Blogs

Indian Engineering industry

 

  • Overview of the Indian Engineering Industry
  • Current state and performance

 

The Indian Engineering industry comprises broadly of two segments: heavy engineering and light engineering. The sector has emerged as the largest contributor to India’s total merchandise exports and contributes 2.5% to the GDP of the country. Moreover, India’s engineering industry accounts for 27% of the total factories in the country’s industrial sector. The light engineering industry covers a US$ 120 Bn market in six major categories which comprises: Mobile Phones, Consumer Electronics, Strategic Electronics, Computer Electronics, LED’s, Industrial Electronics.

 

Department of Heavy Industry, Government of India launched a mission plan for the growth and rapid development of the domestic electrical equipment industry, encompassing the complete value chain in power generation, transmission, and distribution. The Government of India has started various initiatives such as Digital India, Make In India and supportive FDI policies to boost electronic manufacturing. In order to boost India’s position as a global hub for electronics manufacturing, schemes such as Electronic Development Fund (EDF)  and Modified Incentive Special Package Scheme (M-SIPS) have been introduced. These funds provide risk capital to both industry and academia for the development of new technologies in electronics.

 

 

 

 

 

PERFORMANCE AND CURRENT STATE

Annually Engineering Industry produces INR 5,46,55 Bn (~US$ 726 Bn) amount of goods via various sectors. Engineering exports from India, which mainly includes transport equipment, capital goods, other machinery/equipment, and light engineering products, registered growth at a CAGR of 6.81% during FY16-20 and reached to US$ 76.28 Bn in FY20. 

 

 

 

Engineering sector is highly capital intensive and demand huge investments. The sector constituted about 5.5% of Gross bank credits and 6.9% of total Outstanding Gross bank credits as of March’20. All Engineering gross bank credit increased 8.6% from INR 1,553.2 Bn (~US$ 23.6 Bn) in FY 18 to INR 1,686.2 Bn (~US$ 24.3 Bn) in FY 19 but again decreased to INR 1,572.6 Bn (~US$ 21 Bn) in FY 20.

 

 

 

 

The engineering sector’s growth is dependent on country’s infrastructure development, particularly on power, mining, oil & gas, refinery, steel, automotive, and consumer durables growth. While the sector holds good opportunity for banks to grant credit, inherent issues like lack of infrastructure, shortage of raw material and labour, requirement of technology upgradation pose constraints in growth of the sector. This is also reflective in the high % of Gross NPA of the sector. The sector had a Gross NPA of 20% of total advances as of Mar’ 20, positively declining from peak of 34.4% in March’18 (during the last five financial years), though remains very high.

 

OUTLOOK

Rapid industrialisation combined with economic development is driving growth in the capital goods market. It is forecasted that capital goods market will increase from US$ 70 Bn in 2017 to US$ 115.2 Bn in 2025 at a CAGR of 5.7%. The growth in the electrical equipment industry is driven by growth in the power industry. It is also projected that construction equipment market will reach US$ 7 Bn by 2020. The National Policy on electronics by the Government of India has also set a target to reach a turnover of US$ 400 Bn, which is seen attracting an investment of about US$ 100 Bn and will provide employment to around 28 million people over the next few years. Investment in infrastructure sector is also increasing, which will drive the demand for capital foods, engineering and electronics sector as a whole, while indirectly drive further expansion of bank credit growth towards the sector as capacity expansion and overall growth would be funded by credit from banks and financial institutions.

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