SME Cluster Series 2013 - Nashik

SME Cluster Series 2013 : Nashik


Section A: Engineering Industry


Engineering is one of the largest industrial sectors in India. It is diverse with a number of segments and can be broadly categorised into two segments: heavy engineering and light engineering. Engineering is relatively less fragmented at the top and more fragmented at the lower end, in terms of technology and capital investment and is dominated by comparatively smaller players.

The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement, petrochemicals, oil and gas, refineries, fertilisers, mining, railways, automobiles and textiles. Light engineering goods are essentially used as inputs by the heavy engineering industry.

Growth in the domestic engineering industry has been powered by user industries and several new projects undertaken in various core industries such as railways, power and infrastructure. Capacity creation in sectors such as infrastructure, oil and gas, power, mining, automobiles, auto components, steel, refinery and consumer durables drives growth in this sector.

The engineering industry in India manufactures a wide range of products, with heavy engineering goods accounting for bulk of the production. Most of the leading players in the sector produce high-value heavy engineering goods using highend technology. The requirement of huge capital investments acts as a major entry barrier. Consequently, the small and unorganised firms have marginal market presence. The unorganised sector specialises in manufacturing low-technology products while a few small-scale units are involved only in assembly of imported components. This segment caters to the replacement market for few products such as low-quality small bearings.

On the other hand, manufacturers of light engineering goods use medium to low-end technology. The entry barrier is low, owing to relatively lower requirement of capital and technology. This segment is characterised by dominance of small and unorganised players, which manufacture low value-added products. However, a few medium and large scale firms produce high value-added products. This segment is also characterised by small capacities and high level of competition.

I. Heavy engineering sector

The heavy engineering sector can be classified into two broad segments: capital goods/machinery (which is further classified into electrical machinery/equipment and non-electrical machinery/equipment) and equipment. Electrical machinery includes: power generation, transmission and distribution equipment such as generators and motors, transformers and switchgears. Non-electrical machinery comprises machines/equipment used in various sectors such as material handling equipment (earth moving machinery, excavators, and cranes) and boilers.

1. Heavy electrical industry

Fortunes of the Indian heavy electrical industry have been closely linked to development of the power sector in India. The heavy electrical industry comprises of power generation, transmission and distribution as well as utilisation equipment. These include turbo generators, boilers, turbines, transformers, switchgears and other allied items. This electrical equipment (transformers and switchgears) is used by most sectors. Some of the major areas where the equipment is used include power generation projects, petrochemical complexes, chemical plants, integrated steel plants, and non-ferrous metal units.

SMEs in the heavy electrical segment

Numerous companies have ventured into manufacturing of power equipment owing to the Government of India’s thrust on power. The power equipment industry has a number of SMEs operating in fragmented segments such as manufacture of transformers, power cables and conductors. However, the industry continues to be dominated by organised players in the manufacture of heavy electrical equipment, which requires higher technological capabilities and capital investment. In power equipment, transformers are one of the most fragmented segments, with numerous SMEs involved in the manufacturing of transformers. The Indian transformer industry exports to more than 50 countries including the US, Europe, South Africa, Cyprus, Syria, Iraq, and the Far East countries.

Classification of heavy electrical industry:


2. Textile machinery

The Indian textile machinery segment comprises more than 1,446 machinery and components manufacturers and 600 units producing complete machinery.

The global market crisis that hit the textile industry in 2009 had a serious impact on the Indian textile machinery segment as well. Production in the overall textile machinery segment that grew at 18% CAGR over 2004-08, declined by more than 30% in 2009, but showed signs of revival in 2009-10. Exports experienced a decline in 2009, which continued into 2010 as well. However, along with economic recovery, production and exports registered growth in FY11.

TUF Scheme a boon for textile machinery manufacturers

Technology Upgradation Fund Scheme (TUFS), the flagship programme of the Ministry of Textiles, has attracted investments in the textile sector. It has infused an investment climate in the textiles sector and in its operational life span has propelled investment of more than ` 20.77 bn (up to June 2010). The textile machinery industry has benefited substantially from the TUFS scheme for expansion and modernisation of textile mills. The total fund of ` 80 bn, which was allocated under the TUFS scheme in the Eleventh Five Year Plan (2007-2012), has been utilised completely in just three years. A proposal to enhance the Eleventh Plan allocation under the TUFS scheme from ` 80 bn to ` 154.04 bn is under consideration.

3. Material Handling Equipment

Under the heavy engineering segment, the Indian material handling equipment industry has a number of units present in the SSI sector, manufacturing equipment such as stackers, reclaimers, ship loaders/unloaders, wagon tipplers and feeders catering to core industries such as coal, cement, power, port, mining, fertilizers and steel plants.

4. Machine Tool Industry

Machine tool is another heavy engineering segment dominated by SMEs in terms of number of companies. Coimbatore is one of the major manufacturing hubs of the machine tool industry. The machine tool industry manufactures the entire range of metal-cutting and metal-forming machine tools; and variants of robotics, handling systems and TPM-friendly machines. Although machine tool manufacturers produce general purpose machinery of international standards in terms of quality, precision and reliability; they lag in terms of design and engineering capabilities to manufacture high precision CNC machines. It is a highly fragmented industry with growth in the industry being demand driven, coming from various sectors such as automobiles, engineering, defence, textile machinery and aviation.

5. Cement Machinery Industry

The Indian cement machinery industry manufactures complete cement plants, based on dry processing and pre-calcination technology, for capacities upto 7500 TPD. The existing installed capacity of the industry is estimated to be ` 6 bn per annum. According to the Ministry of Heavy Industries, presently there are 18 units in the organised sector for the manufacture of complete cement plant machinery.

6. Oil Field Equipment Industry

The oil field equipment manufacturing industry manufactures drilling rigs for on-shore drilling. Offshore drilling equipment like jack-up rigs, etc are not manufactured indigenously. The industry however manufactures offshore platforms and certain other technological structures domestically. Bharat Heavy Electricals, Hindustan Shipyard, Mazgaon Dock and Burn & Co. are some of the leading producers. The recent couple of years have witnessed a surge in exports of oil field equipment. However, the industry remains a net importer.

7. Dairy Machinery Industry

The Indian dairy machinery manufacturers produce a range of equipment including stainless steel dairy equipment, evaporators, milk refrigerators and storage tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenisers, spray dryers and heat exchangers (tubular and plate type), etc. As per the Ministry of Heavy Industries, presently there are 20 units manufacturing dairy machinery and equipment such as evaporators, milk refrigerators, storage tanks, milk deodorizers, centifugers, clarifiers, agitators, homogenizers, spray dryers and heat exchangers, etc in the organised sector, both in private as well as public sector.

II. Light engineering industry

A majority of the SMEs operate in the light engineering industry, comprising low-tech items such as castings, forgings, fasteners, bearings, steel pipes and tubes. Although SMEs are known to dominate the low-technology segment in engineering, a few SMEs also manufacture niche high value-added products. For a few SME engineering enterprises, manufacturing is restricted to assembly of imported components.

Most products in the light engineering industry serve as inputs for the capital goods industry. Therefore, the industry’s financial and operational health is linked to demand for capital goods. In fact, in light engineering, a number of products such as all types of fasteners (except high tensile and special purpose fasteners), conventional hand operated sewing machines, bicycle parts and other components are reserved for the SSI sector.

SMEs have a significant share in the steel forgings industry with a number of units functioning in this tiny segment. These SMEs have upgraded their facilities in terms of technology and quality and some of them supply to Original Equipment Manufacturers (OEMs) in the automobile sector.

Traditionally, for SMEs, major impediments to growth have been high cost of credit and non-availability of raw material at competitive rates. SMEs also lag behind in technological capabilities, with a wide gap between technology in the domestic turf and at international levels.

The major sub-segments within this industry are: Medical and Surgical Instruments:

The medical and surgical instruments segment includes a wide array of equipment and apparatuses. These include medical and surgical instruments, dental equipment, electro-medical apparatus, orthopaedic appliances, physiotherapy equipment, X-ray machines, among others. These instruments find application in diagnosis, therapy and patient monitoring and thus play a crucial role in the healthcare delivery system.

Output of the Indian medical and surgical instruments industry was small until a few years back. In recent years, liberalisation and growing health awareness has accelerated the growth of the domestic industry and also led to a rise in imports of medical and surgical instruments into India. Domestic production comprises of a wide range of medical equipment including Electro-Cardiograph (ECG) machines, X-ray machines, electro-surgical instruments, blood chemistry analysers, among others. Demand for sophisticated instruments such as nuclear magnetic resonance (NMR) scanners, multi channel monitors, among others are met through imports. Majority of the end-users prefer to deal with foreign companies, as Indian manufacturers who are concentrated in the small-scale sector are not able to provide after-sales service.

Rising income levels, growing health consciousness, rapid urbanisation and rise of medical tourism are expected to drive the demand for medical and surgical instruments. Government’s commitment to improve healthcare facilities and liberalisation of trade and investments laws would also expand the market for medical and surgical instruments.

Process Control Instruments: Process control instruments and systems are instruments and systems used for measurement and control of process variables. Process variables are physical or chemical parameters, the variations of which can affect the operation of a manufacturing process. These variables include humidity, pressure, temperature, liquid level, flow, vacuum, vibration, specific gravity, and chemical composition including pH, among others. Use of process control instruments and systems is highly significant in large and sophisticated process industries such as fertilisers, power plant, steel, cement plants, petroleum refineries and petrochemical industries, among others.

The industry is a liberalised one and 100% FDI is permitted in this sector. Transfer of technology has been the major cornerstone for the development of the domestic process control instruments and system industry. There exists a gap between technology adopted in India and contemporary international technology. Technology presently used in the Indian industry is microprocessor-based centralised control system. The Indian industry is capable of handling open control systems and smart control devices; however, latest developments such as total integrated management and control approach, which are currently being adopted in the developed countries, are yet to be adopted in the country.

Anti-friction roller bearing: Roller bearings are components used to reduce or eliminate friction between moving parts and thus reduce wear & tear of machines. They help improve machine performance and are thus a critical component of any equipment that rotates. It finds varied application, ranging from simple electric fans to complex space rockets. Depending on its usage, a bearing may have to withstand prolonged use, high-speed rotation, varied temperatures, or a corrosive environment. Bearings are available in two distinctive shapes, ball and roller. There are four different types of roller bearings – cylindrical roller bearings, needle roller bearings, tapered roller bearings and spherical roller bearings.

The Indian bearing industry has recorded healthy growth in the past few years. The Indian manufacturers are able to meet more than three-fourth of the demand for general purpose bearings. The Indian bearing industry’s product range comprises of more than 500 types of bearings. Indian manufacturers do not produce special purpose bearings as demand for the same is low and investments required are huge as bearings is a capital intensive industry. Special purpose bearings are therefore imported.

The bearings industry is highly fragmented. The organised sector caters to both the original equipment manufacturers and replacement market. The unorganised sector, which manufactures low quality small bearings, caters to the replacement market. The manufacturing activity of a few small-scale units is restricted to assembly of imported components. The automobile industry is the major user industry for the bearings industry. Given the growing demand for automobiles in the country, demand for bearings would increase in the coming years.

Industrial Fasteners: Industrial fasteners cover a wide range of products such as nuts, screws, bolts, studs, rivets, nails, washers, etc. Fasteners can be broadly classified into two groups, high tensile strength fasteners, and mild steel fasteners depending on their tensile strength. Manufacture of high tensile fasteners requires superior technology and these are hence mainly manufactured in the organised sector. On the other hand, manufacturing of mild steel fasteners is concentrated in the unorganised sector. In fact, manufacture of all types of fasteners except high tensile fasteners and special purpose fasteners are reserved for the SSI sector. Fasteners are used in the assembly of engineering systems.

The automobile industry is the largest consumer of fasteners. The other major user-segments are textile machinery, railway locomotives, construction, computer hardware and general engineering. There exists huge export potential for Indian industrial fasteners. However, poor product standardisation, relatively higher raw material costs and low labour productivity make Indian fasteners less competitive in the global market.

Ferrous Castings: Ferrous castings constitute essential intermediates for automobiles, industrial machines, power plants, chemicals & fertiliser plants and cement plants, among others. They are therefore vital for the growth and development of the engineering industry. The domestic industry is well established, giving rise to a huge export potential for Indian manufacturers. To capitalise on this export demand, leading manufacturers have undertaken modernisation and upgradation of their manufacturing facilities to improve productivity and product quality and also reduce their production costs. Given the wide spread usage of castings across industries and the huge export potential, there exists considerable scope for establishing additional capacity in this area.

Steel Forgings: The forgings industry has emerged as one of the major contributors to the manufacturing sector of the Indian economy. Depending on the scale of operations, the industry can be categorised as large, medium, small and tiny. SMEs comprise a major portion of this industry.

Increasing globalisation has led to sharp rise in investments in the sector. This has led to the industry becoming capital intensive from being labour intensive. To expand their markets and have a global reach, the small-scale units are also increasing their capital investments. The small-scale units have upgraded their facilities in terms of technology and quality and a number of them are now suppliers to the OEMs in the automobile sector. The automotive industry is the major enduser of the forging industry. The other user industries include industrial machines, railways, oil & gas, power plants and chemical plants, among others.

The Indian forgings industry has made rapid strides and currently not only meets almost the entire domestic demand, but has also emerged as a large exporter of forgings. The major export markets are USA, Europe and China. The outlook for the industry looks promising, backed by the robust demand from the automotive sector, both domestic and global.

Seamless Steel Pipes & Tubes: Seamless steel pipes & tubes find widespread usage in the hydrocarbon industries, processing & general engineering industries. Boiler pipes, as the name suggests are used in boilers, heat exchangers, super heaters, among others, while casing & tubing are used for drilling of oil and gas. Seamless pipes find application in industries where strength, resistance to corrosion and long shelf life are critical. The industry is liberalised and 100% FDI is permitted in the sector under the automatic route.

The oil sector is the major end-user segment of seamless pipes & tubes. The other user segments include boilers, ball bearings, automobiles, chemical plants, fertilisers, petrochemical plants, industrial machinery, among others. With the gradual rise in power and oil sector, the demand for seamless steel pipes & tubes segment is expected to increase going forward.

Electrical Resistance Welded (ERW) Steel Pipes & Tubes: ERW steel pipes & tubes find widespread usage across industries and fields. In addition to various engineering industries, they are used for water, oil and gas distribution, line pipes, fencing, scaffolding, etc. They are also used for agricultural purposes, drinking water supply, thermal power, for hand pumps for deep boring wells and also as protection for cables (telecom), among others. Depending on the requirement of the end user industry, ERW steel pipes & tubes are available in various wall thicknesses, diameters, and qualities. The different types include line precision pipes, tubular poles, electric poles, lightweight galvanised pipes for sprinkler irrigation, among others. The industry has sufficient capacity to manufacture the different types of pipes & tubes. High performance ERW steel pipes & tubes possess high strength, toughness and are corrosion resistant.

In the manufacturing process of ERW steel pipes & tubes, the edges to be welded are mechanically pressed together and electric resistance or electric induction is used to generate the heat required for welding. With the adoption of better welding technology, ERW pipes & tubes are now widely used in the oil & gas sector. A number of ERW steel pipes & tubes production units are in the SSI sector. Higher demand from the oil & gas industry, infrastructure and automobile industries has led to a healthy increase in production of ERW steel pipes.

Submerged-Arc Welded (SAW) Pipes: SAW pipes are mainly used for oil & gas transportation and water distribution. SAW pipes are of two major types, longitudinal and helical welded SAW pipes. The latter are used for low-pressure application, while longitudinal SAW pipes are preferred for high-pressure application such as gas pipes. Longitudinal SAW pipes are more than 25 mm in thickness. In terms of production costs, it costs less to manufacture helical SAW pipes as compared to longitudinal SAW pipes. In the manufacturing process of submerged-arc welded pipes, the heat necessary to melt the edges of metal to be joined together is generated with the help of a concealed arc with no pressure between the two sides of the weld. India has a high installed SAW pipes capacity with four major players including Jindal Saw Limited, Well Spun Gujarat Limited, PSL Limited and Man Industries.

Bicycle Industry: The Indian bicycle industry can be categorised into two segments, those manufacturing bicycle parts, and those manufacturing complete bicycles. Majority of bicycle parts and components are manufactured in the small-scale sector, since most of the components other than free wheels and single piece hubs are reserved for the small-scale sector. Large units are permitted to manufacture bicycle frames, chains, rims, and that too only for captive consumption. Complete bicycles are manufactured in the organised sector. The Indian bicycle industry conforms to well-accepted quality standards in the international market, and more importantly, the industry is taking efforts to increase exports.

Section B: Pharmaceutical Industry

The Indian pharmaceutical industry ranks among the top five countries by volume (production) and accounts for about 10% of global production. During FY03-FY09, the total market size of the Indian pharmaceutical industry grew at a CAGR of 13.3% to ` 893.4 bn. Low cost of skilled manpower and innovation are some of the factors supporting this growth. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry employs about 340,000 people and an estimated 400,000 doctors and 300,000 chemists.

Industry structure

The products manufactured by the Indian pharmaceutical industry can be broadly classified into bulk drugs (active pharmaceutical ingredients - API) and formulations. Of the total number of pharmaceutical manufacturers, about 77% produce formulations, while the remaining 23% manufacture bulk drugs. Bulk drug is an active constituent with medicinal properties, which acts as basic raw material for formulations. Formulations are specific dosage forms of a bulk drug or a combination of bulk drugs. Drugs are sold as syrups, injections, tablets and capsules.

Formulations can be categorised under various therapeutic groups (Exhibit 2.1):

Based on the pharmaceutical customer base, the Indian API manufacturing segment can be divided into two sectors – innovative or branded and generic or unbranded. In 2009, the global generic drug market was estimated to be US$ 84 bn, of which the US accounted for 42%. India’s generic drug industry is estimated to be US$ 19 bn and it ranks third globally, contributing about 10% to global pharmaceutical production.

Pharmaceutical manufacturing units are largely concentrated in Maharashtra and Gujarat. These states account for about 45% of the total number of pharmaceutical manufacturing units in India.

The Indian pharmaceutical industry grew from a turnover of ` 15 bn in 1980 to ` 1 tn in 2009 (as of Sep 2009). The industry is fragmented with more than 10,000 manufacturers in the organised and unorganised segments. During FY04-FY09, the domestic market recorded a CAGR of 11.2%.

SMEs in the pharma industry

According to the Confederation of Indian Industries (CII), there are around 8,000 small and medium enterprises (SME) units, accounting for about 70% of the total number of the pharma units in India. Indian SMEs are also opening up for emerging opportunities in the pharmaceutical industry in the field of CRAMS, clinical research etc. These would drive them to play a definitive role in the transitional global pharmaceutical environment, where a sizeable number of drugs are expected to go off patent in the coming years. The Indian government has been making every attempt to support SMEs through several incentives. One such effort is the development of SME clusters in various parts of the country.

Investment in the Indian pharmaceutical industry

The drugs and pharmaceutical industry attracted foreign direct investment to the tune of US$ 22.6 bn for the period between April 2000 and November 2011.

The Indian pharmaceutical industry enjoys certain advantages, which attracts FDI in the country: 1) low cost of innovation and capital expenditure (to operate good manufacturing practices-compliant facilities) which provides leverage in pricing of drugs 2) transparency in the regulatory framework 3) proven track record in bulk drug and formulation patents 4) strong domestic support in production, from raw material requirements to finished goods and 5) India emerging as a hub for contract research, bio-technology, clinical research and clinical data management.

Factors influencing growth of the industry

The Indian pharmaceutical industry ranks 14th in the world by value of pharmaceutical products. With a well-established domestic manufacturing base and low-cost skilled manpower, India is emerging as a global hub for pharma products and the industry continues to be on a growth trajectory. Moreover, India is significantly ahead in providing chemistry services such as analogue preparation, analytical chemistry and structural drug design, which will provide it ample scope in contract research and other emerging segments in the pharmaceutical industry. Some of the major factors that would drive growth in the industry are as follows:

Foreign trade in pharmaceutical products

India’s exports of pharmaceutical products have a share of 2.9% in its total exports (FY10). Indian exports of drugs and pharmaceuticals grew at a CAGR of 26.2% to US$ 6,543.4 mn over FY04-FY11.

The US is the largest market for India’s pharmaceutical exports. During FY10, the US accounted for 24.1% of India’s pharma exports. Russia and Germany followed with 5% and 2.2% share respectively.

Import of drugs and pharmaceuticals into India recorded a CAGR of 29.9% during FY04-FY11. During FY11, pharmaceutical products worth US$ 1,204.8 mn were imported into India. India is almost self sufficient in formulations; its imports mostly comprise bulk drugs and some intermediaries. These imports are freely permitted, except those that are restricted in the foreign trade policy. Import restrictions are mostly on drugs that contain narcotics and psychotropic components.

Major challenges faced by the industry The Indian pharmaceutical industry was on a strong growth trajectory in the last decade. It has achieved several milestones and is well positioned to leverage emerging opportunities. However, the industry needs to tackle various issues related to its operations and regulations. It faces several challenges in the form of pricing of pharmaceutical products and impact of some agreements. This section touches upon several key issues and challenges faced by the industry:

Indian pharmaceutical industry: SWOT analysis The SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry in respect to its internal and external environment.






Overall growth outlook for the Indian drugs and pharmaceutical industry appears positive. Pharma manufacturers are likely to benefit from rise in demand for generic products. Some of the factors that would drive growth in the domestic pharma industry are: 1) low cost operations 2) research-based processes 3) improvements in API and 4) availability of skilled manpower.

The domestic formulations and bulk drugs markets are currently facing price pressure as benefits of cheaper drugs have been shifted to end-users and trade channels. Hence, consolidation, partnership and alliances are expected to gather momentum in the near future. Off patenting of branded drugs would increase demand for generic drugs. This provides immense opportunities to the Indian pharmaceutical companies especially given their prior experience in generic drug development. Some other factors such as high penetration in the global markets and increase of share in Abbreviated New Drug Application (ANDA) filings are likely to power growth of the formulations market. Major growth drivers for the Indian bulk drug industry include rise in demand for contract manufacturing, increase of share in Drug Master Files (DMF) filings and process innovation.

Furthermore, initiatives of the Government will act as a backbone for growth. Some such initiatives include: 1) allowing 100% FDI under the automatic route in drugs and pharmaceuticals including those involving use of recombinant technology 2) increasing weighted tax deduction on expenditure in in-house R&D activities to 200% in the Budget 2010 and 3) setting up a US$ 639.56 mn venture capital fund to support drug discovery and strengthen pharmaceutical infrastructure.