLI 670 4100 3271 829 Unscheduled capital maintenance of unit-3 and partial loading due to coal quality problem

APGENCO KOTHAGUDEM 680 4694 3647 1047 Partial loading of all

units due to coal stock being critical

KOTHAGUDEM NEW 500 3310 2983 327 Extended planned maintenance & forced outage of unit 2

TNEB ENNORE 450 1995 1665 330 Partial loading of all

units due to coal stock being critical

METTUR 840 5520 5308 212 Unscheduled & extended planned maintenance of unit 2

TUTICORIN 050 6805 6462 343 BSES BARAUNI 320 484 33 451 Stabilization problem

of unit 6 after R&M works

JSEB PATRATU 840 1236 830 406 Delay in restoration of

unit 4 after R7M works and forced outage of unit 6

WBPDC KOLAGHAT 1260 6765 5638 1127 Coal shortage & forced

outage of units 4&6 BAKRESHWAR 630 570 4427 743 TOTAL 28609 159175 142155 17020



Annexure – 9

List of Thermal Stations Achieving Higher Generation Than Target During April 08 – Jan.09 Sl. No.

Station Ownership Capacity

(MW)

Programme

(MU)

Actual

(MU)

Excess Achievement

(MU)

1 RAMAGUNDEM STPS CENTRAL 2600 16484 17870 1386 2 KORBA STPS CENTRAL 2100 13404 14645 1241 3 VINDHYACHAL STLPS CENTRAL 3260 21000 21947 947 4 RIHAND STPS CENTRAL 2000 13282 14102 820 5 SIMMADRI CENTRAL 1000 6344 7086 742 6 GANDHI NAGAR TPS STATE 870 4238 4859 621 7 DADRI (NCTPP) CENTRAL 840 5503 6084 581 8 KOTA TPS STATE 1045 6707 7192 485 9 KORBA-WEST TPS STATE 840 4750 5227 477 10 ROPAR TPS STATE 1260 7640 8096 456 11 GND TPS (BHATINDA) STATE 440 2076 2429 353 12 TALCHER (OLD) TPS CENTRAL 470 2746 3084 338 13 OP JINDAL TPS PVT 1000 4725 5034 309 14 SINGRAULI STPS CENTRAQL 2000 12854 13143 289 15 TENUGHAT TPS STATE 420 1480 1735 255 16 UNCHAHAR TPS CENTRAL 1050 6866 7088 222 17 GH TPS (LEH.MOH.) STATE 420 2740 2944 204 18 NEYVELI (EXT) TPS CENTRAL 420 2329 2525 196 19 KORBA EAST V STATE 500 2825 3016 19 20 DAHANU TPS PVT 500 3492 3682 190 21 WANAKBORI TPS STATE 1470 8911 9100 189 22 TORR POWER SAB PVT 330 2219 2403 184 23 KHAPARKHEDA TPS-II STATE 840 5185 5338 153 24 BADARPUR TPS CENTRAL 705 440 4562 152 25 TANDA TPS CENTRAL 440 2673 2810 137 26 PANKI TPS STATE 210 962 1089 127 27 RAICHUR TPS STATE 1470 8492 8574 82 28 ITTAGARH TPS PVT 240 1557 1624 67 29 BANDEL TPS STATE 450 2000 2065 65 30 SOUTHER REPL TPS PVT 135 877 937 60 31 BUDGE BUDGE TPS PVT 500 3630 3673 43 32 RAJGHAT TPS STATE 135 708 735 27 33 ANPARA TPS STATE 1630 9780 9804 24 34 TORR POWER AEC PVT 60 405 420 15 35 KORBA – III STATE 240 1474 1381 7

TOTAL 31890 194668 206303 11635



STUDY TEAM PROJECT ADVISORS 1. Shri. N.C. Vasudevan, IAS

Director General

2. Shri. O.P. Joshi Deputy Director General

3. Shri. V.K. Soni OSD (Economic Services & Admin.)

STUDY/CORE TEAM

Team Leader: Shri. Brijesh Kumar IAS (Rtd) Former Secretary Department of Information Technology, Government of India

Project Director:

External Consultant:

Dr. K. P. Sunny Group Head (Economic Services) Dr. Jacob John Former UNIDO National Expert

Team Members: 1. Dr. Rajat Sharma Deputy Director (Economic Services) 2. Mr. Deepak Gupta

Assistant Director (Economic Services) 3. Mr. Mukesh Prakash

Assistant Director (Economic Services) 4. Mr. Prashant Varshney

Research Associate

5. Mr. Sanjay Kumar Project Assistant

Field Survey: NPC Consultants/Research Associates/ Project Assistants/Indian Council for Market Research, Planman Consulting (ICMR)

1.main report

Business

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