Capital Goods & Engineering

1. Capital Goods & Engineering

2. © Confederation of Indian Industry
Content
 Sectoral Snapshot
 Advantage India
 Growth Drivers
 Major Challenges faced
2

3. © Confederation of Indian Industry
Indian Engineering Industry
3
• Heavy electrical
• Heavy engineering and
machine tools
• Automotive
Heavy Engineering
• Low technology products
• High technology products
Light Engineering

4. © Confederation of Indian Industry 4
Sectoral Snapshot*
5.8%
5-year Production CAGR
2%
Sector’s
Contribution to GDP
100% FDI
allowed under
automatic route
~12%
Sector’s
Contribution to
Manufacturing GDP
~6%**
of total FDI captured by
Engineering Sector
between 2000-15
~9 Million
employment generated
by sector
*w.r.t. Capital Goods sector
**Source : DIPP

5. © Confederation of Indian Industry
Indian Capital Goods Market (Segment-wise)* (Rs. Cr)
]
Sub-sector Market size
(2014-15)
5 yr CAGR
(%)
Machine Tools 9,267 5.2%
Textile Machinery 12,308 10.7%
Earthmoving & Mining Machinery 21,671 0.4%
Heavy Electrical Equipment 157,522 5.2%
Plastic Machinery 3,620 9.6%
Process Plant equipment 24,149 12.3%
Dies, Moulds & Press Tools 15,100 5.2%
Printing Machinery 19,579 13.7%
Metallurgical Machinery 2,750 -6.3%
Food Processing machinery 15,600 5.0%
Total 281,566 5.8%
5
T
**Sub-sector Industry Associations, DGCIS data, Department of Heavy Industry

6. © Confederation of Indian Industry 6
Advantage India*
Growing Demand
Growth impetus towards infrastructure, power,
mining, oil & gas, refinery, steel, automotives,
and consumer durables driving demand in the
engineering sector. Rising demand for
electrical and construction equipment .
Competitiveness Imperative
Rising competition is driving domestic players
to focus on improving their capabilities,
become more quality conscious, and upgrade
their technology base in line with global
requirements.
Vibrant Exports
Over FY08–15, engineering exports registered
a CAGR of 11.1 per cent. Include transport
equipment, capital goods, other machinery/
equipment and light engineering products such
as castings, forgings and fasteners
Talent
Large pool of engineering and managerial
manpower
Potential
 The National Policy on Capital Goods envisions production of USD 125 billion, an increase in
exports to 40% and additional employment for about 30 million people by 2025.
 Overall, Indian engineering exports stood at USD70.6 billion in FY15.
 Capital Goods Sector presents investment opportunities in all sub sectors due to push to
infrastructure, rail, development of industrial corridors and overall manufacturing activity.
.
*USD 1 = INR 60

7. © Confederation of Indian Industry 7
Growth Drivers
Policy and Eco-system
 National Capital Goods Policy 2016
 100% FDI
 Tax Incentives: 15% exemption on tax to
manufacturing companies that invest more
than Rs 100 crores in plant and machinery
 Scheme on Enhancement of
Competitiveness of the Indian Capital
Goods Industry
Industry Evolution and Capabilities
While traditionally, in the initial years of
development, the ownership pattern in Indian
Capital Goods Industry was marked by the
dominance of (PSEs) , with focus on heavy
electrical and construction equipment. However,
with the opening up of industrialization, private
firms(MNCs) have set up manufacturing & R&D
facilities introducing advanced capabilities.
in some sub sectors of capital goods.
Market
Capital goods is a large sector with a market size of USD 46 billion in 2014-15. However, the growth of
the sector has been lagging, with domestic market size de-growing at 3.6% per annum. Imports
currently address 40-45% of India's demand for capital goods showing low self reliance. At the same
time, capacity utilization is only about 60-70% across sub-sectors indicating an imminent need for
creation for demand from domestic sources and import substitution.

8. © Confederation of Indian Industry 8
Major Challenges faced by sector
 Lack of Domestic Demand Creation- The lack of positive bias towards domestic value
addition in public procurement policies, difficult contract conditions, persistent import and
use of second-hand machinery with no incentive for replacement, zero duty import under
'Project Imports' and delays in project implementation are the key factors limiting domestic
demand.
 Issues affecting exports - Inadequate availability of competitive short and long-term
financing, tariff and non-tariff barriers in export markets and limited understanding of
international market requirements especially by smaller players are key deterrents. Trade
agreements are currently not aligned basis India’s comparative advantage with its trade
partners.
 Issues affecting technology depth: Significant challenges and gaps exist in high-end, heavy-
duty, high-productivity and high precision technologies across sub-sectors. Contributors to
these gaps include low end user acceptance of new Indian technologies, weak support
infrastructure and low Indian participation in developing international standards. Further,
patent processing takes very long and insufficient policy bias towards R&D.
 Issues affecting cost competitiveness: Relative to global peers, Indian engineering faces a
skewed and state-wise variation in tax and duty structure, prevalence of inverted duty
structure for several products and high infrastructure and logistics costs.