The Indian engineering sector is divided into two major segments- heavy engineering and light engineering. The sector has a comparative advantage in manufacturing costs due to lower design, research and labour costs, and economies of scale.
The total exports of Indian engineering sector stood at US$ 67.1 billion during FY12 and is expected to grow to US$ 125 billion by FY14. Over the period FY07-12, exports from the sector have posted a compound annual growth rate (CAGR) of 19.2 per cent. Transport equipment is the leading contributor to engineering exports.
The engineering industry has been delicensed and 100 per cent foreign direct investment (FDI) is allowed in the sector. Foreign technology agreements are also permitted under the automatic route. The sector has received cumulative FDI of US$ 16 billion over April 2000 - September 2012. The Government of India (GOI) has also planned capacity addition of 120 gigawatt (GW) in the 12th Five-Year Plan (2012-17).
Engineering Services Outsourcing (ESO) is a huge opportunity for India over the next few years. By 2020, the ESO market in India is expected to reach US$ 40-50 billion, propelled by the increasing onshore to offshore movement of services.