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Engineering

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Engineering

September, 2011

Brief Introduction

The Engineering industry in India primarily deals with the design, manufacture and operation of structures, machines or devices; design being an integral part of engineering. The Engineering sector is the largest of all industrial sectors in India and accounts for about 12 per cent of the gross domestic product (GDP).

Market Size

Engineering Export Promotion Council (EEPC) India, the apex body of engineering exporters, has stated that engineering exports recorded a remarkable growth during the first half of 2011. The engineering exports grew by 94 per cent and 60 per cent during Q1 and Q2 respectively in 2011.

Moreover, EEPC has been urging the Government of India to start direct shipping services between India and Latin America with a view to optimise trade potential that is unexploited with the countries such as Colombia, Chile, Brazil and Argentina.

Design & Engineering- Key Developments

  • Elecon Engineering Company Ltd’s Material Handling Equipment (MHE) Division has got an order worth Rs 297.2 million (US$ 6.05 million) from Bharat Heavy Electrical Ltd (BHEL) for a project in Bihar. The contract entails design, engineering, manufacturing, supply and erection & commissioning for the 2 x 250 mega watt (MW) expansion project.
  • Autodesk Inc, a pioneer in 3D design, engineering and entertainment software, has launched its product portfolio named AutoCAD 2012 in India. The new range of products in the portfolio gives immense options for people who deal with popular design, documentation and collaboration software.
  • Many European original equipment (OE) manufacturers are establishing their design and engineering back offices in India. The move would create job opportunities for the design, hardware and software engineers which would not only give India a niche position in the global market, but would also diversify its export basket. Gujarat is increasingly becoming a hub for international and domestic automobile companies. Apart from ancillary auto hubs in the state, there is a plan on the cards to develop a precision engineering park in Dahej.

Design & Engineering- Key Investments

  • US-based innovative products maker 3M Inc is making an upfront investment of around Rs 100 crore (US$ 20.38 million) in its Indian research and development (R&D) facility. The investment has been done to localise a range of company’s products to satiate burgeoning Indian markets.
  • The miscellaneous mechanical and engineering industries’ sector-wise foreign direct investments (FDI) inflows from April 2000 to July 2011 was calculated at US$ 2,129.21 million, as per the Department of Industrial Policy and Promotion (DIPP).
  • Chennai is fast emerging as a hub in engineering design, R&D and product development for a number of global players. Finnish group Stera, has set up its first factory in India in Chennai at a cost of around US$ 4 million. The company specialises in production of mechanical and electronic assemblies.

Meanwhile, the National Automotive Testing and R&D Infrastructure Project (NATRiP) is aiming to complete its work in Chennai by the end of 2012. The project entails setting up of testing and research centres at automotive hubs in the country.

Engineering Services Outsourcing (ESO)

Almost a decade ago, the nature of engineering work being outsourced involved basic and conventional services like creating digital models and drawings and sending them back to the client who would then incorporate those in his designs. But with change in times, India has progressed immensely from the low-end business process outsourcing (BPO) work to high-end engineering services outsourcing (ESO) activities.

India is anticipated to play a vital part on global canvas when it comes to outsourcing of engineering services. India’s vast pool of skilled and young talent coupled with cost-effective ecosystem has made it a hot outsourcing destination. For instance, global automobile and aerospace giants are increasingly outsourcing engineering services such as designing to Indian service providers. The country is expected to account for one-fourth of the global ESO business by 2020, raking in about US$ 40 billion.

Moreover, a joint study by NASSCOM and Booz Allen Hamilton (a strategy and technology consulting firm) reveals that the global engineering services market is estimated to touch US$ 1,100 billion mark by 2020, of which the outsourced component is projected to be around US$ 200 billion.

Government Initiatives

India’s Defence Research and Development Organisation (DRDO) and its British counterpart Defence Science and Technology Laboratory have signed a ‘Letter of Arrangement’ to collaborate their efforts in the fields of science and engineering to work on various projects such as unmanned aerial vehicles and advanced explosives.

India’s Department of Science & Technology is being assisted by The United States National Science Foundation (NSF) to develop former’s Science and Engineering Research Board, which will boost the infrastructure and capacity for research in India.

The government of India is also contemplating to increase expenditure on R&D from current 1 per cent to 2 per cent of gross domestic product (GDP) by the end of 12th Five Year Plan.

“A US$ 5 billion fund has also been allocated to support the Private Sector in the areas of innovation, R&D and intellectual property rights (IPR), under the aegis of the ‘National Electronics Mission”, revealed PS Narotra, Senior Director & Head, International Corporation & Electronics Hardware Industry, Department of Information Technology, Ministry of Communication & IT, Government of India.

Road Ahead

A study by Frost & Sullivan has stated that the automotive engineering services market in India is expected to touch US$ 102 million by 2015 as against US$ 74.4 million registered in 2009 with a compounded annual growth rate (CAGR) of 7.9 per cent wherein about 40 per cent of the automotive industry’s engineering activities would be outsourced to engineering service providers.

According to a report from ‘Research and Markets’, the Computer Aided Engineering (CAE) market in India is estimated to grow at a CAGR of 23 percent over the period 2010-2014. Increased ability among the engineers for design optimisation and validation has been growing this segment of Indian engineering industry. Automotive, Aerospace and Manufacturing industries are the major end-users of CAE in India.

According to a report titled ‘The Futures Report 2011’ by Global Futures and Foresight, India's Engineering Research & Development (ER&D) providers could corner a major share (40 per cent) of global offshore revenues in 11 key verticals by 2020. Further Booz & Co added that overall expenditure on ER&D has increased from US$ 980 billion in 2008 to US$ 1.1 trillion in 2009 (12 per cent growth) and is projected to enhance to US$ 1.4 trillion by 2020. ER&D market is majorly driven by demand from sectors like computing systems, medical devices, energy, and infrastructure.

Exchange Rate Used: INR 1 = US$ 0.02037 (as on September 27, 2011)

References: Press Releases, Department of Industrial Policy and Promotion document, content from CIOL