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Overview of the Engineering Industry

India continues to be one of the fastest-growing economies in the world, and is currently the centre of global attention. The role of the Indian engineering sector, which is one of the largest industrial sectors in the country, has been accentuated with the growing emphasis on infrastructure development in India, as well as globally.

The engineering industry encompasses a wide range of products and can be primarily categorised into heavy engineering and light engineering segments.

Heavy Engineering

Heavy engineering goods account for bulk of the production in the engineering industry. Most of the leading players in the sector are engaged in the production of high-value heavy engineering products, as these require high-end technology and are capital intensive in nature.

The following 19 industrial sub sectors are covered under this category:

Source: Department of Heavy Industries

Many of these sub industries have shown remarkable production growth in April-October 2006- 07 as compared to April-October 2005-06.

Source: Department of IPP

Light Engineering

Light Engineering is yet another large segment, contributing to the industrial growth of the country. It is an intermediate segment, whose products are largely used as inputs in capital and heavy engineering industry. Unlike the heavy engineering segment, the light engineering goods segment uses medium to low-end technology. Being mostly labour intensive, the segment generates employment opportunities for skilled and semi-skilled labour. This segment is characterised by the dominance of small and unorganised players that manufacture low-value added products, with small capacities.

The light engineering covers the following sectors:

Liberalisation of the FDI policy has facilitated FDI inflows into various segments of the sector.

FDI Inflows in the Engineering Sector – Apr 2000 to Dec 2007

Source: Department of Industrial Policy & Promotion, Govt. of India

The exports of engineering goods increased from US$ 20.3 bn in FY06 to US$ 27.1 bn in FY07. Europe and Asia account for 50% of India’s total engineering exports, followed by the American countries.

Source: Engineering Export Promotion Council

Future Outlook

The Government of India has set a GDP growth target of around 9% for the Eleventh Plan Period. Development of world class infrastructure will play a crucial role in attaining and sustaining this target. We expect a healthy growth in the engineering sector on account of the Government’s increased thrust on infrastructure development. Fresh investments in the power equipment, metals, oil & gas, and petrochemicals industries, coupled with robust industrial activity is expected to drive the growth momentum in the capital goods industry in the near term.

Cluster Insights

Cluster Insights are aimed at highlighting the performance and expectations of the small and medium enterprises operating in the engineering sector in Kolkata cluster. The sample considered for this analysis are the engineering firms profiled in this publication; the variables considered for analysis include operational structure, business practices, and future plans.

Key characteristics of the Kolkata engineering cluster

• The average annual revenue growth of the profiled engineering companies over the past two years was 29%.
  
  
• 53% of the sample companies possessed quality certifications like ISO 9001: 2000 or TS 16949.
  
  
• The companies operated at an average capacity utilisation of 82%.
  
  
• 26% of the companies operated with two or more manufacturing facilities.
  
  
• 56% of the companies were involved in exports.
  
  
• 11% of the profiled companies earned more than 50% of their total revenue from the overseas market.
  
  
• Asia (excluding Middle East) is the most preferred export destination for the engineering companies.
  
  
• 52% of the companies manufactured and marketed branded products.


• The sustained growth of the cluster was evident from the distribution of companies in terms of year of incorporation, as 24% of the companies were established in the decade between 1990 and 2000, while 72% commenced operations prior to 1990.

Ownership Pattern

The ownership pattern of engineering companies is inclined more towards private limited companies.

• Of the total private limited companies covered, 68% fall in the turnover bracket of Rs 10 - 100 mn, which is at the small end of the spectrum.
  
  
• In the last two years, private limited companies showed the highest revenue growth of 32%, followed by the public limited companies with 30% growth.



• The public limited companies operated at an 85% of their installed capacity.

Sub-segment:

Most of the companies operate in the light engineering segment and fall in the turnover bracket of Rs 10 – 100 mn.

• 71% of the heavy engineering companies were involved in exports as compared to 50% of the light engineering.
  
  
• Heavy engineering companies operated at an average capacity utilisation of 84%, while those for light engineering at 82%.

Turnover Bracket

Companies with turnover bracket of Rs 10 – 100 mn have the maximum representation among the profiled companies.

• Companies with a turnover range of Rs 100 – 250 mn operated at an average capacity utilisation of 83%.
  
  
• 12% of the companies with a turnover range of Rs 10 – 100 mn generated more than 50% of their total revenue from the international market.
  
  
• For companies in the turnover bracket of Rs 500 – 1,000 mn, Europe is the most preferred export destination.

Growth and Future plans

The profiled engineering companies expect an average revenue growth of 38% in the next two years.

• Interestingly, 10% of the companies have reported more than 50% revenue growth in last two years.
  
  
• 18% of the profiled companies expect more than 50% revenue growth in the next two years.
  
  
• Most of the companies have envisaged future plans. These include capacity expansion, entering into new markets and diversification. Around 40% of the companies are planning for capacity expansion, while 27% are looking forward to enter into the new markets.

Cluster benefits and hindrances

Marketing initiatives, adequate infrastructure, taxes & duties and adequate technology were the key benefits cited by the companies operating as a part of the cluster.