Engineering Industry in India.docx

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Engineering Industry in IndiaLast Updated: September 2013

Brief Introduction

The Indian engineering sector is of strategic importance to the economy owing to its intense integration with otherindustry segments. Development .in sectors such as infrastructure, power, mining, oil and gas, refinery, steel,automotives, and consumer durables are driving demand in the engineering sector. Major foreign players are alsoconfident and have big expectations from the Indian engineering segment as it enjoys a comparative advantage interms of manufacturing costs, market knowledge, technology and creativity.

The total exports of Indian engineering sector stood at US$ 56.7 billion during FY13 and are anticipated to grow toUS$ 125 billion by FY14. Exports from the engineering segment have registered a compound annual growth rate(CAGR) of 12.6 per cent over the period FY08-13 wherein transport equipment is the leading contributor toengineering exports.

The Indian Government also plays a crucial role in developing the engineering section of the economy. Theengineering industry has been de-licensed and enjoys 100 per cent foreign direct investment (FDI).

Exports

The engineering sector is one of the major contributors to the country's total merchandise shipments. The US andEurope together account for over 60 per cent of India's total engineering exports.

Engineering exports mainly include transport equipment, capital goods, other machinery/equipment and light

engineering products like castings, forgings and fasteners.

The Ministry of Commerce and Industries has set a target of shipping US$ 125 billion worth of engineering goodsby the end of 2013-14. Indian engineering companies are scouting for newer markets (like Latin America, Africaetc.) for exports along with strengthening their base in the US and Europe.

Engineering goods represent India's third-biggest export sector which rose 2 per cent in August 2013. Engineeringexports are projected to cumulatively expand by 22 per cent in September-December 2013 to US$ 21.5 billionagainst US$ 17.1 billion last fiscal.

Design & Engineering- Key Developments and Investments

The miscellaneous mechanical and engineering industries sector-wise FDI inflows from April 2000 to July 2013were calculated at US$ 2.48 billion, as per the Department of Industrial Policy and Promotion (DIPP).

Kirloskar Brothers Ltd (KBL)s subsidiary SPP Pumps has launched its most advanced facility at Atlanta,

USA, embarking the inauguration of KBLs seventh manufacturing facility worldwide. With an outlay ofUS$ 6 million, the new plant is equipped with latest engineering, testing and training set-up and has anannual installed capacity of 2,500 units. With the opening of the new facility, SPP Pumps expects its

production capacity to increase by 30 per cent and the turnover to reach US$ 40 million over the next threeyears.

Meanwhile, L&T has been appointed for an engineering, procurement and construction (EPC) projectworth about US$ 250 million by Petroleum Development Oman (PDO). The project, which is scheduled to


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be completed in 39 months, involves the Yibal-Natih gas reservoir in Oman and is considered to be ofstrategic importance for L&T.

PDO is a leading exploration and production company in the Sultanate and accounts for over 70 per cent ofthe countrys crude oil production and almost all of its natural gas supply.

Bharat Petroleum Corporation Limited (BPCL) has awarded a Rs 700 crore (US$ 111.88 million)-contract

to Dubai-headquartered Essar Projects Limited ( EPL) for Engineering, Procurement, Construction and

Commissioning as well as commissioning assistance (EPCC) of the Coke Drum Structure Package (CDSP)

of the Delayed Coker Unit (DCU) at the BPCL Kochi Refinery for the Integrated Refinery Expansion

Project.

pe of work includes project management, residual process design, detailed engineering, procurement, fabrication,

construction, commissioning, and performance testing of the CDSP of the DCU for BPCL.

AION Capital Partners, a joint venture (JV) between Apollo Global Management (a leading assentmanagement company) and ICICI Venture (one of India's oldest private equity players and an arm of thelargest private sector bank), has made an investment of Rs 300 crore (US$ 47.94 million) in JyotiStructures,

Jyoti Structures is a Mumbai-based, mid-sized company, specialising in power transmission, distributionand EPC projects.

Government Initiatives

Dr Manmohan Singh, the Prime Minister of India, has revealed the country's new Science,Technology and Innovation policy which aims to increase the number of full time equivalent of R&Dpersonnel in India by at least 66 per cent of the present strength in five years.

Alongside, the National Policy on Electronics (NPE) proposes to set up more than 200 ElectronicManufacturing Clusters in India while the Government of India (GoI) has proposed to create an

electronics development fund of US$ 2 billion to promote innovation, intellectual property, R&D,


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nano electronics and help commercialise made-in-India products.

The chip design and embedded software market in India is estimated to reach US$ 55 billion by 2020,as per the targets set by NPE.

In addition to that, the Government plans to give an impetus to engineering in India throughinvestments in infrastructure development in 2012-17 in telecom, energy and construction sector, asper a report by Nasscom and Booz & Co.

Road Ahead

Management consulting firm Zinnov has stated that India may soon have its first US$ 1 billion-product engineering services company, proving the country's strategic position in the field. Thoughthe report did not disclose the name of the company which would reach this milestone, it said Wipro,

HCL Technologies, Tata Consultancy Services, Tech Mahindra and Infosys are 'significantly large' inthis segment. These five companies account for most of the R&D activities outsourced to India.

The report further mentioned that Indian engineering service providers enjoy a crucial position, withabout 23 per cent of the overall engineering and R&D outsourcing pie. India's exports in the R&D andproduct engineering segment are currently valued at US$ 16.3 billion and are poised to growexponentially over the coming years.

Industry analysts project that by 2020, the Engineering Services Outsourcing (ESO) market in Indiawould reach US$ 40-50 billion, driven by increasing onshore to offshore movement of services.

Exchange Rate Used: INR 1 = US$ 0.01598 as on September 27, 2013

References: Press Releases, Media Reports, Department of Industrial Policy and Promotion (DIPP)tatistic.


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Introduction

The Engineering sector is the largest in the overall industrial sectors in India. It is a diverse industry with anumber of segments, and can be broadly categorised into two segments, namely, heavy engineering and lightengineering. The engineering sector is relatively less fragmented at the top, as the competencies required are high,while it is highly fragmented at the lower end (e.g. unbranded transformers for the retail segment) and isdominated by smaller players.

The engineering industry in India manufactures a wide range of products, with heavy engineering goodsaccounting for bulk of the production. Most of the leading players are engaged in the production of heavyengineering goods and mainly produces high-value products using high-end technology. Requirement of highlevel of capital investment poses as a major entry barrier. Consequently, the small and unorganised firms have asmall market presence.

The light engineering goods segment, on the other hand, uses medium to low-end technology. Entry barrier is lowon account of the comparatively lower requirement of capital and technology. This segment is characterised bythe dominance of small and unorganised players which manufacture low-value added products. However, thereare few medium and large scale firms which manufacture high-value added products. This segment is alsocharacterised by small capacities and high level of competition among the players.

Classification of the Engineering Sector in India

User Segments

The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement,petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles, textiles, etc. Light engineeringgoods are essentially used as inputs by the heavy engineering industry.


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Key Growth Drivers of Indian Engineering Sector

The engineering sector in India has been growing on the back of growth in the user industries and several newprojects being undertaken in various core industries such as railways, power, infrastructure, etc. Capacity creationin sectors such as infrastructure, oil & gas, power, mining, automobiles, auto components, steel, refinery,

consumer durables, etc, is driving growth of the engineering industry.

Growth of the key user-industries Governments thrust on the power and construction industries India being preferred by global companies as an outsourcing destination as it enjoys lower labour cost and

better designing capabilities

FDI Inflows in the Engineering SectorAug 91 to Dec 06

*Includes Computer Software & Electronics; ~Other than ElectricalSource: Department of Industrial Policy & Promotion

Heavy Engineering Sector

The heavy engineering sector can be classified into two broad segmentscapital goods/machinery (which isfurther classified as electrical machinery/equipment and non-electrical machinery/equipment), and equipmentsegments.

Electrical machinery includes the following: power generation, transmission and distribution equipments such asgenerators and motors, transformers and switchgears. Non-electrical machinery includes machines/equipmentsused in various sectors such as material handling equipments (earth moving machinery, excavators, cranes, etc),

boilers, etc.

Heavy Electrical Industry

The fortunes of the heavy electrical industry have been closely linked to the development of the power sector inIndia. The heavy electrical industry has under its purview power generation, transmission, distribution andutilisation equipments. These include turbo generators, boilers, turbines, transformers, switchgears and otherallied items. These electrical equipments (transformers, switchgears, etc) are used by almost all the sectors. Someof the major areas where these are used include power generation projects, petrochemical complexes, chemical

plants, integrated steel plants, non-ferrous metal units, etc.

The existing installed capacity of the India heavy electrical industry is 4,500 MW of thermal, 1,345 MW of hydro

and about 250 MW of gas-based power generation equipment per annum. The industry has the capability to


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manufacture transmission and distribution equipment upto 400 KV AC and high voltage DC.

The Heavy Electrical Industry can be classified into the following product categories:

1. Turbines and Generator Sets

The Indian industry has established a manufacturing capacity of various kinds of turbines of more than 7,000 MWper annum. The PSE Bharat Heavy Electricals Ltd (BHEL) has the largest installed capacity. There are units in theprivate sector also which manufacture steam and hydro turbines for power generation and industrial use. Domesticmanufacturers of AC generators are capable of manufacturing AC generator from 0.5 KVA to 25,000 KVA andabove.

2. Boilers

The Indian boilers industry has the capability to manufacture boilers with super critical parameters upto 1,000MW unit size. BHEL is the largest manufacturer of boilers in the country, with a market share of over 60%. It has

the capability to manufacture boilers for super thermal power plants, apart from utility boilers and industrialboilers.

Source: Ministry of Heavy Industries, Annual Report; (Rs mn)

3. Transformers

The domestic transformer industry has the capability to manufacture the whole range of power and distribution

transformers. Special types of transformers required for furnaces, rectifiers, electric tract, etc, and series and shuntreactors as well as HVDC transmission upto 500 KV are also being manufactured in India.


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The Indian transformer industry exports to over 50 countries including the US, Europe, South Africa, Cyprus,

Syria, Iraq, and Far East countries. During FY05, exports of transformers rose by 15.4% to Rs 8,983 mn, whichcame on top of the sharp 39% jump in exports during the preceding year.

4. Switchgear and Control Gear

The switchgear and control gear industry in India is a fully developed one, producing and supplying a widevariety of switchgear and control gear items required by the industrial and power sectors. The entire range ofcircuit breakers from bulk oil, minimum oil, air blast, vacuum to SF6 are manufactured to standard specification.The range of products produced cover the entire voltage range for 240V to 800KV, switchgear and control gear,MCBs, air circuit breakers, switches, rewireable fuses and HRC fuses with their respective fuse bases, holders andstarters.


5. Electrical Furnaces

Electrical furnaces are used in Metallurgical and engineering industries such as forging and foundry, machinetools, automobiles, etc.


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6. Shunting Locomotives

Shunting locomotives for internal transport facilities are essentially used in railways, steel plants, thermal powerplants, etc.

Trend in Production of Various Categories of Heavy Electrical Machinery

Source: Ministry of Heavy Industries, Annual Report FY06; (Rs bn)

Characteristics of the Indian Capital Goods Sector

Fortunes of the sector linked with that of the overall industry Manufacturing sector is the key end-user sector of capital goods Labour is highly cost-competitive Inputs/raw materials used are mainly local/domestic in origin It suffers from low technological competitiveness

Relative lack of sub-contracting arrangements, despite large scale SME presence in engineering sector High incidence of indirect taxation (excise duty, octroi duty/entry tax), central sales tax, sales tax, service

tax, etc), as compared to other nations Lags in strong institutional mechanisms for export credit and promotion Public Sector Enterprises (PSE) have dominance in heavy engineering, machine tools, boiler

manufacturing. On the other hand, private firms prevail in industrial machinery segments such as cement,sugar and most other non-electrical machinery

Output concentrated with top few companies in most product groups, generally with large PSEs, followedby a middle layer of companies comprising large private sector players and multi-national companies,followed by a large number of small units at the bottom of the pyramid

Presence of a large width of products, with almost all major capital goods being manufactured locally Indian companies, in general, lack export thrust, as the focus is largely on the domestic market Most items produced compare functionally with those manufactured elsewhere in the world, but lag behind


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as far as finish is concerned Focus/investment in branding and marketing and customer orientation is low

Source: IAS (CMIE) & D&B Research

Leading Players in Heavy Electrical Industry

Source: Prowess; Compiled by D&B Research

Classification of the Heavy Engineering and Machine Tool Industry as per the Department of Heavy

Industries and Public Enterprises:

1. Textile Machinery Industry

The textile machinery industry in India manufactures machinery needed for sorting, cording, processing of yarns/fabrics and weaving, alongwith the components, spares and accessories. As per the Ministry of Heavy Industries,there are over 600 units engaged in the manufacture of machinery and spares, and out of these, about 100 units aremanufacturing complete machinery.

As per the Ministrys estimates, the industry has an installed capacity of Rs 30.5 bn, with a capital investment of

Rs 15 bn. The following table depicts the Indian textile machinery industrys performance during FY03-FY05:


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Trend in Production & Exports

Source: Ministry of Heavy Industries Annual Report FY06; (Rs bn)

With the buoyant outlook on textile exports, the Indian textile machinery industry is gearing itself to takeadvantage of the vast opportunities of supplying machines required to cater to export target of garmentmanufacturers, post the Multi Fibre Arrangement.

2. Cement Machinery Industry

The Indian cement machinery industry manufactures complete cement plants, based on dry processing and pre-calcination technology, for capacities upto 7500 TPD. The existing installed capacity of the industry is estimatedto be Rs 6 bn/annum. According to the Ministry of Heavy Industries, presently there are 18 units in the organsiedsector for the manufacture of complete cement plant machinery.

3. Sugar Machinery Industry

As per the estimates of the Ministry of Heavy Industries, there are presently 27 units in the organised sector forthe manufacture of complete sugar plants and components. The industrys installed capacity is estimated to be Rs

200 crore. The industry can manufacture sugar plants for a capacity upto 10,000 TCD (tonnes crushing per day).India is a net exporter of sugar machinery. The following table shows the growing exports during FY03-FY05:

Trade in Sugar Machinery

Source: Ministry of Heavy Industries, Annual Report FY06; (Rs mn)

4. Rubber Machinery Industry

The rubber machinery industry in India manufactures inters-mixer, tyre curing presses, tyre moulds, tyre buildingmachines, turnet servicer, bias cutters, rubber injection moulding machine, bead wires, etc. According to theMinistry of Heavy Industries, currently there are 19 units in the organised sector for the manufacture of rubbermachinery mainly required for tyre/tube industry.

The Indian rubber machinery manufacturing industry is a net exporter. The table below shows the trend in Indiastrade in rubber machinery during FY03-FY05:


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Trade in Rubber Machinery


5. Material Handling Equipment Industry

The Indian material handling equipment industry manufactures a range of equipments including crushing andscreening plants, coal/ore/ash handling plant and associated equipment such as stackers, reclaimers, shiploaders/unloaders, wagon tipplers, feeders, etc. The industry caters to the requirement of a host of core industriessuch as coal, cement, power, port, mining, fertilizers and steel plants. The Ministry of Heavy Industries estimates

the presence of 50 units in the organsied sector for the manufacture of material handling equipments. Apart fromthe organsied players, there are a number of units present in the small scale sector.

Imports of material handling equipments exceed their exports. Though comparatively much smaller than imports,exports have recorded buoyant growth in the recent years. The following table depicts the trend in trade inmaterial handling equipments:

Trade in MH Equipments


6. Oil Field Equipment Industry

The oil field equipment manufacturing industry manufactures drilling rigs for on-shore drilling. Offshore drillingequipments like jack-up rigs, etc are not manufactured indigenously. The industry however manufactures offshore

platforms and certain other technological structures domestically. Bharat Heavy Electricals, Hindustan Shipyard,Mazagon Dock and Burn & Co. are some of the leading producers. The recent couple of years have witnessed asurge in exports of oil field equipments. However, the industry remains a net importer, as can be seen from thetable below:

Trade in Oil Field Equipments



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7. Metallurgical Industry

According to the Ministry of Heavy Industries, currently there are 39 units in the organised sector which areengaged in the manufacture of metallurgical machinery. Metallurgical machinery includes equipments for mineral

benefication, ore dressing, size reduction, steel plant equipments, foundry equipments and furnaces.

There being a technological gap in the basic design and engineering for plants and equipments in the ferrous andnon-ferrous sector, the domestic manufacturers depend on imported technological know-how.

Trade in Metallurgical Machinery


8. Mining Machinery Industry

The various type of mining equipments include Longwall mining equipments, road header, side dischargersloader, haulage winder, ventilation fan, load haul dumper, coal cutter, conveyors, battery locos, pumps, friction

prop, etc. The Ministry of Heavy Industries estimates the presence of 32 manufacturers of mining machinery bothin the public and private sector for underground and surface mining equipments. Out of these, 17 unitsmanufacture underground mining equipments. Exports of mining machinery were observed to be negligible, ascompared to their imports.

Trade in Mining Machinery


9. Dairy Machinery Industry

The Indian dairy machinery manufacturers produce a range of equipments including stainless steel dairyequipments, evaporators, milk refrigerators and storage tanks, milk and cream deodorizers, centrifuges, clarifiers,agitators, homogenisers, spray dryers and heat exchangers (tubular and plate type), etc. As per the Ministry ofHeavy Industries, presently there are 16 units manufacturing dairy machinery and equipment in the organisedsector, both in private and public sector.

India is a net importer of dairy machinery. The table below indicates the same:

Trade in Dairy Machinery


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The Indian engineering industry is highly competitive, with several companies having a presence in each of thesegments. Several multinational companies of the likes of ABB, Siemens, Honda, Cummins, have entered theindustry.

Some Leading Players in the Heavy Engineering Industry

Source: Prowess; Compiled by D&B Research

10. Machine Tool Industry

The machine tool industry is regarded as the backbone of the entire industrial engineering industry. The Indianmachine tool industry manufactures almost the entire range of metal-cutting and metal-forming machine tools.Apart from conventional machine tools and Computer Numerically Controlled (CNC) machines, the Indianindustry also offers other variants such as special purpose machines, robotics, handling systems, and TPM-friendly machines.

The Ministry of Heavy Industries estimates the presence of around 150 machine tool manufacturers in the

organised sector and around 300 units in the small ancillary sector. Nearly 73% of the total machine toolsproduction in India is contributed by the leading 10 companies in the industry. The industry has an installedcapacity of over Rs 10 bn and employs a workforce (direct/indirect) of 65,000 skilled and unskilled persons.

The machine tool manufacturers in India produce general purpose machinery of international standards (in termsof quality, precision and reliability). However, they lag behind in terms of design and engineering capability so asto be able to undertake very high precision CNC (Computer Numerically Controlled) machines. Due to the gap intechnology for special purpose machines and some categories of CNC machines, import of technology isencouraged to bridge this gap.

Leading Players in Machine Tools Industry


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Source: Ministry of Heavy Industries; Compiled by D&B Research

Maharashtra (Mumbai and Pune), Punjab (Jalandhar and Ludhiana), Gujarat (Ahmedabad, Baroda, Jamnagar andRajkot), Tamil Nadu (Chennai and Coimbatore) and Karnataka (Bangalore and Mysore), and some parts ofeastern India are the hub of manufacturing activities in the machine tools industry.

The machine tools industry is a highly fragmented one. The growth in the industry is demand-driven, whichcomes from various sectors such as automobiles, engineering, defence, textile machinery, aviation, etc. The rising

demand for machine tools can be gauged from the sharp increase in production of machine tools. Imports are alsogrowing sharply. Imports data for FY03-FY05 shows a whopping 114.1% jump in imports in FY04 and a further88.7% increase in FY05. Machine tools manufacturers face the threat of imports from Taiwan and China whichare the most cost-competitive countries in machine tools.

Performance of Machine Tool Industry


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Over the years, the industrys focus has moved from standard machines to NC and CNC machines. This has also

resulted in improvement in technology, enhancement in quality and cost competitiveness.

Light Engineering Industry

The Indian light engineering industry is highly diversified, comprising of a number of distinctive sectors and sub-sectors. The product range in this industry varies from highly sophisticated microprocessor based process controlequipment and diagnostic medical instruments to low-tech items such as castings, forgings, and fasteners, amongothers. The sector also includes products such as bearings, steel pipes and tubes, etc. Most of the products in thelight engineering industry serve as inputs for the capital goods industry. The health of the light engineeringindustry is therefore dictated by the demand for capital goods.

The major sub-segments within this industry are:

1. Medical and Surgical Instruments

The medical and surgical instruments segment includes a wide array of equipments and apparatuses. Theseinclude medical and surgical instruments, dental equipment, electro-medical apparatus, orthopaedic appliances,

physiotherapy equipments, X-ray machines, among others. These instruments find application in diagnosis,therapy, and patient monitoring and thus play a crucial role in the healthcare delivery system.

Output of the Indian medical and surgical instruments industry, which is around four decades old, was very smalluntil a few years back. In recent years, liberalisation and growing health awareness has accelerated the growth ofthe domestic industry and also led to a rise in imports of medical and surgical instruments into India. Domestic

production comprises of wide range of medical equipment including Electro-Cardiograph (ECG) machines, X-raymachines, electro-surgical instruments, blood chemistry analysers, among others. The domestic industry meetsaround 40% of the demand for medical equipment, while the rest is met through imports. Demand forsophisticated instruments such as nuclear magnetic resonance (NMR) scanners, multi channel monitors, amongothers are met through imports. Majority of the end-users prefer to deal with foreign companies, as Indianmanufacturers who are concentrated in the small-scale sector are not able to provide after sales service. Exportsand imports of medical and surgical instruments were Rs 14.3 bn and Rs 28.7 bn respectively.

Rising income levels, growing health consciousness, and rise of medical tourism are expected to drive the demandfor medical and surgical instruments. Governments commitment to improve healthcare facilities and

liberalisation of trade and investments laws would also expand the market for medical and surgical instruments.

2. Process Control Instruments

Process control instruments and systems are instruments and systems used for measurement and control of processvariables. Process variables are physical or chemical parameters, the variations of which can affect the operationof a manufacturing process. These variables include humidity, pressure, temperature, liquid level, flow, vacuum,vibration, specific gravity, and chemical composition including pH, among others. Use of process controlinstruments and systems is highly significant in large and sophisticated process industries such as fertilisers,

power plant, steel, cement plants, petroleum refineries, and petrochemical industries, among others.

The industry is delicensed and 100% FDI is permitted in this sector. There are 26 units in the organised sector

engaged in the manufacture of process control instruments and systems. Seven of these 26 units are capable ofimplementing the entire instrumentation system including software required by the process industries. The


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domestic manufacturers meet around two-thirds of Indias demand for process control instruments and systems.

Transfer of technology has been the major cornerstone for the development of the domestic process controlinstruments and system industry. There exists a gap between technology adopted in India and contemporaryinternational technology. Technology presently used in the Indian industry is microprocessor based centralised

control system. The Indian industry is capable of handling open control systems and smart control devices;however, latest developments such as total integrated management and control approach, which are currently

being adopted in the developed countries, are yet to be adopted in the country.

Demand for these instruments and systems are dependant largely on the progress of implementation of variousmega projects in the fields of power, steel, fertilisers, petrochemicals and refineries. Exports in this industry havenot recorded significant growth over the years. Technology gap between technology adopted in India andinternational adopted technology combined with fast obsolescence, lack of standardisation and quality controlhave all led to lower exports from the country. During FY05, exports and imports of the process controlinstruments and systems were Rs 5.4 bn and Rs 28.9 bn respectively.

3. Antifriction roller bearing

Roller bearings are components used to reduce or eliminate friction between moving parts and thus reduce wear &tear of machines. They help improve machine performance and are thus a critical component of any equipmentthat rotates. It finds varied application, ranging from simple electric fans to complex space rockets. Depending onits usage, a bearing may have to withstand prolonged use, high-speed rotation, varied temperatures, or a corrosiveenvironment. Bearings are available in two distinctive shapes, ball, and roller. There are four different types ofroller bearingscylindrical roller bearings, needle roller bearings, tapered roller bearings and spherical roller

bearings.

The Indian bearing industry has recorded good growth in the past few years. The Indian manufacturers are able tomeet around 70% of the demand for general purpose bearings. The Indian bearing industrys product rangecomprises of around 500 types of bearings. Indian manufacturers do not produce special purpose bearings asdemand for the same is low and investments required are huge as bearings is a capital intensive industry,. Special

purpose bearings are therefore imported.

The bearings industry is highly fragmented. There are around 20 units in the organised sector engaged in themanufacture of ball and roller bearings. The organised sector caters to both the original equipment manufacturersand replacement market. The unorganised sector, which manufacturers low quality small bearings caters to thereplacement market. The manufacturing activity of a few small-scale units is restricted to assembly of importedcomponents.

Automobile industry is the major user industry for the bearings industry. Given the growing demand forautomobiles in the country, demand for bearings would increase in the coming years. During FY06, production of

bearings stood at 327.6 mn numbers. Imports and exports of bearings during the same period were Rs 16.8 bn andRs 8.3 bn respectively.

4. Industrial Fasteners

Industrial fasteners cover a wide range of products such as nuts, screws, bolts, studs, rivets, nails, washers, etc.Fasteners can be broadly classified into two groups, high tensile strength fasteners, and mild steel fastenersdepending on their tensile strength. Manufacturer of high tensile fasteners requires superior technology and are

mainly manufactured in the organised sector, while, manufacturing of mild steel fasteners is concentrated in theunorganised sector. In fact, manufacture of all types of fasteners except high tensile fasteners and special purpose


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fasteners are reserved for the SSI sector. Fasteners are used in the assembly of engineering systems.

The automobile industry is the largest consumer of fasteners. The other major user-segments are textilemachinery, railway locomotives, construction, computer hardware and general engineering. There exists hugeexport potential for Indian industrial fasteners, however, poor product standardisation, relatively higher raw

material costs, and low labour productivity make Indian fasteners less competitive in the global market.

During FY05, exports and imports of industrial fasteners were Rs 7.6 bn and Rs 4.8 bn respectively. Domesticproduction during the same period was 78,252 tonnes. The Indian fasteners industry is expected to fare well in themedium term driven by demand mainly from the automobile segment and the construction industry.

5. Ferrous Castings

Ferrous castings constitute essential intermediates for automobiles, industrial machines, power plants, chemicals& fertiliser plants and cement plants, among others. They are therefore vital for the growth and development ofthe engineering industry. The domestic industry is well established. Being a highly polluting industry, many of the

developed countries are withdrawing from this industry. This gives rise to a huge export potential for Indianmanufacturers. To capitalise on this export demand, leading manufacturers have undertaken modernisation and upgradation of their manufacturing facilities to improve productivity and product quality and also economise on

production costs. Given the wide spread usage of castings across industries and huge export potential, there existsconsiderable scope for establishing additional capacity in this area.

6. Steel Forgings

The forging industry has emerged as one of the major contributors to the manufacturing sector of the Indianeconomy. Depending on the scale of operations, the industry can be categorised as large, medium, small, and tiny.SMEs comprise a major portion of this industry. The industry consists of around 330 odd units, of which there arearound 100 units in the medium and small sector, and only around 9-10 units are present in the large scale. Thereare huge numbers of units functioning in the tiny sector.

Increasing globalisation has led to sharp rise in investments in the sector. This has led to the industry becomingcapital intensive from being labour intensive. Total investment in the large and medium sectors of the forgingindustry is estimated to be around US $ 600 mn. To expand their markets and have a global reach, the small-scaleunits are also increasing their capital investments. The small-scale units have upgraded their facilities in terms oftechnology and quality and a number of them are now suppliers to Original Equipment Manufacturers (OEMs) inthe automobile sector. The automotive industry is the major end-user of the forging industry. The other userindustries include industrial machines, railways, oil & gas, power plants, and chemical plants, among others.

The Indian forgings industry has made rapid strides and currently not only meets the almost the entire domesticdemand, but has also emerged as a large exporter of forgings. The industry has been able to expand its presence inthe global markets, which is reflected in the almost 30% growth in exports during FY05 to US $ 250 mn. Themajor export markets are USA, Europe, and China. The outlook for the industry looks promising, backed by therobust demand from the domestic automotive sector and from the global markets.

7. Seamless Steel Pipes & Tubes

Seamless steel pipes & tubes find widespread usage in the hydrocarbon industries, processing & generalengineering industries. Boiler pipes, as the name suggests are used in boilers, heat exchangers, super heaters,

among others, while casing & tubing are used for drilling of oil and gas. Seamless pipes find application inindustries where strength, resistance to corrosion and long shelf life are critical. The industry is delicensed and


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100% FDI is permitted in the sector under the automatic route.

The oil sector is the major end-user segment of seamless pipes & tubes. The other user segments include boilers,ball bearings, automobiles, chemical plants, fertilisers, petrochemical plants, industrial machinery, among others.The oil sector accounts for around 60% of total demand, while, the bearings, automobiles, and boiler sector

account for around 30% of total demand. There could be a significant shift in the demand pattern for seamlesspipes and tubes due to the robust growth expected in the power and automobile sectors.

8. Electrical Resistance Welded (ERW) Steel Pipes & Tubes

ERW steel pipes & tubes find widespread usage across industries and fields. In addition to various engineeringindustries, they are used for water, oil and gas distribution, line pipes, fencing, scaffolding, etc. They are also usedfor agricultural purposes, drinking water supply, thermal power, for hand pumps for deep boring wells and also as

protection for cables (telecom), among others. Depending on the requirement of the end user industry, ERW steelpipes & tubes are available in various wall thicknesses, diameters, and qualities. The different types include lineprecision pipes, tubular poles, electric poles, lightweight galvanised pipes for sprinkler irrigation, among others.

The industry has sufficient capacity to manufacture the different types of pipes & tubes. High performance ERWsteel pipes & tubes possess high strength, toughness and are corrosion resistant.

In the manufacturing process of ERW steel pipes & tubes, the edges to be welded are mechanically pressedtogether and electric resistance or electric induction is used to generate the heat required for welding. With theadoption of better welding technology, ERW pipes & tubes are now widely used in the oil & gas sector. A numberof ERW steel pipes & tubes production units are in the SSI sector. Higher demand from the oil & gas industry,infrastructure, and automobile industries has led to a healthy increase in production of ERW steel pipes.

9. Submerged-Arc Welded (SAW) Pipes

SAW pipes are mainly used for oil & gas transportation and water distribution. SAW pipes are of two majortypes, longitudinal and helical welded SAW pipes. The later are used for low-pressure application, whilelongitudinal SAW pipes are preferred for high-pressure application such as gas pipes. Longitudinal SAW pipesare more than 25 mm in thickness. In terms of production costs, it costs less to manufacture helical SAW pipes ascompared to longitudinal SAW pipes. In the manufacturing process of submerged-arc welded pipes, the heatnecessary to melt the edges of metal to be joined together is generated with the help of a concealed arc with no

pressure between the two sides of the weld.

India has an installed SAW pipes capacity of 6.5 lakh tonnes, with four major players. These are Jindal SawLimited, Well Spun Gujarat Limited, PSL Limited, and Man Industries. A huge export potential exists for SAW

pipes. Exports and imports during FY05 were Rs 11.9 bn and Rs 0.6 bn respectively.

10. Typewriters

Computers have largely replaced typewriters. In line with the falling demand, production of typewriters hasdeclined in the last few years. The manufacturers in the organised sector are capable of manufacturing the entirerange of typewriters including electronic typewriters. Domestic producers are able to meet the demand fortypewriters in the country. There exists a huge potential for exports of typewriters to the developing countries.During FY05, imports and exports of typewriters stood at Rs 3.2 mn and Rs 77 mn respectively.

11. Bicycle Industry

The Indian bicycle industry can be categorised into two segments, those manufacturing bicycle parts, and those


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manufacturing complete bicycles. Majority of bicycle parts and components are manufactured in the small-scalesector, since most of the components other than free wheels and single piece hubs are reserved for the small-scalesector. Large units are permitted to manufacture bicycle frames, chains, rims, and that too only for captiveconsumption. Complete bicycles are manufactured in the organised sector. Four companies account for over 90%of total bicycle production in the country.

The Indian bicycle industry conforms to well-accepted quality standards in the international market. The industryis taking efforts to increase exports.

12. Sewing Machines

In India, the manufacture of conventional hand operated sewing machines is reserved for the small-scale sector.Domestic demand for these is fully met by the Indian manufacturers. There exists a huge potential for exports ofsewing machines to developing countries. During FY05, exports and imports of sewing machines were Rs 0.6 bnand Rs 4.8 bn respectively.

13 . Plain Paper Copier

Plain paper copier, a device used for reproducing copies of documents, typescripts, photographs, among othershas become a very important office automation device. At present, there are only 12 units in the countrymanufacturing this device and most of them have technical collaboration with foreign companies. Theintroduction of the low priced personal copier has altered the demand pattern for plain paper copiers. The personalcopiers are more user friendly and come with customer replaceable toner cartridge and plate receptor drums.Exports and imports of plain paper copiers during FY05 were an approximate Rs 159 mn and Rs 1.6 bnrespectively.

Outlook

We expect demand in the engineering sector to remain healthy primarily on account of the Governments

increased thrust on infrastructure development. The continuing growth of the manufacturing sector and favourableregulatory policies would provide further boost to the sectors growth. Fresh investments in the power equipment,metals, oil & gas, and petrochemicals industries, coupled with robust industrial activity is expected to drive thegrowth momentum in the capital goods industry in the near term.

Investment projects worth Rs 218.6 bn were outstanding, as at the end of January 2007, in the electrical and non-electrical machinery industry. The sharp increase in investments (announced/ proposed/under implementation)witnessed during the last 1 year or so, indicates the buoyant demand outlook on the user-industry, and thereby on

the future prospects of the machinery industry.


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*Outstanding Investments as of January each year(Rs bn)Source:CapEx(CMIE) and D&B Research

Engineering Clusters in India


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Engineering Clusters in India


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Engineering goods top export list on low wage andtalentSmriti Seth & Gouri Agtey Athale, ET Bureau Jun 6, 2011, 05.19am IST

Tags:

Shankar Raman| Russian Federation| Nissan Motor| New Delhi| Nano| mercedes| India| engineering goods| Engineering Exports Promotion Council

NEW DELHI/PUNE: In May 2010 Nissan Motor inaugurated its plant in Chennai that was to supplyIndia-made Micra to Europe, Middle East and Africa.

Exactly a year later, on May 28 this year, Tata's breakthrough engineering Nano crossed the Indian

borders for the first time, debuting in Sri Lanka in the fiftieth year of the car maker's presence in the

island nation.

These are not isolated instances, but just two of the high-profile examples of how Indian engineering

is making a mark in the World with numbers to back the claims.

India's shipments of engineering goods have increased almost eight fold in the last decade to become

the biggest item of exports, ahead of primary products that used to dominate earlier.

Engineering goods include metal products, industrial machinery and equipment, auto and its

components, and transport equipment.

Experts attribute the rise to the significant competitive edge the Indian companies have acquired in

the engineering space and their ability to rise up the value chain.

Citi economists Rohini Malkani attributes the rise to "low labour costs combined with requisite skill

sets which India enjoys, thanks to the continued increase in engineering graduates."

This has allowed India to target a range of markets, from emerging ones in Africa to sophisticated and

quality conscious countries in Europe.

"The rest of the world has begun to see India as a good destination for engineering goods where we

have scale of operations as well as niche and proprietary products," said Yatin Shah, managing

director, Precision Camshafts.

The government's incentives to exports to non-traditional markets have helped Indian companies. The

share of Europe and the US is down nearly 15 percentage points over the decade. The share of

Russian Federation, Middle East and Africa is up to 13.5% from 5% a decade back.

"The engineering goods have moved from the low to the medium end in terms of skill, knowledge and

R&D applied," says KT Chacko, Director of IIFT.
http://economictimes.indiatimes.com/topics.cms?query=Shankar%20Ramanhttp://economictimes.indiatimes.com/topics.cms?query=Shankar%20Ramanhttp://economictimes.indiatimes.com/topics.cms?query=Russian%20Federationhttp://economictimes.indiatimes.com/topics.cms?query=Russian%20Federationhttp://economictimes.indiatimes.com/topics.cms?query=Nissan%20Motorhttp://economictimes.indiatimes.com/topics.cms?query=Nissan%20Motorhttp://economictimes.indiatimes.com/topics.cms?query=New%20Delhihttp://economictimes.indiatimes.com/topics.cms?query=New%20Delhihttp://economictimes.indiatimes.com/topics.cms?query=Nanohttp://economictimes.indiatimes.com/topics.cms?query=Nanohttp://economictimes.indiatimes.com/topics.cms?query=mercedeshttp://economictimes.indiatimes.com/topics.cms?query=mercedeshttp://economictimes.indiatimes.com/topics.cms?query=Indiahttp://economictimes.indiatimes.com/topics.cms?query=Indiahttp://economictimes.indiatimes.com/topics.cms?query=engineering%20goodshttp://economictimes.indiatimes.com/topics.cms?query=engineering%20goodshttp://economictimes.indiatimes.com/topics.cms?query=Engineering%20Exports%20Promotion%20Councilhttp://economictimes.indiatimes.com/topics.cms?query=Engineering%20Exports%20Promotion%20Councilhttp://economictimes.indiatimes.com/topics.cms?query=Engineering%20Exports%20Promotion%20Councilhttp://economictimes.indiatimes.com/topics.cms?query=engineering%20goodshttp://economictimes.indiatimes.com/topics.cms?query=Indiahttp://economictimes.indiatimes.com/topics.cms?query=mercedeshttp://economictimes.indiatimes.com/topics.cms?query=Nanohttp://economictimes.indiatimes.com/topics.cms?query=New%20Delhihttp://economictimes.indiatimes.com/topics.cms?query=Nissan%20Motorhttp://economictimes.indiatimes.com/topics.cms?query=Russian%20Federationhttp://economictimes.indiatimes.com/topics.cms?query=Shankar%20Raman


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A lot of credit must go to the automobile industry. Multinationals came here hoping to grab a share of

the rising car market but found they could use some of the local edge for their global operations.

Mercedes Benz does not export cars but sends out engineering drawing and components sourced

from Indian vendors for Daimler globally.

Local auto components manufactures have managed to ride this opportunity to reach out to global

market just when the developed world was finding manufacturing increasingly unviable.

"Emerging markets in general are more cost competitive," said Shankar Raman, CFO of engineering

major L&T. "There seems to be a shift from the high cost-low productivity west to low cost-high

productivity east," he said.

Precision Camshafts is increasing its capacity and will soon become the largest camshaft

manufacturer in the world.

A two-and-a-half times increase in exports over a period of 7-8 years is clearly achievable", BN

Kalyani, Chairman and Managing Director, Bharat Forge said.

In fiscal 2011, auto components exports were about $ 12 billion.

Indian exporters have also tried to avoid a head on competition with China.

"China has a huge cost advantage in the low end goods. Indian engineering goods are mostly

focused in the middle range where competition is relatively less fierce" said Shankar Raman.

The concern now is whether high growth rates for engineering exports can be sustained.

The Ministry of Commerce aims to increase engineering exports to 125bn USD by 2014. "This target

is challenging but achievable, if the government of India does its fair share", said Aman Chadha,Chairman of Engineering Exports Promotion Council (EEPC).

"Industry requires the government to emphasise removing infrastructure bottlenecks for exports,

reduce transaction costs which constitute 7-10% of export value and compensate exporters for the

incidence of all central, state and local level taxes, duties and levies," says Baba Kalyani.

"If government supports us through these, India can become a global leader in auto components by

2020," he adds.

Another threat arises from the roll back of stimulus packages in most countries that initially fueled

higher demand for capital goods in 2009.

"The phenomenal growth of over 50% witnessed in 2010-11 may be hard to repeat as countries roll

back their fiscal stimuli. But, the future will continue to look promising," says Chadha.

Heavy construction equipment is a critical tool for construction activities. They form the backbone of anyconstruction project by reducing human effort and time.The market has contributed to the rapid development ofinfrastructure for the development of economies globally. It comes in different types that include Earth movingequipment (Excavators, Loaders, Backhoe, Graders/Motor Graders, and Others), Material handling equipment(Cranes, Telescopic Handlers, and Others), Construction vehicles (Dumpers, Tippers), and other (Compactors &Road Rollers, Pavers/Asphalt Finishers, and Others). The Market grows at a steady pace globally due toincreasing population, technological developments, and infrastructural developments in emerging markets.

The global heavy construction market is segmented on the basis of their application areas that includeinfrastructure, commercial buildings, and residential buildings. Secondly, the global heavy construction market isalso segmented on the basis of types of equipment such as earthmoving equipment, material handling


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equipment, heavy construction vehicles, and other heavy construction equipment. Lastly, the market issegmented on the basis of regions such as Asia-Pacific, Europe, North America, South & Central America, andRest of the World (ROW). Each segment has been analyzed with respect to its market trends, growth trends andfuture prospects. The data has been analyzed from 2011 to 2018, and all quantitative data regardingsegmentation is mentioned in terms of value ($million).

Huge market with estimated global revenue of $195.0 billion by 2018

The global market is expected to reach $195.0 billion by 2018, growing at a CAGR of 8.3% from 2013 to 2018.The critical factors responsible for growth of the market include a continuous increase in demand for newinfrastructure, increase in the demand for residential buildings due to growing population, high construction andpublic infrastructural growth especially in emerging markets. The key concerns in the industry pertain to the highcost of the market.

Heavy Construction Equipment Market: By Revenue,2012 - 2018

Source: MarketsandMarkets Analysis

The market is also analyzed with respect to Porter's five force model. Different market forces such as bargainingpower of suppliers, bargaining power of buyers, degree of competition, and threat from substitutes and new

entrants are analyzed with respect to the industry. The report also provides a competitive landscape of majormarket players with its developments, mergers & acquisition, expansion & investments, agreements & contracts,new services & technologies developments, and others. A number of these developments are spotted by keyindustry players that suggest the growth strategy of these companies as well as of the overall industry.

The report classifies and defines the revenue for the industry. It covers qualitative data of different types ofequipment used in various applications. The report also provides a comprehensive review of major marketdrivers, restraints, opportunities, winning imperatives, and key burning issues in the market. Key players in theindustry are profiled in detail with their recent developments. Some of these include companies such asCaterpillar (U.S.), Komatsu (Japan), JCB (U.K.), Hitachi Construction Machinery Co. Ltd (Japan), VolvoConstruction Equipment (Sweden) and John Deere & Co. (U.S.).

Heavy construction equipment is the critical tool for any construction project. These are used extensively at the

construction site to reduce labor cost and time. The high construction and infrastructural growth, technologicaldevelopments and their adaptations, and growing population have fueled the growth for the market. Infrastructureis the largest application area for this market especially in developing markets such as China, Brazil and India.


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The global market is witnessing decent growth based on heavy investments done in the infrastructure recreationto accommodate smart residential and commercial buildings. The emerging markets in South America and Asia-Pacific are witnessing strong demand for heavy construction equipment and large investments are made in theseregions.

Heavy Construction Equipment Revenue Market Share,By Geography, 2012

Source: MarketsandMarkets Analysis

Growing infrastructure investments drive 8.5% CAGR for heavy construction equipment in infrastructureapplication area

Global infrastructure development scenario drives the growth of heavy construction machinery in infrastructureapplication area. Market is estimated to witness 8.5% CAGR within the forecast period for infrastructuredevelopment purposes. The BRIC countries and emerging economies of Asia-acific including South Korea, and

Australia are leading the growth for this market.

Caterpillar (U.S.), Komatsu (Japan), JCB (U.K.), Hitachi Construction Machinery Co. Ltd (Japan), VolvoConstruction Equipment (Sweden) and John Deere & Co. (U.S.) are the major players that constitute a majorshare of the global market.

Most of these companies mainly rely on growth strategies such as new product launch, agreements &collaborations, joint ventures, mergers & acquisitions, investments & expansions in diversified geographic areas.The growing demand in the Asia-Pacific and South & Central American market prompted most of the companiesto invest in these markets and launch new products.

New product launches and investments & expansion are the key strategies that help the companies penetrate theexisting market, and expand into new and emerging markets.

Major heavy construction equipment types include Earth moving equipment, Material handling equipment,Construction vehicles, and other. Earth moving equipment is the largest type in terms of revenue, generatingmore than half of the revenue.

Synopsis

The Engineering industry forms the basis of all major industries across the world. Important


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industries such as infrastructure, manufacturing, processing, and metallurgical are heavily

dependent on the engineering industry for their growth. Currently, Engineering contributes

12

percent to the global Gross Domestic Product (GDP).

Within Engineering, the global Research & Delivery industry reported estimated revenues of

USD XX

trillion in 2012. The industry is expected to create revenues of USD XX trillion by 2017,

demonstrating an aggressive growth rate. The Services industry is also experiencing a similar

thrust

and is predicted to generate revenues of USD XX billion by 2015 and USD XX billion 2017, at

a

Compound Annual Growth Rate (CAGR) of X percent.

The Indian Engineering industry is the largest among the industrial segments in the country

and

provides direct and indirect employment to more than 4 million skilled and non-skilled

professionals.

With a major contribution of 3 percent towards the countrys GDP, the industry currently

has a

turnover of INR XX billion.

The industry has demonstrated exceptional growth over the past five years due to major

investments and policy initiatives by the Indian government and by domestic and foreign

players.

Global industry leaders are looking at this market as a manufacturing hub, owing to lower

prices of

raw materials and services, and the availability of a skilled labour force.

Our report is a thorough study and analysis of the Indian Engineering industry, along with its

current

status and future scope. It defines the possible opportunities and scope of development in

this

segment. We analyze in detail the current government initiatives in this sector and the

impact they

are having on the industry.

The report also briefly discusses the broad global environment of the engineering industry.


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Interesting topics such as investments and recent trends have been included in the report.

To sum

up, this report provides an overall picture of the Engineering industry in India and its growth

prospects in the near future.

Outlook

Demand in the Indian engineering equipment industry is currently propelled by the

manufacturing, power and mining industries. This demand is expected to rise, keeping in

mind the governments initiatives for infrastructure development. In addition, investments

in power, oil and gas extraction, mining and petrochemicals will add further fillip to the

industry. Industrial growth and development in the manufacturing industry will also add to

the momentum of the engineering goods industry.

The Department of Commerce has set a target of USD XX billion for engineering exports by

2013-14. This target is anticipated to contribute to the development of the industry to a

great extent. As the export market provides a plethora of opportunities, the Indian

engineering goods market is looking to contribute significantly to overall exports.

Some of the highlights of the strategy paper are as below:

India should aspire to triple its engineering exports over 20102014 to reachUSD110 billion. In view ofIndias current low share of world engineering exports,and considerable scope for improvement in its competitiveness, it can achieve aCAGR of 2225% over 20102014.

To realize this aggressive but achievable aspiration, concerted effort needs to beput in by the government, the council and exporters. The key imperativesfor India include (1) enhancing the alignment and effectiveness of trade drivers,

(2) boosting the competitiveness of the Indian engineering industry andfacilitating upward movement along the value chain, (3) and strengtheningenablers for growth by clearing infrastructural and procedural bottlenecks.

India continues to be one of the fastest growing exporters of engineering goods,growing at a CAGR of 30.1%, trailing only China among major engineeringexporters, but well above the global engineering average export growth of 13%.Significantly, the countrys engineering export growth rate has been higher thanits overall exports.

In 2008, Indias goods export touched USD182 billion (CAGR of 23% over 2004

2008), with its engineering exports contributing 23.69% of its total exports ofgoods, reaching USD43.13 billion (a CAGR of 30% over 2004-2008). However,


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the countrys share of engineering exports in its total exports like the developingcountries of Asia and Latin America continue to be much lower when comparedto developed countries.

India has benefited less than other India-like countries from the proliferation of

bilateral and regional trade agreements comparatively higher tariff rates applyfor Indian exports. Further, some of its export competitors have availed reductionor complete removal of tariffs for their exports, which has resulted in a decline inthe competitiveness of exports from India vis--vis its competitors.

If India wants to improve its export prospects, it needs to ensure preferentialmarket access for its engineering exports by (1) negotiating trade agreementswith some of its bigger exports markets and by (2) broadening the scope of theagreements by negotiating for complete FTAs/ CECAs.

For India to capture opportunities in increasingly integrated global markets, itneeds to align its trade enablers and drivers trade agreements, promotions andmarketing with the global trade scenario and the fast evolving engineering tradelandscape worldwide. Initiatives under this imperative include:

Accelerate bilateral/regional trade negotiations, broaden their scope andleverage WTO flexibilities

Align export promotion activities to the nature of markets and their relativeimportance to India

Improve effectiveness of promotional activities

Focused targeting of thrust markets for all major product categories

Enhancing trade facilitation

The government needs to facilitate economies of scale in the engineering sectorby initiating policy-level measures to improve the saleability of engineering SEZsin the developer and user community and also attract higher levels of FDI in theengineering sector. These measures will need additional stimulus in the form oflabor reforms to amend the existing archaic laws to meet the needs of currentmarket realities, and also enhance the quality and quantity of manpower.

The government should extend the Technology Upgradation Fund Scheme

(TUFS) to the High-Potential and Striver product categories to combat increasingtechnological obsolescence in them. The TUFS should be first geared towardsHigh-Potential products and later towards Strivers to ensure an immediate boostto engineering exports while enabling higher employment generation at the sametime.

The government should set up a skill development fund to impart training in areaswhere technology upgradation is being initiated to ensure the enhancement theproductivity and quality levels. EEPC should take the lead in enhancing the skilllevels in the engineering sector by identifying clusters where it is a necessity aswell as developing a training plan so as to quickly implement it across the length

and breadth of the country.


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While FDI will definitely help improve the technological capabilities in India,certain other important initiatives such as centralized mapping of the R&D activityhappening in the engineering sector, incentivizing commercialization ofindigenously developed technology, marketing of the developed technologies toensure sustainability of R&D, enhancing industry-academia-central R&D

institution interactions need to be taken up on a priority basis by the government.

Additionally, an enhancement of the tax incentives would further boost R&D inthe engineering sector.

The government needs to simplify several customs procedures by reducing thenumber of requisite procedures or by initiating the process of self-certification forstatus-holders. In addition, it should undertake other relevant technologicalinitiatives to reduce the overall transaction time and related costs.

Engineering SectorAgainst a target of USD 125 Billion for 2013-14, it is estimated that only USD

63.50 Billion can be achieved. Engineering goods is a very broad spectrum

covering many commodities of various equipments / machinery / machines

etc. in more than 30 categories. For focused monitoring of engineering

exports, the following initiatives have been taken recently (2013) :

The DGCIS HS commodity codes have been expanded to 32 for theengineering sector, vis--vis 10 in number that existed till 2012-13.

Brand engineering campaign has been launched in 2013-14 and wouldget carried forward during the 12th Plan, specific product groups would

get covered for focused campaigning.

Reasons for shortfall:

The EU, major markets which accounted for 24% of exports has fallen to19%. Similar is the case for North America, which is another major

market.

The fall in global demand has also impacted the domestic productionwith associated issues like inflation interest rates etc.

The Chinese engineering exporters have benefited during this period.

Although initiative have been taken by the Department to stimulate theexports, engineering goods have long gestation periods and take time to

establish new markets.


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Tariff and non-tariff barriers have also been introduced by some of themajor markets.

Various procedural bottle-necks and policy initiatives have also affectedanticipated CAGR.

Immediate Tasks

Provide credit at low cost for investment in capital goods / equipment.

VAT refund issues to be redressed.

Soft loan (or subvention) for technology up gradation required. Use focus market scheme to explore new markets (Eastern and Central

Europe) and strengthen the position in the existing markets (ASIAN, LAC

region, etc.)

Focus on Brand India Campaign, institutionalise the Indian EngineeringSourcing Show.

Continue efforts to get favourable treatment under PTA / FTAs.

Inverted duty structure is to be redressed where necessary.

The limits for plant and machinery in the MSME sector need to beenhanced so that the benefits of MSME sector can add value to

engineering exports.

Medium Term Measures

Skill Development Fund for Engineering Industry

Improvement in existing FTP instruments by aligning FPS and MLFPS toBig, Niche and Tough Market.

Infrastructure and freight cost to be addressed.

Industry to be facilitated in all new markets with direct government Support to tackle the local issues especially project exports.

Formulate a Technology Upgradation Fund Scheme for the MSME sector

Documents

Engineering Industry in India.docx