Introduction

For the purpose of the awards, Dun and Bradstreet chose 10 diversified sectors which are traditionally SME intensive and contribute significantly to the Indian economy. The chosen sectors include auto components, chemicals and petrochemicals, engineering goods, food and agro products, gems and jewellery, IT &ITeS-BPO, leather and leather products, pharmaceuticals, plastic goods and processing, textiles. These sectors coupled with their strength, challenges and opportunities; entail significant growth potential to domestic production and employment of the economy.

Auto Components

The Indian auto component industry is growing fast and the industry size was estimated at around US$15 billion in FY07, having grown at a CAGR of 28.9% during FY03-07. Characteristically, the Indian auto component industry can broadly be divided into the organised and the unorganised segments; the organised segment concentrating on the high value added engineering precision products and the unorganised segment concentrating on low value added- high volume segments of the industry. The Indian auto component industry was earlier dominated by the after sales market. However over the last couple of years there has been a rapid shift in the focus from replacement market to the Original Equipment Manufacturers (OEMs) market. During 1990s revenue from after sales accounted for 65% and OEMs/Tier 1 for 35% share. But the scene gradually changed with OEMs/Tier 1 accounting for 75% and the sales market for 25% share in 2006.

Today, India is increasingly becoming a global auto components hub, exporting to various countries in the world. Auto component exports from India reached US$2.93 billion in FY07, having grown at a CAGR of over 40% during FY03-07. In terms of the export markets, Europe accounted for 32.4% of the total Indian auto component exports, followed by the North America with 25.1% share, Asia 20% and the rest shared by other continents.

Over the past couple of years, the Indian auto component industry has occupied an important position in the world, largely driven by cost competitiveness, available skilled manpower, improved infrastructure, growing spending on R&D activities, cluster development and a thriving domestic automobile industry. With all these positive trends, it is expected that the Indian auto component industry would generate revenue of around US$40 billion by 2016, with exports estimated to reach US$20 billion by 2015, according to ACMA.

Chemicals and Petrochemicals

The Indian chemical industry was estimated to be worth approximately US$35 billion in 2007, thereby contributing over 3% of India’s total GDP, according to the Department of Chemicals and Petrochemicals. The sector notably contributed to over 13.2% of India’s total merchandise export in FY07, to reach US$16.7 billion.

The major sub segments of this industry encompass alkali, organic chemicals, inorganic chemicals, pesticides, dyes & dyestuffs and specialty chemicals. The industry is highly fragmented, with large number of small scale units in operation. An important characteristic of the industry is its high volume, low value added products. The industry has been playing an important role in the country’s overall economic development, by matching the rising requirements of the several other manufacturing industries. Besides, it has been the backbone of India’s agricultural development over the years. During FY07, total production of alkali slightly dipped to 5.3 mn tonnes against 5.5 mn tonnes in the previous year owing to fall in production of soda ash and liquid chlorine. The production of inorganic chemicals went up by 10.7% to reach 0.6 mn tonnes; however, the production of organic chemicals remained stagnant at 1.5 mn tonnes.

The Indian petrochemical industry has witnessed significant developments over the last three decades. The petrochemical products can broadly be classified into five major sub segments such as synthetic fibres/yarn, polymers, elastomers (synthetic rubbers), synthetic detergent intermediates and performance plastics. In FY07, the production of major petrochemicals stood at 8.2 mn tonnes showing a y-o-y growth of 10.1%. For the same time period, polymers accounted for a dominant share of the total production with 63% followed by 27% of synthetic fibres. Gujarat accounted for 62% of basic petrochemical production followed by 15% in Maharashtra. Petrochemical production was expected to reach 8.5 mn tonnes by end of FY08.

Engineering Goods

The engineering sector is one of the largest among the various industrial sectors in the country and its role has been accentuated with growing emphasis on infrastructure development in India as well as globally. Liberalisation of Foreign Direct Investment (FDI) policy has facilitated inflows into various segments of the sector. It plays an important role in India’s growing significance in the world manufacturing sector and occupies an important position in the country’s export basket having contributing 23% to the total merchandise exports in FY07.

The Indian engineering industry encompasses a wide range of products and can be primarily categorised into heavy engineering and light engineering segments. The heavy engineering segment constitutes 80% of the total value, and the rest is contributed by the light engineering segment. The exports of engineering goods increased to US$27.1 billion in FY07, thereby witnessing y-o-y growth rate of 33.9%. The rapid growth of exports was led by machinery and instruments which accounted for 22% of the total export of this product group, followed by iron & steel with a share of 18%, manufacture of metals 17% and the rest shared by others.

Over the last couple of years, India has emerged as a favourable outsourcing destination for various engineering services such as new product designing, product improvement, maintenance and designing manufacturing. According to a study by NASSCOM and Booz Allen Hamilton, it is expected that global engineering services outsourcing market would reach to US$150-225 billion by 2020 and India’s share is expected to be around US$40 billion during this period.

Food and Agro Products

The Indian food and agro products sector is an important industry in terms of production, consumption, exports and more significantly provides employment directly to about 13 mn people and indirectly to 35 mn. The food and agro product industry comprises of agriculture and allied products such as tea, coffee, cashew, raw cotton, fruits and vegetables, processed fruits juices and other processed items, marine products, sugar and mollasses, oil meals, meat and meat preparations, rice, wheat etc. According to the Ministry of Food Processing Industries, the size of the food market stands at around US$69.4 billion that includes US$22.2 billion of value added food products.

The sector is an important component of Indian merchandise exports, contributing around 10% of the total exports in FY07, to reach US$12.5 billion. Of the total exports of this product group, marine products contributed to about 13.9%, followed by rice 12.4%, raw cotton 10.8%, oil meals 9.7%, processed fruits and vegetables 3.2%.

With about 184 mn hectares of arable land, production of around 150 mn tonnes of fruits and vegetables, 90 mn tonnes of milk, 204 mn tonnes of food grains and 6.3 mn tonnes of fish, the Indian food and agro products sector has huge potential. However, only about 2% of the fruits and vegetables are processed, while in the US it is 65%, 78% in Philippines, 83% in Malaysia and 23% in China. The sector has been witnessing several constraints such as inadequate infrastructural facilities like coldchain, packaging, branding, high inventory carrying cost and inefficient supply chain, lack of access to modern technology, low productivity, and high wastage. But with changing life styles, rising disposable income, buoyant organised retail sector; there is huge potential for this sector in the near future.

Gems and Jewellery

The gems and jewellery sector is an important component of India’s export basket and contributed to around 12.3% of the country’s total merchandise exports in FY07. In 2005, the global gems and jewellery market size was estimated to be around US$146 billion, having grown at a CAGR of 5.2% during 2000-2005. It is expected to reach US$185 billion by 2010, and subsequently to US$230 billion by 2015.

The Indian gems and jewellery industry can broadly be classified into three key segments namely gemstones which includes diamond and coloured stones; jewellery comprising of plain gold, studded, silver and pearls. During FY03-07, India’s gems and jewellery exports grew at a CAGR of 14.6%. India’s major export destination included the US with 30.3%, followed by Hong Kong with 22% share. Notably, the UAE has been emerging as an important market for India’s gems and jewellery, since the country’s share in export of India’s gems and jewellery has gone up sharply from 7.3% in FY03 to 20.4% in FY07.

India is currently one of the leading diamond processing countries in the world, with a share of 57%. But, with the emergence of China in this particular segment, India’s share is expected to decline to 49% by 2015. Notwithstanding, given the rising purchasing power, disposable income and the rapidly growing retail sector, domestic demand for gems and jewellery has been increasing over the last couple of years. Also, it is noteworthy to mention that India is the largest retail market for gold jewellery in the world with a share of around 20%.

IT & ITeS-BPO

The Indian IT & ITeS-BPO industry size was estimated at around US$48 billion in FY07, having registered a y-o-y growth of around 28.3%, thereby contributing around 5.4% to India’s GDP, according to NASSCOM. The export market accounted for around 65.2% of the total revenue generated by the Indian IT industry in FY07. For the same period, in terms of revenue generated from the overseas market, the IT services segment contributed the highest share with 57.5%, followed by the ITeS-BPO segment with 26.8% share and the rest shared by the software products and engineering services & R&D.

The domestic IT market grew at a CAGR of 25.7% during FY04-07, to reach US$ 16.5 billion. The domestic IT market is broadly classified into four segments: (i) IT Services, (ii) software products, engineering and Research & Development (R&D) services, (iii) IT-enabled Services and Business Process Outsourcing (ITeS-BPO), and (iv) Hardware. While IT Services accounted for around 34% of the total revenue generated by the domestic market in FY07, the engineering services, R&D and software products segments together accounted for 9.7% of the revenue. The ITeS-BPO segment, on the other hand, contributed 6.7%. Hardware accounted for major share of the domestic market with about 49.5%.

Within the ITeS-BPO segment, customer interaction services (CIS) accounted for nearly 45% of the total ITeS-BPO services exports in FY07; finance & accounting contributed for roughly around 40%. Human resource and other high-end knowledge-based processes account for 3% and 12% respectively. The Indian IT & ITeS-BPO industry revenue is expected to register a y-o-y growth rate of 33.3% in FY08 to reach US$64 billion, of which exports would be US$40.3 billion, as per NASSCOM estimates.

Leather and Leather Products

The Indian leather industry size is estimated at around Rs 250 billion and employs around 2.5 million people, as per National Manufacturing Competitiveness Council (NMCC). The industry comprises of tanning & finishing activities, footwear & footwear components, leather garments, leather goods and finished leather. Around 185 million hides and skins are processed annually of which 85% are sourced domestically. The industry is highly fragmented with the small scale and cottage artisans contributing around 75% of the total production in the country.

The Government of India has identified leather as one of the thrust areas for export and accounted for 2.3% of country’s total merchandise exports in FY07. For the same period, leather exports reached US$2.9 billion; having posted a y-o-y growth of 8.7%. The sector’s market size notably has the potential to reach US$7 billion by FY12. During FY07, leather footwear and footwear component was the largest exported product among different categories, contributing over 39% of the total leather exports from India. Germany and Italy were the major markets for Indian leather products and equally accounted for around 13.5% of total leather exports, while the UK and the US accounted for 11.9% and 10.3% respectively.

The Indian leather industry has been witnessing several issues such as low capacities, outdated technologies of tanneries, lack of adequate raw material base, paucity of skilled and semi skilled labour force. The small units are witnessing several challenges such as compliance with environment standards and lack of adequate transport infrastructure.

Pharmaceuticals

The Indian pharmaceutical industry has come a long way driven by low costs, growing enterprise, skilled manpower, rising demand both from the domestic and international market. According to the Department of Chemicals and Petrochemicals, the annual turnover of the Indian pharmaceutical industry stood at US$17 billion during FY07. On account of the changes in drug patent legislation in 2005, the Indian pharmaceutical industry has been undergoing a sea change in its process. This as a result has spurred spending on R&D by the Indian pharmaceutical companies.

The Indian pharmaceutical industry comprises of large as well as a number of small and medium enterprises. A large number of companies are involved in contract manufacturing and R&D. The major systems of medicines are allopathic, ayurvedic and herbal. In terms of export value of bulk actives and dosage forms, India has emerged as an important destination in the world. Importantly, export of pharmaceutical products registered a growth rate of 10.5% to reach Rs249.4 billion in FY07 against the previous year.

The future outlook for the pharmaceutical sector seems to be very positive. A number of acquisitions by the Indian pharmaceutical companies outside, particularly in the US and Europe, are helping Indian players to make their mark at the global level. India is now internationally recognised among one of the lowest cost producer of drugs. It holds fourth position in terms of volume and 13th position in terms of value of pharmaceutical production in the world. It is estimated that the industry has the potential to achieve over Rs 1,000 billion production of formulation and bulk drugs by 2010.

Plastic, Plastic Goods and Plastic Processing

The Indian plastic and plastic processing industry is highly labour intensive in nature and one of the fastest growing industries in the country today. The sector directly and indirectly provides employment opportunities for over 3.3 million people and has the potential to generate additional employment opportunities for 3.7 million by FY12.

The plastic process industry is highly fragmented comprising of tiny, small and medium units. According to the Department of Chemicals and Petrochemicals, there are around 55,000 plastic processing units both in organised and unorganised sector which consumed 4.8 million tones of virgin commodity polymers in 2005-2006. 75% of the plastic processing units operate as SSI units and accounted for 25% of the total polymer consumption. Recycled plastic is an integral part of this industry and accounts for around 30% of the total consumption.

Although the export of plastics products is increasing, however, its share in global trade is less than 1%. During FY07, export of plastic and plastic products (under HS Code 39) posted a y-o-y growth of 26.8% to reach US$2.7 billion, which accounted for around 2.2% of India’s total merchandise exports. In terms of India’s export of this product group to other countries in the world, China emerged as the largest export destination with a share of 15.7% share in FY07, up from 12.7% in the previous year. However, India’s export to the US declined to 10.2% from 13.1% in the same period.

Textiles

The Indian textile industry has played a significant role in the growth of the economy in terms of employment generation, industrial production and exports. The sector contributed around 4% of India’s GDP, 14% of the industrial production and 13.5% to merchandise exports in FY07, generating direct employment to nearly 35 mn people in the country. The major sub-segments of the textile industry comprises of organised cotton/man-made fibre textile, man-made fibre/filament, wool and woollen goods, sericulture and silk, handlooms, handicrafts, jute and jute textiles. The textile industry in India is highly fragmented. It is vertically integrated across the whole value chain and interconnected with various operations. The organised sector consists of spinning mills and composite mills whereas the unorganised sector is marked by the presence of handlooms, power looms and handicrafts.

As per Ministry of Textiles, as on 31 Dec 07, there were 1,744 cotton/man-made fibre textiles mills (non-SSI) with a capacity of 34.87 million spindles, 457,000 rotors, and 56,000 looms. In FY07, The production of spurn yarn, including that from SSI sector, was 3,813.39 mn kg and estimated to reach 4,000 mn kg in FY08. Total cloth production was 53,389 mn sq mtrs in FY07 and estimated to reach 57,491 mn sq mtrs in FY08.

India’s textile exports grew at a CAGR of 10% during FY03-07. During FY07, textile and textile product exports posted a y-o-y growth of 3.7% to reach around US$17 billion. Of these, ready made garments accounted for 51%, followed by cotton yarn, fabrics and made-ups to around 24.3% and the rest shared by other products such as man made yarn fabrics, manmade staple fibre, jute, carpets etc. Various factors which affected the surge in exports include the phasing out of the Multi Fibre Agreement (MFA) in 2005, growing number of textile export oriented units and SEZs etc. According to the Planning Commission of India, the textile industry is expected to reach US$115 billion, of which the export market would contribute to around US$55 billion by the end of 11th Five Year Plan.