Share

Taking Shape

Share

Competitive manufacturing costs and increasing technological prowess after 100% FDI allowance are making India’s heavy engineering sector a magnet for customers.

by Mitalee Kurdekar

The Indian heavy engineering sector has demonstrated tremendous appetite for the growth vision put forth by the Indian Government in recent years. This was clearly reflected in the positive policy decisions taken by the Government, such as the Enhancement of Competitiveness in the Indian Capital Goods Sector scheme, announced back in November 2014 by the Department of Heavy Industry. The scheme document proclaims how strategic the Indian capital goods industry is to the manufacturing value chain. Technology levels within this industry determine process technologies used in Indian manufacturing, and thus contribute to its global competitiveness to a large extent. Indian manufacturing, as we are all aware, is on the brink of major change, wherein, if supported by the Indian capital goods industry, it can go global quickly, or else will continue to remain dependent upon imports of machines and components.

According to the Government’s own estimates of 2014, the demand from all prominent subsectors of the Indian economy for capital goods was a whopping Rs 2.9 lac crore, of which Indian domestic production was Rs 1.85 lac crore. Given an export requirement of Rs 0.46 lac crore, Indian imports amounted to a significant figure of Rs 1.51 lac crore. It is also estimated that the industry employs 1.4 million skilled industrial workers and officers. As a result, the Department of Heavy Industry has recognised the huge import substitution, forex conservation as well as employment generation potential, and is keen to promote a robust and technologically advanced manufacturing sector.

N Sivasubramanian, MD, thyssenkrupp Industries India, agrees, “The heavy engineering equipment and machine tools industry is one of the most vital segments in the manufacturing sector. It is part of the capital goods industry which contributes around 12% to the manufacturing sector and remains extremely important for infrastructure creation.”

Major players have been demanding the modernisation of the capital goods industry for the past several years, but Government policies were not conducive for promoting indigenous investment and development. The Government has since taken initiatives to set up a joint task force with support from the Confederation of Indian Industry (CII) in March 2015, and thereafter announced its National Capital Goods Policy of 2016, under the Make in India programme.

GK Pillai, MD & CEO, Walchandnagar Industries, acknowledges this change in the Government’s stance and support offered, when he says, “An additional impetus has come to this sector recently after the present Government has made some significant changes in FDI policies. These changed policies along with the intent of the Government to make India a manufacturing hub and opening-up defence manufacturing activities to the private sector has given an additional impetus to the manufacturing sector, by way of looking at partners both in technology & manufacturing. At Walchandnagar Industries, we are equally buoyant with this development and are hopeful of getting into reputable partnerships. This will definitely benefit the customer by getting better and technically superior products.”

In the face of challenges
It is obvious that the current level of technology is thwarting the growth ambition of the capital goods industry and proving to be a major hindrance to upgradation and modernisation. Without support from institutional research and development, the industry is unable to develop and implement cutting edge technologies on its own, thereby making it low on competitiveness on a global scale.

SM Vaidya, EVP & business head, Godrej Aerospace, comments on this challenge when he says, “India’s significant achievement in heavy engineering is mainly in ‘Built to Print’ or ‘Built to Spec’, and therefore, even though it is substantial, it is not good enough for considering it a global success. We are still dependent on our foreign partners for conceptualisation & engineering. Similarly, a lot of bought-out items and most of the raw materials are also imported. Hence, we have a huge dependency and cost disadvantage.”

In addition to this, inability to attract skilled manpower and develop talent has been the bane of this industry for long. As it was largely the domain of public sector spend with very few collaborations for high-technology with known global players, the Indian capital goods industry never practiced best-in-class HR policies. Pillai elaborates, “An area of concern for the manufacturing industry is the non-availability of skilled manpower both at the working level and the executive level. The trend is that most skilled executives are attracted towards the IT & services sector, resulting in a big shortage of skilled personnel in the manufacturing sector. It will require a lot of attention and changed working environment to attract skilled manpower towards manufacturing.”

Cheaper and easier imports facilitated by erstwhile open trade policies and support from FTAs has resulted in India becoming one of largest importers of second-hand capital goods. This has also marred the prospect of new investments in technologies and facilities from the private sector. High interest rates and costly inputs of power, fuel and transportation have only added to the woes of industry players.

Quick Adaptation
Government’s new initiatives are expected to eliminate these drawbacks. Many players are quickly adapting to these changes and gearing themselves to support the growth ambition of their own organisations as well as that of the industry. Vaidya explains, “Finance mobilisation is always a challenge in India due to very high cost of borrowing. Export orders with long term commitment help us in borrowing money from international bankers. As far as skill set development is concerned, Godrej has a very good mechanism and in-house facilities for developing basic skills. We have got a huge amount of support from our foreign partners.”

Multinationals who are setting up shop in India to take advantage of local manufacturing sops have their own take on these issues. Harsh Dhingra, chief country representative, India, Bombardier Transportation, says, “Majority of the companies who have created these activities are multinationals. So, access to funds has never been a problem. I will not rate the skill set to be one of the best in the world, however, there is a certain capability standard available, which can be developed to meet the world standard. For example, we have created a training centre for our welders in our international factories, so that they reach our level of expectation and meet international standards. In future, wherever this kind of skill set will be required, we will be able to further demonstrate that.”

Explaining the importance of Government institutes like ITIs and polytechnics, Dhingra adds, “The best contribution comes from government training institutes. We have added skilled workforce from such institutes, and imparted training to them. There are good training institutes in the areas that adjoin our factories.”

Rising Export Potential
As mentioned earlier, one of the key objectives of Government’s policy and other initiatives is to improve the global competitiveness of Indian capital goods industry. The government has promoted the creation of advanced centres of excellence for integrated technology development within identified sub-sectors. As of now, the Indian heavy engineering exports to other countries are less than 1% of global business. But with a vision to become a recognised global power, India has embarked on a journey of growth. The Government of India has set up the Engineering Export Promotion Council as the prime agency to promote the export of engineering goods and services. National Capital Goods policy of 2016 aims at increasing exports from India to 40% of total indigenous production to reach Rs 3 lac crore by 2025. This will improve India’s contribution to 2.5% of global exports, thereby making India a ‘net exporter’ in capital goods.

Taking advantage of favourable policies, low manufacturing costs, technology adaptations and innovation, many foreign companies are now investing in India. Even players from supporting industries are enjoying the fruits of this change. Vikram Amin, executive director, strategy & business development, Essar Steel India, highlights this when he states, “Essar Steel has been a major exporter of high grade value added steel to all major markets in the world. Thus, the company possesses the expertise and knowledge to service the requirements of such customers in terms of quality. Most of the global players in this sector are our customers, and their entry into this sector, directly or through collaborations, is a positive development for Essar Steel.”

Stepping Up
While everyone welcomes the new policies and initiatives, industry players are watching the scene with interest. The sector involves significant investment and hence the expectation around policy implementation and ease of doing business are also enormous. Dhingra is keen to see that there is a consistency in industry demand that would facilitate regular returns on high investment. He says, “Bombardier wants to see a consistency of policy. If the Government has defined that a particular investment will take place, especially in the field of infrastructure, it should happen in the defined time frame.”
Vaidya adds, “The Government of India has taken many steps and pushed large number of projects in the defence sector. However, final awarding of the contract has to be expedited to avoid delays. It is also important for the Ministry of Defence to streamline the norms for acceptance/inspection and to develop qualification facilities at competitive rates and with prompt assessments.”

Amin echoes this sentiment, stating, “The initiatives launched by the Government, especially in the infrastructure and energy sector, will boost demand for steel. However, we are eagerly waiting for the contours around these initiatives.”
Sivasubramanian is keen on vendor support from the MSME sector and proclaims, “One of the most essential requirements for local manufacturing of heavy engineering products is the creation of an appropriate vendor eco-system for manufacturing components. Most of these vendors belong to the MSME category.” He points out that the recent slashing of tax rate for MSMEs (annual turnover up to Rs 50 crore) by 5% will lower the tax burden of most such companies, making them more competitive while incentivising them to increase capital expenditure.

The annual production of the capital goods industry is approximately Rs 2 lac crore (including heavy electrical equipment), however, its potential in India is still largely untapped. So, while things are shaping up rather well for this industry, there is every need to step up the implementation of pre-defined activities, if India is to make it big.

Newsletter

Most Popular

Digital Edition

May 2019
From the magazine

Subscribe Now