The engineering sector is the largest of the industrial sectors in India and can be broadly categorised into two parts, namely, heavy engineering and light engineering. India’s engineering industry accounts for 27 per cent of the total factories in the industrial sector and represents 63 per cent of the overall foreign collaborations. It has emerged as the largest contributor to the country’s total merchandise exports.
Capacity creation in sectors such as infrastructure, power, mining, oil and gas, refinery, steel, automotive, and consumer durables are driving demand in the engineering sector. The sector has a comparative advantage in terms of manufacturing costs, market knowledge, technology and creativity.
Continued growth of manufacturing sector and favourable regulatory policies would further propel the sector’s growth. The engineering industry has been de-licensed and enjoys 100 per cent foreign direct investment (FDI). Further, the National Policy on Electronics is formulated by the Government of India to boost India's electronics systems and design the manufacturing industry and improve its share in the global market.
The engineering sector is among the top two contributors to the total Indian export basket with total shipments of US$ 56.7 billion in 2012-13. Engineering exports from India include transport equipments, capital goods, other machinery/ equipment and light engineering products like castings, forgings and fasteners. During February 2014, the sector’s exports stood at US$ 5.02 billion.
The employment oriented engineering sector, which encompasses a large number of micro, small and medium enterprises (MSMEs), would be contributing something like US$ 65 billion to the overall export shipments of US$ 326 billion, as targeted by the government, as per Mr Anupam Shah, Chairman, EEPC India.
Engineering exports to India’s Free Trade Agreement (FTA) partners such as Japan, South Korea, Sri Lanka and the Association of Southeast Asian Nations (ASEAN) bloc have witnessed robust growth. Shipments to Japan grew 17 per cent during April-November, 2013-14 to US$ 568 million as compared to the same period last year. Exports to South Korea increased by over 13 per cent to US$ 739 million during the period.
The United States (US) and Europe account for over 60 per cent of India's total engineering exports. Swiss giant ABB, US powerhouse Cummins, Denmark based Danfoss and Toshiba of Japan are among 50 international corporates throwing big engineering outsourcing avenue to Indian businesses capable of delivering world class technology products.
The miscellaneous mechanical and engineering industries’ sector-wise FDI inflows during April 2000-December 2013 were calculated at US$ 2,588.09 million, according to the Department of Industrial Policy and Promotion (DIPP). Some of the major investments and developments in the sector include the following:
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&D personnel in India by at least 66 per cent of the present strength in five years.
Alongside, the National Manufacturing Policy aims at enhancing the sector’s share in gross domestic product (GDP) to 25 per cent within a decade and creating 100 million jobs by 2022.
The cut in the excise duty in certain manufacturing industries like cars and two-wheelers in interim budget would help the export of key engineering goods, which are poised to become the top contributors to India’s export basket.
In addition to that, the government plans to give an impetus to engineering in India through investments in infrastructure development in 2012-17 in telecom, energy and construction sector, as per a report by the National Association of Software and Services Companies (Nasscom) and Booz & Co. The government would also provide 15 per cent tax exemption to manufacturing companies that invest more than US$ 18.4 million in plant and machinery over FY14–15.
The analysts forecast the automotive engineering service market in India to grow at a compounded annual growth rate (CAGR) of 18.22 per cent during 2012-2016. Low-cost labor, inexpensive manufacturing capabilities, availability of a technical education infrastructure that provides an increasing number of technically-trained human resources each year are the key attractions boosting the market growth.
Engineering research and development (ER&D) sector is currently valued at US$ 14 billion and has a growth potential of US$ 44 billion in the coming years. With India home to 750 ER&D companies at present, the number of people engaged in this sector will also grow from four lakh to three times as many, as per Mr Som Mittal, President, Nasscom.
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. Wipro, HCL Technologies, Tata Consultancy Services (TCS), Tech Mahindra and Infosys are account for most of the R&D activities outsourced to India.
Exchange Rate Used: INR 1 = US$ 0.01640 as on March 18, 2014
References: Press Releases, Media Reports, Department of Industrial Policy and Promotion (DIPP) statistic, The Union Budget 2014-15.