Engineering and Capital Goods
Turnover of Indian capital goods industry reached US$ 70 billion in 2017.

Engineering Industry in India

Latest update: June, 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

  • Cumulative FDI inflows since April 2000 into the miscellaneous mechanical and engineering sector increased to US$ 3.39 billion in FY18* from US$ 1.12 billion in FY11.
  • 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

Last Updated: June, 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

Turnover of capital goods industry is estimated to have reached US$ 70 billion in 2017^.

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$ 76.20 billion as against US$ 65.23 million in the same period previous year. Exports of electrical machinery and equipment grew at a CAGR of 7.00 per cent during FY10-18 to reach US$ 6.7 billion in FY18. The figure stood at US$ 1.28 billion for Apr-May 2018.

The electrical equipment industry observed a witnessed a record seven-year high growth of 12.8 per cent in 2017-18, on the back of increase in government spending on rural and household electrification schemes and programmes to improve power distribution.

Construction equipment industry of India is expected to grow over 18 per cent in 2018-19.

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:

  • L&T Hydrocarbon Engineering bagged a 5 year framework agreement with Shell Global Solutions International B.V., to provide procurement, construction management services and engineering services for latter’s projects in South East Asia, Middle East and India.

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.

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$ 28 billion in FY18 to US$ 45 billion by 2020F. Sales of construction equipment are expected to cross the 100,000 mark by 2022, while the market size of construction equipment industry is expected to grow from US$ 4.3 billion in FY18 to US$ 5 billion by FY20.

Exchange Rate Used: INR 1 = US$ 0.015 as of March 30, 2018.

Note: F- Forecast, ^As per media reports from November 2017

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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