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The engineering sector

It is the largest segment of the overall Indian industrial sector.

The engineering sector employs over 4 million skilled and semi-skilled workers (direct and indirect).

The engineering industry accounts for 12 per cent of India’s GDP.

Engineering goods enjoy 30.5 per cent weight in the Index of Industrial Production (IIP); 29.9 per cent share of total investment; and 62.8 per cent share in foreign collaborations.

Engineering exports accounts for over 20% of India’s total exports

It is the largest foreign exchange earner for the country.

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The principal characteristics of the engineering industry

NIC-04 Description Total Input Gross Output

Depreciation Net ValueAdded

27 Basic metals 18746221 24480111 808820 4925070

34 Motor vehicles, trailers and semi-trailers 12302779 14345878 364101 1678997

29 Machinery and equipment 5673191 7218344 192792 1352361

35 Other transport equipments 3510072 4400557 99802 790683

31 Electrical machinery and apparatus 3424259 4313241 104989 783993

28 Fabricated metal products 3190239 3881993 88421 603333

36 Furniture & other manufacturing 2802014 3226210 42489 381707

32 Radio, television and communication equipments 2607310 3096112 116398 372405

33 Medical, precision and optical instruments 690941 962201 29295 241966

30 Office, accounting and computing machinery 503605 653471 40777 109089

TOTAL ENGINEERING 53450634 66578122 1887889 11239610

Grand total for all industry groups 136294133 167256142 4971324 25990686

Engineering goods as percent of total 39.21% 39.8% 37.97% 43.24%

Principal Characteristics by Major Engineering Group in ASI 2004-05

Value Figures in Rs. Lakhs

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Factor endowment

Among developing countries, India offers the best combination of low costs,

availability and skills and capabilities of manpower for the engineering sector. In

terms of availability and skills, India produces each year over:

500 PhDs

200,000 engineers

300,000 non-engineering postgraduates

2,100,000 other graduates

This way India ensures a steady supply of qualified manpower for the sector.

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Gujarat: Engineering Industry – at a glance

Gujarat contributes to over 8% of India’s total engineering output.

There are 300 units in large sector and over 75000 units in small and medium enterprises (SME)

It is a major production base for sponge iron, steel pipes and tubes, copper cathode, Electricals, switchgear, transformers and transmission line towers, heavy fabrication, ship building and auto components.

Largest producer of sponge iron and SAW & ERW pipes

Important manufacturer of power generation plants, switchgears, transformers and transmission line towers

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About EEPC INDIA

the Engineering Export Promotion Council (EEPC) was set up in 1955 under the sponsorship of Ministry of Commerce, Govt. of India, for export promotion of engineering goods, projects and services from India.

Initially started with a few hundreds of engineering units as an small outfit, with a passage of time it has grown to be the largest Export Promotion Council having membership of nearly 12,000 from amongst large Corporate Houses, Star Trading Houses, Small & Medium Scale Units (SME), Trading Houses, etc.

Out of the total membership of the Council, 60% constitutes the SMEs.

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Growing trend of engineering exports

From 2003-04 to 2007-08 (Value in USD Billion)

The figure shows the growth of Indian engineering goods exports to the world since 2003-04.

11.55

16.4320.34

27.11

33.28

0

5

10

15

20

25

30

35

2003-04 2004-05 2005-06 2006-07 2007-08

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Transformation of Indian engineering goods

34%

21%12%

33%

Consumer Durables

Non-Ferrous Products

Capital Goods

Primary Iron, Steel & Items thereof

EEPC has been instrumental in transforming the profile of Indian engineering exports as supplier of low value items to capital goods, plant and machinery, high-end engineering services, etc.

1956-572007-08

38%

15%12%

35%

Capital Goods

Consumer Durables

Non- Ferrous Metals & Products Thereof

Primary Iron & Steel & Items Thereof

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Diversification of Indian engineering products

During the nascent stage, Indian engineering exports were mainly confined to Asia and to a

small extent to Africa. Over the years, the scenario has completely changed and as of date,

about 43% of total engineering exports are made to developed countries. A table showing

exports of 43% to developed countries out of total engineering exports is given below:

Region 1956-57 2006-07

Europe 0% 26%

America 0% 17%

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Top 10 destinations of Indian engineering exports

Importing Country

Cumulative Exports 2007-08

% change over 2006-07

USA 4269.81 12.49

UAE 2669.13 39.42

Singapore 1460.18 31.48

UK 1340.72 18.14

Germany 1279.24 43.74

Italy 1255.16 2.56

Saudi Arabia 1236.62 13.64

China 962.72 -25.69

Belgium 917.63 0.1

Malaysia 747.64 106.74

USA is the largest destination of Indian engineering exports

Exports to China has decreased in the said period

Growth of exports to Malaysia is outstanding

Source: DGCIS

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Engineering exports and employment

The trends in engineering exports and the employment generated due to engineering

exports, both direct and indirect, that can be estimated since 2001-02 are as follows:

Year EngineeringExports (in Rs

Crore)

Employment due toEngineering Exports

only (in numbers)

Total Employmentdue to Exports (in

numbers)

Engineering exports employment as apercent of total employment due to

exports (in %)

2001-02 32082 618896 10747917 5.75%

2002-03 41287 719910 13095510 5.49%

2003-04 61380 993689 13391400 7.42%

2004-05 79749 1187558 15972094 7.43%

2005-06* 90108 1244561 16280062 7.64%

2006-07* 122660 1550723 18921530 8.19%

Trends in Engineering Exports, Employment and Total Employment due to exports

(2001-02 to 2006- 07)

Source: RIS Estimates and * are EEPC estimates

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Engineering Process Outsourcing (EPO)

An Engineering Process (EP) is defined as a complete engineering design cycle

activity for a product or a service from the conceptualization stage till the pre-

manufacturing stage including the development of the prototype. It also extends

beyond the manufacturing stage: this includes applications like:

Product life cycle management (PLM) solutions

Product re-engineering solutions, etc.

Engineering processes also entail design and R&D activities across industry

sectors like automotive, aerospace, telecom, utilities, etc.

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The EPO value chain

Some of the major EPO services applications (in order of increasing engineering complexity) are:

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Major regions outsourcing engineering processes

On the basis of primary and secondary sources, the major countries outsourcing

EPO services are:

North America (US)

Western Europe (France, Germany, UK)

Japan

Emerging markets outsourcing engineering processes are:

Canada and Italy

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Major regions supplying engineering processes

The major countries outsourcing engineering processes are:

Asia (India, China, Thailand, Taiwan, Philippines)

Eastern Europe (Romania, Russia)

North America (Mexico, Canada)

The emerging economies from where EPO services are being outsourced

Vietnam

Brazil

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Estimation of Indian Engineering Process Outsourcing

The various parameters that were taken into consideration to estimate the global EPO

market demand and India’s market potential for EPO are:

The current global EPO market is at 2-3% of the total global R&D expenditure. This will continue to rise and is expected to reach to 4-5% by 2010 and about 7-9% by 2015.

This means that the global EPO market is poised to grow to $50 bn-$70 bn by the year 2010 and $110 bn-$140 bn by 2015.

The Indian market share for EPO will continue to rise from the 12% market share in the year 2004 to reach about 15-18% by 2010. The Indian market share of the total global EPO industry can potentially command 18-22% by 2015.

The Indian EPO market has the potential to assume a size of $25 bn-$30 bn annually in the long term by the year 2015.

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Measures to augment India’s engineering industry and exports

Enhancing Global Competitiveness: Indian Engineering Exports needs to gear up more to face ever increasing

global competitiveness. China, Mexico, Hungary, Czechoslovakia and Korea have emerged as the

growing Engineering export countries vis-a-vis India.

Technological Issues: Indian exporters need to invest more in terms of product design, specific

features, performance and raw material substitutes. Move up the value chain with the help of better technologies such as

precision measuring, material engineering and process control.

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Impact of global financial crisis

Problems related to LCs Banks were hesitant to issuing letter of credit due to credit non

availability in various countries. Problems related to liquidity (both domestic and external) to

exporters most exporters have complained that they face tremendous problems

with respect to credit requirements. The main complaints are:

Banks are hesitant to sanction limits and have increased interest rates;

Banks have suddenly refused to discount our Non LC-Inland bills at a time when festive season is on stating that they have exceeded their credit limits, event though this was not done earlier …………(Contd.)

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Impact of global financial crisis

Banks are unwilling to roll over this buyers credit in foreign currency for import of machines

Banks are not releasing pre shipment credit easily and there is problem in discounting foreign letter of credit documents even restricted ones.

Issues related to existing export order and new orders Exporters have expressed concern over both export orders and new

orders.

One member has reported that their American buyer has stated that goods in US and EU are now cheaper than from India

The frequency of orders have come down.

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Future outlook

The engineering sector’s future outlook is promising. Drivers like infrastructure

development, industrial growth and favourable policy regulations will ensure

growth in manufacturing. Emerging trends such as outsourcing of engineering services can provide new

opportunities for quantum growth.

Opportunities for Engineering Industry in the Defence and Civil Nuclear Energy Sector.

The Council has proposed a Technology Upgradation Fund (TUF) Scheme for enhancing the technological capability of Indian engineering sector.

The Council also appointed IIFT to carry out a detail study on China for the benefit of Indian engineering exporters.

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Scope in defence sector

Initial steps in this regard has been taken with regard to the defence sector with India requiring foreign suppliers to match any bids they win with a sizable commitment to manufacture goods in India. In the case of the fighter jets, the winning bidder needs to promise to produce components here worth half the jets' price. Thus, many foreign companies are expected to enter with joint ventures with Indian companies.

In addition to defence, India has important opportunities in civilian aviation, shipping and infrastructure, providing opportunities for the logistics and security units for many foreign companies.

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Scope in civil nuclear sector

In the Civil Nuclear Sector, immense opportunities are likely to open up in the next two decades given the energy requirements of the country. Investments in this sector vary from USD 40 billion to USD 80 billion.

Thus, both these sectors are expected to create substantial investment opportunities for a range of engineering products that needs to be harnessed by the Indian engineering sector.

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Scopes in Space Research

India’s space commerce got a big boost when the first satellite built by the Indian Space Research Organisation (ISRO) for a foreign customer was successfully put into orbit after being launched by the European Ariane-5 rocket fetching a profit of $40 million.

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To conclude…………….

India’s engineering industry’s progress is critical for the growth of the

manufacturing sector, employment generation and indirectly tackling problems

of poverty and inequality. Engineering sector too is a major employment

generating sector and needs to be supported both by central and state

authorities.

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