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. Though a diverse industry, it can be divided into two broad categories :
(A) Heavy engineering segment – This accounts for bulk of all engineering goods production in India and is responsible for producing high-value products like heavy electrical, heavy engineering and machine tools, and automotive parts. Due to the high capital investment, this segment is dominated by bigger, organized market players. It provides products to almost every major end-user industry.
(B) Light engineering segment – This segment is responsible for medium to low technology products like casting and forging components, medical and surgical equipments, and industrial fasteners (high tensile and mild tensile steel fasteners). Light engineering goods find their use in the heavy engineering industry.
Factors driving growth in this sector :
➧ Rising demand for energy has led to increasing capacity addition for power generation, resulting in increase in demand for power generation equipment.
➧ Infrastructure index rose to 261.8 in FY11 and registered a growth rate of 4.6 per cent; infrastructure growth is driving demand for machinery.
➧ Strong policy support from Government like delicensing and reduction in tariff and custom duties is enabling growth.
➧ Development of Special Economic Zones (SEZs) will promote exports.
➧ Foreign investments have trebled from FY08 to FY11, and there is an increase in M&A activity.
Favourable Government policies enabling growth of sector :
Strong support from the Government has been instrumental in the growth of the Engineering sector :
➧ The Engineering sector has been delicensed, with 100 percent FDI allowed. Foreign technology agreements are also permitted under automatic route.
➧ Tariff protection on capital goods has been withdrawn. This has reduced custom duties on a range of engineering equipments.
➧ Initiatives like ‘Power for all by 2012’, capacity addition plans in the 12th Five Year Plan and infrastructure projects such as Golden Quadrilateral and the North-South and East-West corridors have fuelled growth in the sector.
➧ Government has granted significant number of SEZs for the engineering sector across the country.
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 favorable regulatory policies and growth in the manufacturing sector has enabled several foreign players to invest in India.
The engineering sector is emerging as a sourcing industry in India. Given the focus on the development of power infrastructure, these segments are expected to see sustained growth. However, 40 percent of exports are from Small and Medium Enterprises (SMEs)
• Capital goods account for 37 percent of exports in the sector.
• Exports to technologically advanced countries such as USA, UK and Germany have been increasing.
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