Realizing the importance of private participation in the power sector, India is strengthening its policies to encourage private investments. The country’s Electricity Act of 2003 caused the compulsory unbundling of the state electricity boards to improve their operational efficiencies, thus creating new market demand for better transmission equipment. As a result the Indian power and distribution transformers market is growing rapidly, according to a recent study by Frost & Sullivan, a global growth consulting company. The Frost & Sullivan study found that revenues in this industry totaled US$1.04 billion in 2005 and are likely to reach $5.31 billion in 2012. "Government's emphasis on the transmission and distribution sector reforms and investments are showing signs of fruition, thus creating a phenomenal growth opportunity for the Indian transformer market," explained Frost & Sullivan Research Analyst S. Bharath Srinivasan. "Due to rapid economic development and government's target of ‘power for all by 2012,' the Indian power sector will need to replicate what has been achieved during the last 50 years in the next 10 years."

The growing presence of global participants in the power and distribution transformers market is a cause for concern for local Indian manufacturers, according to Frost & Sullivan. International manufacturers have expertise in segments such as extra-high-voltage power transformers and standardized substation technologies. Moreover, the Frost & Sullivan analysis found that minor investments in transformer research and development in India pose a challenge to domestic participants, who eventually pair up with multinational giants for high-end technologies.

The global price hike in transformer raw materials such as copper, aluminum and oil resulted caused transformer prices to increase in India, the report found. Also, a shortage of cold-rolled grain-oriented steel is further escalating the price of this essential transformer core material. With growing demand and price both rising, Indian manufacturers are finding it difficult to maintain margins in the long term, thereby transferring the burden of increased costs to the end users, according to Frost & Sullivan.

The regulatory structure of the power sector has faced some uncertainties in India due to the reluctance and failure of certain states to put the regulations into practice, the study found. Furthermore, utilities are confronting financial problems because of high T&D losses, thus increasing their debt.

Despite these setbacks, the power sector in India is likely to remain buoyant, according to Frost & Sullivan. Reforms in the sector and the enlargement of the power distribution network under India’s Accelerated Power Development and Reforms Programme is driving the growth and strengthening of subtransmission lines. In addition, the increase in transmission grid reliability will result in heightened demand for power transformers, the analysis shows.

"Other than the central and state utilities plans for power capacity addition, private sector investment is also expected to have a profound influence on the development of the power industry," noted Frost & Sullivan's Srinivasan. "Also, aging equipment is creating potential for a booming replacement market and this demand will be sustained by the growth in industrial demand."