Last Updated: October 29, 2014
Updated: August, 2014
SECTORAL REPORT | October, 2014
Engineering is a diverse industry with various segments. It is also the largest of all industrial sectors in India. A company in this sector can be a power equipment manufacturer, execution specialist for engineering, procurement and construction (EPC) or even a niche player. The engineering sector has observed tremendous growth in recent years owing to significant investments in power generation projects and the infrastructure sector. The power sector itself contributes about 70-75 per cent of the engineering companies' revenues.
India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. The Indian government has appointed the Engineering Export Promotion Council (EEPC) to be 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.
Coupled with favourable regulatory policies and growth in the manufacturing sector, many foreign players have started to invest in the country. India recently became a permanent member of the Washington Accord (WA) on June 13, 2014. The country now joins an exclusive group of 17 countries who are permanent signatories of the WA, an elite international agreement on engineering studies and mobility of engineers.
Driven by strong demand for engineering gods, exports from India registered a double digit growth at 10.22 per cent to touch US$ 26.4 billion in June 2014 from US$ 24.02 billion in the corresponding month last year. This growth can be credited to the robust expansion in shipments of aircraft, spacecraft parts and automobiles. The second best performing sector was non-ferrous metals and metal products.
Engineering exports from India are expected to cross US$ 70 billion in FY 15 registering a growth of 15 per cent over the previous fiscal, as demand in key markets such as the US and the UAE is on the rise. Apart from these traditional markets, markets in Eastern and Central European countries such as Poland also hold huge promise.
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.
The foreign direct investment (FDI) inflows into India's miscellaneous mechanical and engineering industries during April 2000 to July 2014 stood at around Rs 12,413.44 crore (US$ 2.02 billion), as per data released by the Department of Industries Policy and Promotion (DIPP). There have been many major investments and developments in the Indian engineering and design sector, which are as follows:
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 2014-15, has provided investment allowance at the rate of 15 per cent to a manufacturing company that invests more than US$ 4.17 million in any year in new plant and machinery. 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$ 81.69 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.
The engineering sector is a growing market. Current spending on engineering services is projected to increase to US$ 1.1 trillion by 2020. With development in associated sectors such as automotive, industrial goods and infrastructure, coupled with a well-developed technical human resources pool, engineering exports are expected to touch US$ 120 billion by 2015.
Also, the Union Budget 2014-15 has allocated funds 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$ 0.0163 as on September 25, 2014
References: Press Releases, Media Reports, Department of Industrial Policy and Promotion (DIPP) statistic, Engineering Export Promotion Council, The Union Budget 2014-15.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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