Trade Analytics
Engineering and Capital Goods

Engineering Industry in India

Latest update: April, 2018

  • Engineering exports from India grew 16.81 per cent to US$ 76,204.38 million in FY18 from US$ 65,239.19 million in FY17.
  • During FY08–FY18, engineering exports from India registered growth at a CAGR of 8.50 per cent
  • Engineering exports include transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners.
  • Electrical equipment industry’s production for FY17 is estimated at US$ 23.64 billion
Growth

Notes: FY- Fiscal Year
Source: Reserve Bank of India, Engineering Export Promotion Council, Engineering Export monitoring report, Ministry of Commerce and Industry Estimates, Aranca Research

  • Cumulative FDI inflows into the engineering sector increased to US$ 3.39 billion in FY18* from US$ 0.89 billion in FY10
  • The government’s increasing focus on attracting foreign investors in manufacturing and infrastructure is likely to boost FDI in the sector
  • During FY 2010-17, there has been a 20.44 per cent rise in cumulative FDI flows into the Indian engineering industry.
  • In February 2017, the World Bank signed an agreement with the Government of India, for providing a loan of US$ 201.50 million, for facilitating development of infrastructure to impart quality engineering education across various states in India. The loan being a part of the Technical Education Quality Improvement Project (TEQIP III), is in the 3rd phase of 15-20 year programme, which begun in 2002
Growth

Notes: FY18* - up to December 2017
Source: Department of Industrial Policy and Promotion, Aranca Research

Last Updated: April, 2018

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. The Indian semiconductor industry offers high growth potential areas as the industries which source semiconductors as inputs are themselves witnessing high demand.

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 and engineering turnover in India is estimated to have reached 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. Engineering exports for the period of FY18* were US$ 68.28 billion as against US$ 57.53 million in the same period previous year. Exports of electrical machinery grew at a CAGR of 2.39 per cent during FY10-17 to reach US$ 4.6 billion in FY17. The figure stood at US$ 5.93 billion for FY18*.

According to the India Electronics & Semiconductor Association, the Indian Electronic System Design and Manufacturing (ESDM) market is expected to grow at a CAGR of 16-23 per cent to reach US$ 228 billion by 2020 from $100 billion in 2016-17.

The electrical equipment industry observed a growth of 9.7 per cent during April-September 2017. Also, Growth of India’s mining and construction equipment sector is expected at 13-17 per cent in 2017 driven by increase in infrastructure spending.

According to a study by The Associated Chambers of Commerce of India (ASSOCHAM) and NEC Technologies, the demand for electronic products in India is expected to grow at a Compound Annual Growth Rate (CAGR) of 41 per cent during 2017-20 to US$ 400 billion by 2020.

India’s engineering exports recorded a growth of 22.75 per cent to reach US $ 56,091.89 million in April-December 2017. Exports during December 2017 grew 25.41 per cent year-on-year to US$ 7,133.93 million from US$ 5,688.32 million in the same period a year ago.

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 December 2017 stood at around US$ 3.39 billion, 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:

  • Indian industrial valves market is estimated to reach USD 3 billion by 2023, with over 9 per cent Compounded Annual Growth Rate (CAGR). Globally industrial valve market all set to touch USD 88.4 billion by 2021.
  • Infrastructure, construction and capital goods companies announced orders worth Rs 55,814 crore (US$ 871.82 million) during October 1 – December 6, 2017. In the third quarter of 2016-17, this number stood at Rs 27,324 crore (US$ 426.80 million). The growth was backed by BHEL’s receipt of Rs 20,400 crore (US$ 318.65 million) worth of power projects in Telangana and Larsen & Toubro’s receipt of a Rs 8,650 crore (US$ 135.15 million) order for the Mumbai trans-harbor link.

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.

  • In the Union Budget 2018-19, the government allocated US$ 92.22 billion for the infrastructure sector. Allocation to the defence sector was raised to US$ 45.57 billion under Union Budget 2018-19. In addition, Make in India policy is being carefully pursued to achieve greater self-sufficiency in the area of defence equipment including air-craft.
  • The Union Cabinet has approved incentives up to Rs 10,000 crore (US$ 1.47 billion) for investors by amending the M-SIPS scheme, in order to further incentivise investments in electronics sector, create employment opportunities and reduce dependence on imports by 2020.
  • The Ministry of Electronics and Information Technology plans to revise its policy framework, which would involve the government taking a more active role in developing the sector by providing initial capital, with the aim to attract more private players and make India a global semiconductor hub.

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 government, in consultation with semiconductor industry, has increased focus on the ESDM sector in last few years. Some of the initiatives outlined in the National Electronics policy and the National Telecom policy are already in the process of implementation, such as Preferential Market Access (PMS), Electronics Manufacturing Clusters (EMC) and Modified Special Incentive Package Scheme (M-SIPS).

India’s capital good sector is expected to triple in size to Rs 7.5 trillion (US$ 116 billion) and add 21 million jobs by 2025.

Exchange Rate Used: INR 1 = US$ 0.0153 as of March 04, 2018.

Note: *up to February 2018

References: Media reports, Press releases, EEPC India, Press Information Bureau (PIB), Department of Industrial Policy and Promotion (DIPP), The Confederation of Indian Industry (CII), Indian Electrical & Electronics Manufacturers’ Association (IEEMA).

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

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