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India is one of the fastest-growing economies in the world, and is currently the centre of global attention. 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 developments. The engineering industry can be primarily categorised into heavy engineering and light engineering segments.

FDI Inflows in the Engineering Sector – Apr 00 to Aug 07

Source: Department of Industrial Policy & Promotion

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

Source: Engineering Export Promotion Council

Heavy Engineering

The engineering industry encompasses a wide range of products, with heavy engineering goods accounting for the bulk of the production. Most leading players are engaged in the production of high-value heavy engineering products as these require high-end technology and are capital intensive in nature.

According to the Department of Heavy Industries, heavy industries cover the following 19 industrial sub sectors:

Source: Department of Heavy Industries

Some of the sub industries have shown remarkable production growth in April-October 2006-07 compared to April-October 2005-06.

Source: Department of IPP

Light Engineering

The light engineering goods segment, on the other hand, uses medium to low-end technology. This segment is characterised by the dominance of small and unorganised players which manufacture low-value added products with small capacities.

The light engineering segment covers the following sectors:

Future Outlook

During the Eleventh Plan Period, the Government of India is planning to achieve a 9% GDP growth. In such a scenario, it becomes essential to develop world class infrastructure. Thus, we can 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:

Key characteristics of the study:

• The average revenue growth of the engineering companies in the last two years is around 33%.
• 66% of the companies possess quality certifications like ISO 9001: 2000 or TS 16949.
• 62% of the companies are involved in exports.
• Europe is the most preferred export destination.
• 26% companies manufacture and market branded products.
• Around 31% of the companies were established between 1990s & 2000 while 64% of the companies were relatively older companies with operations started prior to 1990. Around 5% of the companies are relatively new which have begun operations post-2000.
• The companies operated at an average capacity utilisation of 80%.
• Around 30% of the companies have two or more manufacturing facilities.

Ownership Patterns:

The ownership pattern of the engineering companies in the cluster is inclined towards the private limited company.

• Around 61% of the private limited companies belong to the turnover range of Rs 10 - 100 mn.
• In the last two years, proprietary firm showed the highest revenue growth of 37% followed by private limited company (33%).

Sub segment

66% of the heavy engineering companies are involved in exports as compared to 60% of light engineering companies.

• Under the heavy engineering segment, firms involved in industrial machinery (16%) have the maximum representation, followed by machine tools.
• Under the light engineering segment, 20% of the companies deal in electrical equipments (other than heavy equipments).
• Both, heavy as well as light engineering companies, operate at 80% average capacity utilisation.

Turnover Bracket

Companies with a turnover range of Rs 250 - 500 mn were found to be operating on an average 83% of their installed capacity.

• Asia (excluding Middle East) is the most preferred export destination for companies in the turnover bracket of Rs 10 – 100 mn while companies in turnover bracket of Rs 500 – 1,000 mn preferred the American region.

Growth and Future Plans:

The companies expect the average revenue growth of 40% in the next two years.

• 20% of the companies have shown more than 40% revenue growth in the last two years wherein the majority of the companies belong to turnover bracket of Rs 10 -100 mn.
• 32% of the companies expect more than 40% revenue growth in the next two years.
• Majority of the companies have envisaged future plans. The plans range from capacity expansion and modernisation, to enter untapped markets and diversification. 42% of the companies are planning to modernise their plants while 34% are planning to enter new domestic and international markets.

Cluster benefits and hindrances:

Manpower training, quality up gradation and technology turned out to be the key beneficial factors from the cluster formation whereas government subsidies, taxes & duties and labour issues were cited as the key hindrances.

• Quality up gradation and manpower training emerged as the two top most benefits derived form clusters for heavy as well as light engineering companies.
• Government subsidies and labour issues are the two prominent hurdles in the engineering sector.