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Engineering and Capital Goods
Engineering exports were US$ 75.90 billion in FY20 and reached US$ 39.90 billion in FY21 (as of October 2020).

Engineering Industry in India

    Last updated on Oct, 11 2021

Indian Engineering and Capital Goods Industry Report  (Size: 1.54 MB ) (August, 2021)

Introduction

The engineering sector is the largest of the industrial sectors in India. It accounts for 27% of the total factories in the industrial sectors and represents 63% of the overall foreign collaborations. India’s engineering sector has witnessed a remarkable growth over the last few years driven by increased investment 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 stride towards developing its engineering sector. The Government has appointed Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods, products, and services from India. India export 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 a high growth potential area as 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

Turnover of the capital goods industry was estimated at US$ 92.00 billion in 2019 and is forecast to reach US$ 115.17 billion by 2025.

India exports engineering goods mostly to US and Europe, which account for over 60% of the total export. Engineering exports were recorded at US$ 75.90 billion in April (FY20) and reached US$ 60.25 billion in January (FY21). Index of industrial production (IIP) for electrical equipment industry stood at 105.5 in FY20.

In June 2021, the country’s engineering goods exports recorded a 52.61% increase compared with the same interval last year.

According to the National Association of Software and Service Companies (Nasscom), India’s share in the global engineering and research and development (ER&D) market is likely to expand at a CAGR of 12-13% to reach US$ 63 billion by 2025.

The Indian machine tool production and consumption were estimated at Rs. 6,150 crore (US$ 872.46 million) and Rs. 15,670 crore (US$ 2.22 billion), respectively, in 2019-20.

Investments

100% FDI is allowed through the automatic route, with major international players looking for growth opportunities to enter the Indian engineering sector. The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing cost, 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.

According to The United Nations Conference on Trade and Development (UNCTAD), India ranked among the top 10 recipients of Foreign Direct Investment (FDI) in 2019, attracting US$ 49 billion in inflows, a 16% increase from the previous year, driving FDI growth in South Asia.

FDI inflows for miscellaneous mechanical and engineering sectors stood at US$ 3,669.51 million between April 2000 and December 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

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

  • The Auto Component Manufacturers Association (ACMA) expects the auto component revenue to increase by 20-30% in the next fiscal year due to demand from OEMs and increase in export. The association expects the Indian auto component export to grow up to US$ 30 billion over five years.
  • In June 2021, auto component manufacturer Minda Industries announced acquisition of a 51% stake in Harita Fehrer Ltd. for Rs. 115 crore (US$ 15.80 million).
  • In May 2021, TVS Motor Company announced that it sold one lakh units of ‘NTORQ 125’ scooter in the international market.
  • In April 2021, Tata Power, in collaboration with Hitachi ABB Power Grids and Cargill, commissioned India’s largest natural ester-filled 110/33/22 kV, 125 MVA power transformer in the Mumbai Transmission network at the Bandra-Kurla Complex receiving station.
  • In March 2021, Hitachi ABB Power Grids Ltd. bagged order worth Rs. 160 crore (US$ 21.66 million) to supply transformers to the Indian Railways.
  • In January 2021, Tesla, the electric car maker, set up a R&D centre in Bengaluru and registered its subsidiary as Tesla India Motors and Energy Private Limited.

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% 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 August 2021, Prime Minister Mr. Narendra Modi launched the Voluntary Vehicle-Fleet Modernisation Program (VVMP), also known as the Vehicle Scrapping Policy. The policy will bring in investments worth ~Rs. 10,000 crore (US$ 1.35 billion) to set up 450-500 Automated Testing Stations (ATS) and 60-70 Registered Vehicle Scrapping Facilities (RVSF) across the country. A single window clearance portal is being developed where applications for ATS and RVSF will be catered through a single portal within 60 days.
  • According to India Ratings and Research (Ind-Ra), the solar production-linked insurance (PLI) scheme will support 8-13% of photovoltaic energy plant requirements until 2029-30 and will help add 20 GW (gigawatts) of energy in the next five years.
  • In April 2021, Under the Development cum Production Partner (DcPP) programme, Defence Research and Development Organisation (DRDO) allowed private sector firms to develop and produce missile systems, such as vertical launched surface and air missile system programmes, to promote the domestic defence industry.
  • In March 2021, the Karnataka government launched the ‘Karnataka Engineering Research & Development (Engineering R&D) Policy 2021’ to help anchor the sector’s potential by creating 50,000 new jobs and increasing the state’s contribution to 45% in this sector.
  • The Indian telecom equipment market is likely to increase owing to the government’s Rs. 12,195 crore (US$ 1.6 billion) production-linked incentive scheme approved for telecom gear manufacturing in February 2021.
  • The upcoming new textile policy (in draft version as of February 2021) is likely to focus on setting up manufacturing hubs for textile machineries with the help of FDIs.
  • In the Union Budget 2021, the government has given a massive push to the infrastructure sector by allocating Rs. 233,083 crore (US$ 32.02 billion) to enhance the transport infrastructure.
  • The government expanded the ‘National Infrastructure Pipeline (NIP)’ to 7,400 projects. ~217 projects worth Rs. 1.10 lakh crore (US$ 15.09 billion) were completed as of 2020.
  • 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 investment in electronics sector, create employment opportunities and reduce dependence on import by 2020.
  • Government approved the ‘Production Incentive Scheme’ (PLI) for large-scale electronics manufacturing.

Road Ahead

Turnover of capital goods industry is expected to increase to US$ 115.17 billion by 2025F. India’s engineering R&D market will increase from US$ 36 billion in FY19 to US$ 42 billion by FY22.

India needs Rs. 235 trillion (US$ 3.36 trillion) of investment in infrastructure in the next decade (2020 29).

The export of engineering goods is expected to reach US$ 200 billion by 2030.

Note: Conversion rate used for August 2021 is Rs. 1 = US$ 0.01348

Note: F- Forecast

References: Media reports, Press releases, EEPC India, Press Information Bureau (PIB), Department for Promotion of Industry and Internal Trade (DPIIT), 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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