The Indian Engineering sector has witnessed a remarkable growth

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 of the economy, is of strategic importance to India’s economy. Growth in the sector is driven by various sub-sectors such as infrastructure, power, steel, automotives, oil and gas, consumer durables etc.

India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. The Indian government has appointed the Engineering Export Promotion Council (EEPC) to be 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.

Coupled with favourable regulatory policies and growth in the manufacturing sector, many foreign players have started to invest in the country. India recently became a permanent member of the Washington Accord (WA) on June 13, 2014. The country now joins 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

Driven by strong demand for engineering goods, exports from India registered a double digit growth at 10.22 per cent to touch US$ 26.4 billion in June 2014 from US$ 24.02 billion in the corresponding month last year. This growth can be credited to the robust expansion in shipments of aircraft, spacecraft parts and automobiles. The second best performing sector was non-ferrous metals and metal products.

Engineering exports from India are expected to cross US$ 70 billion in FY 15 registering a growth of 15 per cent over the previous fiscal, as demand in key markets such as the US and the UAE is on the rise. Apart from these traditional markets, markets in Eastern and Central European countries such as Poland also hold huge promise.

India exports its engineering goods mostly to the US and Europe, which accounts for over 60 per cent of the total exports. Recently, India's engineering exports to Japan and South Korea have also increased with shipments to these two countries rising by 16 and 60 per cent respectively.

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 foreign direct investment (FDI) inflows into India's miscellaneous mechanical and engineering industries during April 2000 to January 2015 stood at around US$ 3,948.17 million, as per data released by the Department of Industries Policy and Promotion (DIPP).

There have been many major investments and developments in the Indian engineering and design sector, which are as follows:

• Hyderabad-based infra player IL&FS Engineering Services has informed the bourses that it has bagged a port project worth Rs 179.84 crore (US$ 28.74 million) in Maharashtra. "The company has received a letter of award (LOA) from IL&FS Maritime Infrastructure Company Limited (IMICL) on behalf of Dighi Port Limited for engineering, procurement, and construction (EPC) contract for the development of multipurpose berth, backup yard development and utilities of multipurpose terminal berth 5 on the north of Dighi Port, Agardanda in Maharashtra," the company said. According to the company, the project completion period is 545 days from the date of notice to proceed (NTP) and the scope of work includes design and construction of multipurpose berth, reclamation of 50 acres of backup area, among others.
• Vistara, the Tata Sons-Singapore Airlines JV, has signed an agreement with Airbus for engineering support services which include components supply and airframe maintenance.
• Leading online retailer Snapdeal is increasing focus on mobile commerce, where it will be doubling its engineering staff count to 700 soon as it sees over 90 per cent of business coming in through this platform over the next three years. Accordingly, the company has shifted half of its 350 engineers from PC to mobile commerce following the massive jump in traffic on this platform till last year.
• Honeywell Turbo Technologies has partnered with Tata to develop their first ever petrol turbocharged engine. The new Tata Revotron 1.2T engine launched in the 2014 Tata Zest delivers improved power and torque and a multi-drive mode, according to a Honeywell statement. Honeywell's engineering teams in Pune and Bangalore leveraged local capabilities and global expertise in petrol turbo technologies to address the specific needs of a local customer.
• The engineering and R&D division of HCL Technologies will likely cross the US$ 1 billion mark in the next financial year as the company sees larger deals in a market that's widely expected to be the next big source of growth for the Indian IT sector. HCL Tech's engineering services unit contributed about 17 per cent to the company's revenue in the September quarter, coming in at US$ 245 million.
• Rolta has been awarded an additional scope of work by Sadara Chemical Company, Saudi Arabia to implement a comprehensive engineering information system within Sadara's Jubail integrated chemical complex.
• Engineers India Ltd (EIL) has inked a US$ 139 million consultancy deal for a 20 million tonnes (MT) refinery and polypropylene plant being built in Nigeria by Dangote Group.

Government Initiatives

Describing Germany and India as a “perfect match” for engaging in mutually beneficial collaboration in a host of areas, Mr Mark Hauptmann, political scientist and member of the German Parliament, has stressed on the time being ideal from a political and economic standpoint to further energise the bilateral relationship.

Mr. Hauptmann, who has led a German delegation to India to explore potential areas for more intense collaboration, said while from a political perspective India and Germany were headed by leaders who emerged from elections with sweeping mandates, there was also “a lot in favour of getting started from an economic viewpoint as Germany viewed India as not a developing country but a world power.”

Reflecting rapid expansion in military ties, Israel has announced its willingness to share cutting-edge defence technologies with India and both countries will go for co-development of a number of key weapon systems soon. Israeli Defence Minister Mr Moshe Ya'alon said both countries have overcome hurdles in co-development of Barak 8 missile defence system and work on another key project of aerial defence systems was on track.

Mr Narendra Modi government's `Make in India' campaign has got the attention of several in infrastructure and engineering multi nationals including GE and Thys senKrupp, which are considering investing in the country.

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. It has also reduced the basic customs duty from 10 per cent to 5 per cent on forged steel rings used in the manufacture of bearings of wind operated electricity generators.

The Government of India in its Union Budget 2014-15, has provided investment allowance at the rate of 15 per cent to a manufacturing company that invests more than US$ 4.17 million in any year in new plant and machinery. The government has also taken steps to improve the quality of technical education in the engineering sector by allocating a sum of Rs 500 crore (US$ 79.92 million) for setting up five more IITs in the states of Jammu, Chhattisgarh, Goa, Andhra Pradesh and Kerala.

Steps have also been taken to encourage companies to perform and grow better. For instance, EIL was recently conferred the Navaratna status after it fulfilled the criteria set by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India. The conferred status would give the state-owned firm more financial and operational autonomy.

Road Ahead

The engineering sector is a growing market. Current spending on engineering services is projected to increase to US$ 1.1 trillion by 2020. With development in associated sectors such as automotive, industrial goods and infrastructure, coupled with a well-developed technical human resources pool, engineering exports are expected to touch US$ 120 billion by 2015.

Also, the Union Budget 2014-15 has allocated funds for several infrastructure projects which are further expected to provide a boost to the engineering sector. The industry can also look forward to deriving revenues from newer services and from newer geographies with Big Data, Cloud, M2M and Internet of Things becoming a reality.

References: Press Releases, Media Reports, Department of Industrial Policy and Promotion (DIPP) statistic, Engineering Export Promotion Council, The Union Budget 2014-15.

SOURCE: IIB