capital goods & engineering

Capital Goods & Engineering

2© Confederation of Indian Industry

Content

Sectoral Snapshot Advantage India Growth Drivers Major Challenges faced


Indian Engineering Industry

• Heavy electrical• Heavy engineering and

machine tools• Automotive

Heavy Engineering

• Low technology products

• High technology productsLight Engineering


Sectoral Snapshot*

5.8%5-year Production CAGR

2% Sector’s

Contribution to GDP

100% FDI allowed under

automatic route

~12% Sector’s

Contribution to Manufacturing GDP

~6%**of total FDI captured by

Engineering Sector between 2000-15

~9 Millionemployment generated

by sector

*w.r.t. Capital Goods sector**Source : DIPP


Indian Capital Goods Market (Segment-wise)* (Rs. Cr)]

Sub-sector Market size(2014-15)

5 yr CAGR (%)

Machine Tools 9,267 5.2%

Textile Machinery 12,308 10.7%

Earthmoving & Mining Machinery 21,671 0.4%

Heavy Electrical Equipment 157,522 5.2%

Plastic Machinery 3,620 9.6%

Process Plant equipment 24,149 12.3%

Dies, Moulds & Press Tools 15,100 5.2%

Printing Machinery 19,579 13.7%

Metallurgical Machinery 2,750 -6.3%

Food Processing machinery 15,600 5.0%Total 281,566 5.8%

T

**Sub-sector Industry Associations, DGCIS data, Department of Heavy Industry


Advantage India*

Growing DemandGrowth impetus towards infrastructure, power, mining, oil & gas, refinery, steel, automotives, and consumer durables driving demand in the engineering sector. Rising demand for electrical and construction equipment .

Competitiveness ImperativeRising competition is driving domestic players to focus on improving their capabilities, become more quality conscious, and upgrade their technology base in line with global requirements.

Vibrant ExportsOver FY08–15, engineering exports registered a CAGR of 11.1 per cent. Include transport equipment, capital goods, other machinery/ equipment and light engineering products such as castings, forgings and fasteners

TalentLarge pool of engineering and managerial manpower

Potential The National Policy on Capital Goods envisions production of USD 125 billion, an increase in

exports to 40% and additional employment for about 30 million people by 2025. Overall, Indian engineering exports stood at USD70.6 billion in FY15. Capital Goods Sector presents investment opportunities in all sub sectors due to push to

infrastructure, rail, development of industrial corridors and overall manufacturing activity.

.

*USD 1 = INR 60


Growth Drivers

Policy and Eco-system

National Capital Goods Policy 2016 100% FDI Tax Incentives: 15% exemption on tax to

manufacturing companies that invest more than Rs 100 crores in plant and machinery

Scheme on Enhancement of Competitiveness of the Indian Capital Goods Industry

Industry Evolution and Capabilities

While traditionally, in the initial years of development, the ownership pattern in Indian Capital Goods Industry was marked by the dominance of (PSEs) , with focus on heavy electrical and construction equipment. However, with the opening up of industrialization, private firms(MNCs) have set up manufacturing & R&D facilities introducing advanced capabilities. in some sub sectors of capital goods.

Market

Capital goods is a large sector with a market size of USD 46 billion in 2014-15. However, the growth of the sector has been lagging, with domestic market size de-growing at 3.6% per annum. Imports currently address 40-45% of India's demand for capital goods showing low self reliance. At the same time, capacity utilization is only about 60-70% across sub-sectors indicating an imminent need for creation for demand from domestic sources and import substitution.


Major Challenges faced by sector Lack of Domestic Demand Creation- The lack of positive bias towards domestic value

addition in public procurement policies, difficult contract conditions, persistent import and use of second-hand machinery with no incentive for replacement, zero duty import under 'Project Imports' and delays in project implementation are the key factors limiting domestic demand.

Issues affecting exports - Inadequate availability of competitive short and long-term financing, tariff and non-tariff barriers in export markets and limited understanding of international market requirements especially by smaller players are key deterrents. Trade agreements are currently not aligned basis India’s comparative advantage with its trade partners.

Issues affecting technology depth: Significant challenges and gaps exist in high-end, heavy-duty, high-productivity and high precision technologies across sub-sectors. Contributors to these gaps include low end user acceptance of new Indian technologies, weak support infrastructure and low Indian participation in developing international standards. Further, patent processing takes very long and insufficient policy bias towards R&D.

Issues affecting cost competitiveness: Relative to global peers, Indian engineering faces a skewed and state-wise variation in tax and duty structure, prevalence of inverted duty structure for several products and high infrastructure and logistics costs.