Financial Daily from THE HINDU group of publications
Tuesday, Apr 08, 2003
Industry & Economy
BHEL ancillaries form cluster for growth
TIRUCHI, April 7
SOME eight years ago, the small-scale units that did job works for BHEL, Tiruchi, looked to be in danger of extinction, because BHEL's own fate was under a cloud.
The SSI units weathered the storm by scrounging business from other sources, such as the windmill manufacturers. Many of the units had to suffer delayed or non-payment, but they managed to survive.
Today, business from BHEL is looking up, as the public sector giant has established itself as the least cost equipment of power equipment. While the MNCs are getting business from the projects that are receiving "tied-grants" from their governments, BHEL has been winning projects that come under competitive bidding.
Correspondingly, the volume of business, from BHEL to the ancillaries, has grown from about 8,000 tonnes (of material given for conversion) in 1993-94, to about 60,000 tonnes now. In terms of value (of conversion), business increased from about Rs 10 crore to Rs 100 crore in the same period.
Thus, the problem facing the SSI units in Tiruchi, is not sustenance. The problem, rather, is how to grow further.
For, it appears that business from BHEL has reached a plateau. It has been about Rs 100 crore worth, in the last three years.
The SSI units do have come up with an answer. A three-pronged strategy for growth. First, turn themselves into product suppliers, rather than job workers, for BHEL. Several products which BHEL buys from elsewhere and which can be manufactured by the ancillaries have been identified.
Second, make use the `cluster development programme' of the Central Government, and reap a variety of benefits.
Third, develop expertise for on-site jobs, so that they would not have to be dependent solely upon BHEL for business.
There are about 300 small-scale units with a 20 km radius of BHEL, Tiruchi, which employ about 10,000 workers. Most of them are very small, with turnover ranging from Rs 30 lakh to Rs 1 crore (excluding material cost).
About 160 of them are members of the `BHEL Small Scale Industries Association (TN)'. In all, there is about 80,000 tonnes of fabrication capacity, or, about 20,000 tonnes more than the jobs BHEL gives them.
With BHEL's help, the Association has identified that products such as dampers, pumps, motors, fire fighting equipment, valve actuators, control panels and electro-forged floor grills, could be made by the units and supplied to BHEL. The PSU is now buying these products from other sources.
The Central Government has identified Tiruchi as one of the `clusters', under the cluster development programme. To make use of this, the ancillaries of BHEL have recently formed a company, under Section 25 of the Companies Act (non-profit companies), styled `Trichy Engineering and Technology Cluster Ltd'.
This company would receive the Rs 50-crore Government grant (over a five year period), under the cluster development programme. The units would have to bring in another Rs 16.66 crore, so that the Government's grant forms 75 per cent of the total corpus of the cluster.
This money is to be utilised for creating some common facilities, such as material handling systems and testing and calibration facilities, so that there is infrastructure available on hire. The cluster would also source raw material in bulk, therefore cheaper, for its members.
As regards beginning to do on-site work, the Association feels there is a need for some hand-holding initially. "There is a potential for doing 200,000 tonnes of work, on-site," says Mr R. Rajappa Rajkumar, President, BHEL Small Scale Industries Association.
Mr M. Kannappan, Additional General Manager (Ancillary Development and Sub contracting), BHEL, is ready to help. He said he recently took a team of ancillary unit representatives to NTPC's plant at Ramagundam in January, to acquaint them with the nature of the on-site work.
The team came back with enhanced confidence, but many units feel that on-site jobs should be undertaken by groups of units, rather than individually.
"How to manage the local labour is a big question," feels Mr K.G. Muralidharan, Secretary of the Association. But the general feeling is that it is only a matter of time before the fabrication units start accepting on-site jobs.
With this three-pronged strategy, the Association expects the total value of business to grow to about Rs 250 crore by 2005 and to about Rs 500 crore in the next ten years.
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