SME Cluster Series 2014 - Mumbai

Dun & Bradstreet - British Airways SME Cluster Series 2014 : Mumbai


Engineering Overview

MSME’s operations in India have evolved significantly in size and scale over the years. MSMEs contribute to a significant component of India’s economic growth, having their presence in manufacturing, trade, and services. The sector remains a key catalyst for India’s transformation from an agriculture-based economy to an industrialized economy, especially its role in rural industrialization. MSME forms an important facet of India’s industrial growth. This sector is engaged in the manufacturing of more than 6000 products and caters to a wide range of services. The chart below depicts the distribution of 6000 products in their respective industries.

India’s core industrial strategy over the years has been the development of engineering and capital goods sector. This sector forms the basis for the enhancement of the country’s domestic manufacturing capabilities and so forms a vital ingredient in driving the nation’s economy. The sector’s cascading effect is prominent on the growth of its user industries. Nearly 12% of India’s total manufacturing activity is contributed by the capital goods industry.

Engineering sector in India comprises of diverse set of products

India now has a strong base of engineering and capital goods sector. Capacity creation in core sectors such as power, infrastructure, mining, oil, general manufacturing sector, automotive, process, and consumer goods industries all drive demand for this sector. It propels the growth of its user industries through the manufacturing of a wide range of machineries and equipment in India.

The sector is broadly categorized into heavy and light engineering goods. The heavy engineering sector includes machineries such as power generating sets, earthmoving and mining equipment, power plant equipment, textile machinery, process plant machinery, packaging machinery equipment, and automotive equipment. The light engineering sector consists of a diverse set of sub-sectors including items such as medical instruments, sophisticated process control equipment, castings, forgings, fasteners, bearings, steel pipes, and tubes.

A majority of MSMEs operate in the light engineering sector, which comprise of low technology machines such as castings, forgings, fasteners, bearings, steel pipes, and tubes. A few of the MSMEs are restricted to the assembly of imported components. Although MSMEs are known to dominate the low technology, light engineering segment, a few of them have also forayed into the manufacturing of niche and high value-added products.

A number of products that constitute the light engineering segment serve as an input for high engineering and capital goods sector. Demand for high engineering and capital goods therefore influence the overall health of the light engineering sector. Some of the products manufactured under the light engineering sectors such as different 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.

Engineering goods sector is undergoing healthy growth phase

Engineering goods sector has been growing at a robust pace over the last few years. The sector’s growth is dependent on the growth of its user industries. For the engineering goods sector, key user industries include power sector, textile, automotive, oil and gas, and iron and steel. Growth of the engineering goods sector is attributed to a healthy demand for these user industries.

The sector’s production has grown at a healthy CAGR of 13.4% during FY05 to FY11, amassing ` 1,068.2 bn in FY11. For the period FY12 to FY17, the growth is projected to be 17.3% for the engineering goods sector.

The market size for the engineering goods sector has grown at a healthy pace of approximately 15% CAGR from FY05 to FY11, to reach a level of ` 1,164.5 bn in FY11. The sector is expected to record 15.8% CAGR in terms of market size from FY12 to FY17. The market size for the sector is driven by multiple factors such as macro-economic situation, GDP growth, policy support, state of key infrastructure sectors, state of user industries, and project implementation.

The engineering goods sector is deriving its demand from capacity creation in sectors such as iron and steel, consumer durables, power, mining, automotive, and oil and gas. FDI reforms and de-licensing of the sector through government policies have ensured growth in the market size of the engineering goods sector. This sector is estimated to have employed 370,000 people at the end of FY11 and is projected to employ 500,000 at the end of FY17.

Engineering goods continued exhibiting weakness in exports for FY13

India’s engineering goods exports have grown steadily over the last decade. For the period FY09 to FY13, the sector has shown a CAGR growth of 8.4% in exports. However, exports in FY13 stood at USD 65.3 bn compared with USD 67.8 bn in FY12, which is a decline of 3.8%. The sector’s exports remained subdued in the first quarter of FY14, wherein it showed a decline of 8.3% compared with the corresponding quarter of the previous year. India’s engineering goods exports and overall demand were affected by prolonged global weakness and slowdown in the US, Euro area, and China. India’s overall merchandize exports declined 1.6% in the first quarter of FY14 because of its subdued performance.

Decline in exports of engineering goods also impacted its share in the overall exports for India. The sector’s share of the total of India’s exports has declined steadily from 23.1% in FY11 to 22.2% in FY12, and further to 21.8% in FY13. However, for Q1 in FY14, the share of exports for the sector increased to 22.8%, reflecting marginal recovery.

Major contributors to engineering goods exports in FY12 include transport equipment (31%), machinery, and instruments (22%), and manufacture of metals (14%).


Key policy initiatives, infrastructure development, and capacity additions in chief sectors are bound to increase industrial and manufacturing growth and the outlook for the engineering goods sector in India looks promising. Recent government policy initiatives such as 100% FDI in most sectors will help in funds inflow and will be the catalyst for growth of this sector. Initiatives in infrastructure development and capacity additions in infrastructure sectors such as power, mining, and oil & gas will benefit the sector in the long run.

Going forward, MSMEs are likely to experience a shift in landscape, as the government will integrate this sector, as part of its industrial policy. Many of the policy measures and initiatives will provide necessary momentum to the growth of the MSME sector. The government’s focus on improving manufacturing infrastructure and engineering sector will lead to a more conducive growth for MSMEs in India.