The engineering sector

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2. 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. 1/1 Wood Street, Kolkata - 700016

3. The principal characteristics of the engineering industry Principal Characteristics by Major Engineering Group in ASI 2004-05 Value Figures in Rs. Lakhs 1/1 Wood Street, Kolkata - 700016

4. 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. 1/1 Wood Street, Kolkata - 700016

5. 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 1/1 Wood Street, Kolkata - 700016

6. 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. 1/1 Wood Street, Kolkata - 700016

7. Growing trend of engineering exports The figure shows the growth of Indian engineering goods exports to the world since 2003-04. From 2003-04 to 2007-08 (Value in USD Billion) 1/1 Wood Street, Kolkata - 700016

8. Transformation of Indian engineering goods 1956-57 2007-08 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. 1/1 Wood Street, Kolkata - 700016

9. 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: 1/1 Wood Street, Kolkata - 700016

10. Top 10 destinations of Indian engineering exports • 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 1/1 Wood Street, Kolkata - 700016

11. 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: Trends in Engineering Exports, Employment and Total Employment due to exports (2001-02 to 2006- 07) Source: RIS Estimates and * are EEPC estimates 1/1 Wood Street, Kolkata - 700016

12. 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. 1/1 Wood Street, Kolkata - 700016

13. The EPO value chain • Some of the major EPO services applications (in order of increasing engineering complexity) are: 1/1 Wood Street, Kolkata - 700016

14. 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 1/1 Wood Street, Kolkata - 700016

15. 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 1/1 Wood Street, Kolkata - 700016

16. 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. 1/1 Wood Street, Kolkata - 700016

17. 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. 1/1 Wood Street, Kolkata - 700016

18. 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.) 1/1 Wood Street, Kolkata - 700016

19. 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. 1/1 Wood Street, Kolkata - 700016

20. 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. 1/1 Wood Street, Kolkata - 700016

21. 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. 1/1 Wood Street, Kolkata - 700016

22. 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. 1/1 Wood Street, Kolkata - 700016

23. 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. 1/1 Wood Street, Kolkata - 700016

24. 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. 1/1 Wood Street, Kolkata - 700016

25. Thank You 1/1 Wood Street, Kolkata - 700016