Trade Analytics
Engineering
Engineering exports from India increased 14.7 per cent to US$ 70.6 billion in FY15’.

Engineering Industry in India

Latest update: December, 2016

Inflow of foreign investments

  • Cumulative FDI inflows increased to US$ 28.22 billion in FY16* from US$ 8.9 billion in FY10.
  • The government’s increasing focus on attracting foreign investors in manufacturing and infrastructure is likely to boost FDI in the sector.

Key categories of engineering exports

  • In FY16, Transport equipment ( which includes Auto & auto component including Aircraft and ship boats) is the leading contributor to engineering exports.
  • Exports of iron & steel products accounted for a market share of around 19.8 per cent, while industrial machinery including electrical machinery accounted for 24.8 per cent of the total engineering exports.
  • Exports of iron & steel products accounted for a market share of around 19.8 per cent, while industrial machinery including electrical machinery accounted for 24.8 per cent.

 

Last Updated: December, 2016

SECTORAL REPORT | November, 2016

Introduction

The Indian Engineering sector has witnessed a remarkable growth over the last few years driven by increased investments in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India’s economy.

India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. The Government of India has appointed the Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods, products and services from India. India exports transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners to various countries of the world.

India became a permanent member of the Washington Accord (WA) in June 2014. The country is now a part of an exclusive group of 17 countries who are permanent signatories of the WA, an elite international agreement on engineering studies and mobility of engineers.

Market size

The capital goods & engineering turnover in India is expected to reach US$ 125.4 billion by FY17.

India exports its engineering goods mostly to the US and Europe, which accounts for over 60 per cent of the total exports. Recently, India's engineering exports to Japan and South Korea have also increased with shipments to these two countries rising by 16 and 60 per cent respectively. Sri Lanka, Nepal and Bangladesh have also emerged as the major destinations for India's engineering exports during April-February 2015-16, together accounting for a sizeable chunk of US$ 5.17 billion.

Investments

The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing costs, technology and innovation. The above, coupled with favourable regulatory policies and growth in the manufacturing sector has enabled several foreign players to invest in India.

The foreign direct investment (FDI) inflows into India's miscellaneous mechanical and engineering industries during April 2000 to March 2016 stood at around US$ 3,068.1 million, as per data released by the Department of Industries Policy and Promotion (DIPP).

In the recent past there have been many major investments and developments in the Indian engineering and design sector:

  • Rolta, an Information Technology (IT), engineering and geospatial services provider, has been awarded a seven-year, multi-million pound contract by a UK based major utility company UK Power Networks, to manage and update the firm's spatially-enabled network asset information.
  • India's Texmaco Rail & Engineering has signed a memorandum of understanding (MoU) with Russia's ROSOBORONEXPORT (ROE) for modernisation of Armoured Vehicles operated by the Indian Army.
  • Volvo Penta, a marine and industrial power system manufacturer, plans to produce five and eight litre industrial engines at the VE Powertrain (VEPT) plant in Pithampura near Indore from 2017.
  • Toshiba Transmission and Distribution Systems (India) Pvt Ltd has bagged Rs 226 crore (US$ 33.46 million) contract from Kenya Power and Lighting Company for around 8,000 distribution transformers.
  • L&T Hydrocarbon Engineering (LTHE), a subsidiary of Larsen & Toubro, has bagged an onshore EPC contract of over Rs 650 crore (US$ 96.25 million) from Gujarat State Fertilisers and Chemicals (GSFC) for setting up 40,000 million tonnes per annum (mtpa) Melamine Plant at Fertiliser Nagar, Vadodara.
  • Toshiba Group's water services company UEM India bagged Rs 220 crore (US$ 32.55 million) design, builds and operate (DBO) contract for a wastewater treatment and recycling plant in Oman.
  • Essar Projects, the engineering, procurement & construction (EPC) arm of Essar Group, in a joint venture with Italy’s Saipem has won a US$ 1.57 billion contract from Kuwait National Petroleum Company (KNPC) for setting up part of the Al-Zour Refinery Project in Kuwait.
  • India’s engineering and construction major, Punj Lloyd, won an order worth Rs 477 crore (US$ 71.87 million) for Ennore LNG tankage project from Mitsubishi Heavy Industries of Japan.
  • Vistara, the Tata Sons-Singapore Airlines JV, signed an agreement with Airbus for engineering support services which include components supply and airframe maintenance.
  • Leading online retailer Snapdeal is increasing focus on mobile commerce, where it will be doubling its engineering staff count to 700 soon as it sees over 90 per cent of business coming in through this platform over the next three years. Accordingly, the company has shifted half of its 350 engineers from PC to mobile commerce following the massive jump in traffic on this platform till last year.
  • Honeywell Turbo Technologies partnered with Tata to develop their first ever petrol turbocharged engine. The new Tata Revotron 1.2T engine launched in the 2014 Tata Zest delivers improved power and torque and a multi-drive mode, according to a Honeywell statement. Honeywell's engineering teams in Pune and Bangalore leveraged local capabilities and global expertise in petrol turbo technologies to address the specific needs of a local customer.
  • The engineering and R&D division of HCL Technologies will likely cross the US$ 1 billion mark in the next financial year as the company sees larger deals in a market that's widely expected to be the next big source of growth for the Indian IT sector. HCL Tech's engineering services unit contributed about 17 per cent to the company's revenue in the September quarter, coming in at US$ 245 million.
  • Engineers India Ltd (EIL) inked a US$ 139 million consultancy deal for a 20 million tonnes (MT) refinery and polypropylene plant being built in Nigeria by Dangote Group.
  • Reliance Infrastructure acquired India’s largest ship building and heavy industries company Pipavav Defence and offshore Engineering Company Limited, whose infrastructure will facilitate Reliance Infrastructure to build submarines and aircraft carriers on the back of a technological alliance with Swedish defence company SAAB.
  • Royal Enfield, a two wheeler division of Eicher Motors, acquired UK based design and engineering company Harris Performance Products Ltd, whose expertise, knowledge and understanding of motorcycling will help Eicher Motors achieve leadership in the global mid-sized motorcycling segment.
  • Tractebel Engineering (India) acquired Cethar Consulting Engineers Ltd. (CCE), the renowned and respected engineering consultancy company. This acquisition makes Tractebel Engineering a key player in thermal tower sector in India and strongly enhances the portfolio of offerings, which include gas pipelines, Liquefied Natural Gas, hydro power sector.
  • Bharat Forge acquired Mecanique Generate Langroise (MGL), French oil and gas machining company, via its German arm CDP Bharat Forge GmbH. Bharat Forge will benefit from MGL’s expertise in precision machining and other high value processes like cladding which have critical application in the oil and gas industry.
  • Leading aircraft maker Airbus announced it has begun sourcing components for almost all its jets from India and it aims to take its cumulative sourcing from India to US$ 2 billion by 2020.
  • Larsen & Toubro bagged construction orders worth Rs 1,099 crore (US$ 165.6 million) which included jobs from power transmission and distribution sector worth Rs 517 crore (US$ 77.9 million) and a rural electrification project under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme at Gorakhpur in Uttar Pradesh.

Government Initiatives

The Indian engineering sector is of strategic importance to the economy owing to its intense integration with other industry segments. The sector has been de-licensed and enjoys 100 per cent FDI. With the aim to boost the manufacturing sector, the government has relaxed the excise duties on factory gate tax, capital goods, consumer durables and vehicles. It has also reduced the basic customs duty from 10 per cent to 5 per cent on forged steel rings used in the manufacture of bearings of wind operated electricity generators.

The Government of India in its Union Budget 2016-17, has announced that the duty drawback scheme has been widened and deepened to include more products and countries. The government will continue to take measures to support the export sector. The government has also taken steps to improve the quality of technical education in the engineering sector by allocating a sum of Rs 500 crore (US$ 75.33 million) for setting up five more IITs in the states of Jammu, Chhattisgarh, Goa, Andhra Pradesh and Kerala.

Steps have also been taken to encourage companies to perform and grow better. For instance, EIL was recently conferred the Navaratna status after it fulfilled the criteria set by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India. The conferred status would give the state-owned firm more financial and operational autonomy.

Government of India has also taken initiatives to provide a level playing field to domestic and foreign private players bidding for the government contracts in defence sector. The government has withdrawn excise and customs duty exemptions granted to goods manufactured and supplied to the defence ministry by state-owned defence firms. These steps will also encourage participation of foreign Original Equipment Manufacturers such as Boeing, Airbus, Lockheed Martin, BAE Systems, etc., in the sector.

Prime Minister, Mr Narendra Modi announced a partnership between Bloomberg Philanthropies and the Ministry of Urban Development, Government of India, to advance the "Smart Cities Initiative." The Smart Cities Initiative is a historic effort to promote economic growth, improve governance, and deliver more effective and efficient public services to India's urban residents.

Road Ahead

The engineering sector is a growing market. Spending on engineering services is projected to increase to US$ 1.1 trillion by 2020.

The Union Budget 2016-17 has made record allocation of Rs 221,246 crore (US$ 33.07 billion) for several infrastructure projects which are further expected to provide a boost to the engineering sector. The industry can also look forward to deriving revenues from newer services and from newer geographies with Big Data, Cloud, M2M and Internet of Things becoming a reality.

Exchange Rate Used: INR 1 = US$ 0.0149 as on September 29, 2016

References: Media reports, Press releases, EEPC India, Press Information Bureau (PIB)

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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