Industry Overview Chapter II Section A: Auto Components Industry The Indian auto components industry is one of the fastest growing industries in the country. It has grown at a CAGR of 26.2% during the last five years ended 2011-12. The industry has a distinct global competitive advantage in terms of cost and quality and this has aided in its transformation from a local supplier to a global auto parts supplier catering to some of the big names in the global automobile industry. The cost advantage stems from the cost-competitiveness in raw material and labour, while its established manufacturing base is a compelling attraction for global Original Equipment Manufacturers (OEMs) to outsource components from India. The industry is transforming itself from a low volume highly fragmented industry into a competitive industry backed by competitive strengths, technology and transition up the value chain. The Indian auto component industry is estimated to be around ` 2,063 billion as of FY12, almost thrice the size in FY07. Chart 2.1: Indian Auto Components industry Source: Automotive Component Manufacturers Association of India (ACMA) Several factors have enabled this transformation of the Indian auto components industry. Government s role has been in the form of initiatives and incentives, additional subsidies and formation of various clusters as also economic liberalisation. The gradual increase witnessed in the per capita income in India has led to leading aspirations and greater demand for automobiles, which in turn has boosted the demand for auto components. In addition, the entry of various foreign players in the Indian market led to companies adopting innovative marketing strategies to fend competition. The competitive intensity led to the improvement in end products. Industry Structure The Indian auto components industry can be broadly classified into the organised sector and the unorganized sector. There is a clear demarcation with respect to products in these two sectors, the organized sector caters to high value-added precision engineering products and accounts for around three fourth of the total production. The unorganized sector caters to the lower value-added segments. The organized players cater to the original equipment (vehicle) manufacturers, while the unorganized sector largely caters to the aftermarket. There are around 600 players in the organized sector accounting for around 70% of the industry s total revenues. 8
In the organised sector, key auto component manufacturers include Brakes India Ltd., Bosch Chassis Systems India Ltd, Sona Koyo Steering Systems Ltd, Spicer India Ltd., Automotive Axles Ltd., Sundram Fasteners Ltd., Wheels India Ltd., Jay Bharat Maruti Ltd., Motherson Sumi Systems Ltd., Subros Ltd., Pricol Ltd., Bosch Ltd., Bharat Forge Ltd., Amtek Auto Ltd., Federal-Mogul Goetze (India) Ltd., Ucal Fuel Systems Ltd., Lucas-TVS Ltd. and Denso India Ltd. Industry Classification The auto components industry in India can be classified based on different parameters, these include, product range and size and location. Product range The Indian auto components industry offers a comprehensive product range, consisting of approximately 20,000 components required for vehicle manufacturing. The entire product range is grouped into seven categories. Engine parts and drive transmission and steering parts are the two main product categories, contributing to 50% of the Indian auto component industry in FY12. Chart 2.2: Product range- Share of products in FY12 (%) Source: Annual Report ACMA FY12 Table 2.1: Based on their class and size of their location, the Indian auto component industry can be classified as Tier I, Tier II and Tier III firms. Tier I Tier II Tier III Comprises large firms Almost all the companies are capable to manufacture multiple auto components, equipped with high-end technology and large number of OEM. Most companies have high end research and development centres to carry out new innovation. High IT penetration in these areas which can reduce their operaional expense as most of the machines are automatic. Comprises medium sized firms Comparatively less access to latest technology Mostly multiple component manufacturers and have comparatively better operational efficiency Medium penetration of IT which are mostly fragmanted. Comprises of smaller, single-auto component manufacturing firms, largely unorganised players Comparatively less access to latest technology and generally use traditional technology Mostly single component manufacturers and no operational efficiency Low level of IT penetration and hence use traditional method of manufacturing Auto component Clusters The auto components industry in India is largely present in the form of clusters, due to the presence of a large number of small and unorganised units. The clusters have OEMs as hubs or centres of growth while the suppliers have formed their bases around the OEMs. 9
Table 2.2: Auto components: Regional clusters Cluster Western Cluster Southern Cluster Central Cluster NCR Cluster Eastern Cluster Source: D&B Research Cities Pune, Aurangabad, Nashik (Maharashtra) Chennai & Coimbatore (Tamil Nadu); Bengaluru (Karnataka) Pithampur, Dewas, Indore (Madhya Pradesh) Faridabad & Gurgaon (Haryana); Alwar, Bhiwadi, Khuskhera & Chopanki (Rajasthan) Jamshedpur & Guptamani near Kharagpur; Singur (West Bengal) The auto components industry in India has evolved around three major regions, Western Region (Mumbai Pune Nashik Aurangabad), Southern Region (Chennai Bangalore Hosur) and Northern Region (Delhi Gurgaon Faridabad). In the Eastern region, activity in the automotive sector is seen in Jamshedpur and Kolkata, but the development in this region has been to a lesser extent than in the others. Table 2.3: Auto component clusters in India- State-wise State Number State Number Andhra Pradesh 1 Karnataka 2 Delhi 1 Maharashtra 5 Gujarat 5 Madhya Pradesh 1 Haryana 3 Punjab 4 Jharkhand 1 Tamil Nadu 1 Source: D&B Research Investments in the sector The auto components industry in India has been witnessing a steady flow of investments excepting FY09, when investments dropped due to recession, as companies postponed their investment plans. Investments in the sector have since picked and are estimated to have been around ` 10,000 crore during FY11. Major foreign companies have been investing in the domestic industry through joint ventures and partnerships or by setting up their own production plants. Domestic component players are also investing heavily in the industry to reap benefits of long-term growth prospects. Chart 2.3: Investments in the Auto Components Industry (` crore) Source: ACMA Annual Report FY12 10
Demand for auto components Being an ancillary industry, demand for auto components is greatly influenced by the demand for automobile industry. Auto components cater to both the OEM segment as well as the aftermarket or replacement market and by their very nature, factors that drive demand from both these segments vary. Exhibit 2.1: Demand drivers for auto components Source: D&B Research Supply Dynamics Raw materials constitute a major cost component in the auto components industry, accounting for ~60% of total expenses, followed by labour charges accounting for around 10% of the totindian auto components manufacturers have been focusing on R&D, innovation, design, and engineering to meet global quality standards and emerge as full-service providers to OEMs. Exports Low labour costs, availability of skilled labour and high quality consciousness among Indian vendors have spurred the growth of auto component exports from India. 11
Chart 2.4: Exports of auto-components (` cr) E=Estimates Source: ACMA Annual report FY12 Exports of auto components from India have doubled during the last 5 years from ` 15,960 crore in FY08 to an estimated ` 33,485 crore in FY12. Exports constitute 17% of the Indian auto components industry s total turnover. Exports declined during FY10 primarily due to slow recovery in developed countries. However, they once again bounced back in FY11, registering sharp growth more than 45%. Europe accounted for nearly 32.9% of India s exports and continues to be one of the major export destinations, followed by Asia. Chart 2.5: Auto components Major Destinations FY12 (%) Source: ACMA In addition, in recent years the structure of the customer base in the global markets has also undergone a major change. In the 1990s most of the exports were made to the international aftermarket whereas at present most of the exports are made to the global OEMs and Tier 1 companies. During FY10, global OEMs/tier-I manufacturers accounted for 80% share in the Indian auto component industry s exports and global aftermarkets accounted for the rest. 12
Chart 2.6: Share of OEMS and Aftermarket in exports (%) Source: ACMA Annual Report FY12 Table 2.4: Some OEMs and Tier I companies procuring from India OEMs Tier I component manufacturers BMW Bosch Caterpillar Continental Ford Cummins FIAT DANA GM Delphi MAN Denso Mercedes-Benz Eaton Nissan Getrag Peugeot Kolbenschmidt Renault Magna Toyota Meritor Volkswagen TRW Valeo Source: ACMA Annual Report FY12 Table 2.5: Global Best Practices Quality certification & recognition Number of companies Quality certification & recognition Number of companies ISO 9000 552 JIPM 3 TS 16949 438 Deming Award 11 QS 9000 33 TPM Award 15 ISO 14001 204 Japan Quality Medal 1 OHSAS 18001 95 Shingo Silver Medallion 1 Source: ACMA Annual Report FY12 13
Exhibit 2.2: SWOT analysis of Indian auto component industry Source: D&B Research Challenges The growth prospects for the industry are bright, however to continue to report healthy growth the industry has to overcome certain challenges facing them. The challenges include: Technological capability not enough to match global standards Surging raw material prices putting pressure on profit margin Slowdown in global economy affecting exports Players losing bargaining power with larger OEMs Increasing rivalry among players with numerous small firms targeting the same customer segments FTAs signed with other developing countries increasing bulk imports of cheaper auto components. Infrastructure challenges Roads, Ports & power R&D Competence Raising capital and scaling capacities Outlook The Indian auto components industry is well poised to achieve strong growth in coming years owing to rising domestic demand in the OEM market and expanding replacement market. The export market for auto components is also likely to see strong traction once the global market stabilises and the economic uncertainty diminishes. According to the Auto Components Manufacturers Association (ACMA), the Indian auto components industry is likely to grow to US$ 110 billion by 2020 with the domestic market share of ~US$ 80 billion. The share of the auto components industry in the country s GDP is likely to increase to 3.60% by 2020, up from 2.40% in FY12. Given good long term demand prospects in the domestic market and with India emerging as a favoured low-cost sourcing destination, auto component manufacturers are likely to invest in increasing production capacities and technological capabilities. Further, companies would continue to diversify their product portfolio to de-risk their businesses. However, competition is expected to increase and prices of raw material are likely to follow an upward trend. This is expected to exert pressure on the industry s profit margins. In such a scenario, cost control programmes would assume greater significance for the industry players, both big and small. 14
Section B: Engineering Industry Introduction The engineering sector is one of the largest industrial sectors in India. The sector has witnessed growth in recent years driven by increased investment in industrial production and infrastructure development. India has strong engineering and capital goods base, catering to a wide range of industrial machinery. The engineering industry plays a vital role in the development of other industrial sectors in the country. The sector provides direct and indirect employment to over 4 million skilled and non-skilled workers in the country. Engineering sector 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 are 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. Key factors driving growth in the domestic engineering industry Growth in the key user-industries Government s thrust on power and construction Global companies preferring India as an outsourcing hub owing to the labour arbitrage advantage and better design capabilities 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. Table 2.6: Classification of Heavy and Light Engineering sub-segments Heavy engineering industry Light engineering industry Textile machinery Rolling bearing Cement machinery Medical and surgical instruments Sugar machinery Process control instruments Rubber machinery Industrial fasteners Material handling equipment Ferrous castings Oil field equipment Steel forgings Metallurgical Seamless steel pipes and tubes Mining machinery Electrical resistance welded (ERW) steel pipes and tubes Dairy machinery Submerged-arc welded (SAW) pipes Machine tool Bicycle Source: Ministry of Heavy Industries & Department of Industrial Policy & Promotion 15
Characteristics of Indian Capital Goods Industry Fortunes of the sector are linked with that of the overall industry. Manufacturing sector is the key end-user of capital goods. Labour is highly cost competitive. Inputs/raw materials are mainly locally sourced. Industry suffers from low technological competitiveness. Relative lack of sub-contracting arrangements despite large scale SME presence in the sector. There is high incidence of indirect taxation (excise duty, octroi duty/entry tax), central tax, sales tax, etc compared with other countries. The sector lags in terms of a strong institutional mechanism for export credit and promotion. Public Sector Undertakings (PSU) have dominating presence in heavy engineering, machine tools and boiler manufacturing. On the other hand, private firms operate in industrial machinery segment such as cement, sugar and non-electrical machinery. Output is concentrated with a few top companies in most product groups (generally large PSEs), followed by a middle layer of companies comprising large private sector players and multinationals as well as large number of small units at the bottom of the pyramid. Most of the major capital goods are manufactured locally with a wide range of products. Indian companies lack export thrust as the focus is largely on the domestic market. Most items produced compare functionally with those manufactured elsewhere in the world, but lag in terms of the finished products. Focus on branding, marketing and customer orientation is comparatively low. FDI Initiatives undertaken by the government towards FDI has also served as a catalyst to raise the demand for engineering goods and machinery. The engineering industry attracts around 35% of th total FDI through the automatic route. Removal of tariff protection on capital goods, delicensing of heavy electrical industry and allowance of 100% FDI, infrastructure development and reduction of custom duties on various equipments are some of the initiatives by the government, which have contributed positively to the engineering sector. Table 2.7: FDI inflow: Apr 2000-Nov 2012 Particulars ` bn US$ mn Electrical equipment 14,109.32 3,079.27 Miscellaneous mechanical and engineering industries 10,327.71 2,282.84 Industrial machinery 10,578.37 2,221.25 Non-conventional energy 9,326.45 1,927.78 Machine tools 2,962.18 622.09 Medical and surgical appliances 2,749.83 574.24 Agricultural machinery 947.54 208.53 Earth-moving machinery 749.59 171.37 Railway related components 1,180.70 258.26 Industrial instruments 307.45 66.53 Scientific instruments 477.79 91.11 Boilers and steam generating plants 305.75 61.83 Source: Department of Industrial Policy & Promotion 16
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. Table 2.8: Growth in production of key heavy industries (%) Key heavy industries Growth in Production (FY12 over FY11)* Machine tools 18.27 Boilers 26.91 Electric motors 11.73 Rubber transmission and V belts 18.85 Electric welding machines -7.33 Power distribution transformers 25.71 Commercial vehicles 25.89 Passenger cars 1.71 Relays, fuses and switchgears -10.92 Air break switches / circuit breakers 25.99 Earth moving machinery 26.88 Cranes -14.68 Agricultural machinery 7.93 Engines incl. internal combustion and diesel engine 6.93 Construction machine/equipment -5.45 Industrial chains 30.75 Industrial blowers -7.32 Generator/alternator 1.82 Turbines & accessories 10.56 *Apr-Nov Source: Department of Heavy Industries Heavy Electrical and power plant equipment 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, Transmission Line Towers, Motors (FHP, LT, HT & DC), AC Generators, Conductors, Capacitors, Cables, Energy Meters, and other allied items. etc. 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. Demand for heavy electrical and power plant equipment (market size) has risen at a CAGR of 15.5% during the six years ended FY11. During this period, domestic production grew at a CAGR of 14.1%, while imports grew at a CAGR of 22.8%. Imports cater to the around 37% of the requirement in the supercritical segment for BTG equipment, while in the subcritical segment it accounts for around 26%. 17
Chart 2.7: Heavy Electrical and power plant equipment (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan There are about 675 manufacturers of electrical machinery in India including Heavy electrical power generation Equipment like Boiler, Turbine & Generator sets. Nearly 90% of them are small & medium manufacturers. PSU named BHEL is the major manufacturer of electrical and power equipment. 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: Turbines and Generator Sets: The Indian industry has established a manufacturing capacity of various kinds of turbines of more than 7,000 MW per annum. The PSE Bharat Heavy Electricals Ltd (BHEL) has the largest installed capacity. There are units in the private sector also which manufacture steam and hydro turbines for power generation and industrial use. Domestic manufacturers of AC generators are capable of manufacturing AC generator from 0.5 KVA to 25,000 KVA and above. Boilers: The Indian boilers industry has the capability to manufacture boilers with super critical parameters upto 1,000 MW unit size. BHEL is the largest manufacturer of boilers in the country, with over 50% market share. It has the capability to manufacture boilers for super thermal power plants, apart from utility boilers and industrial boilers. Transformers: The domestic transformer industry has the capability to manufacture the whole range of power and distribution transformers. Special types of transformers required for furnaces, rectifiers, electric tract, etc, and series and shunt reactors as well as HVDC transmission upto 500 KV are also being manufactured in India. The Indian transformer industry exports to various countries including the US, Europe, South Africa, Cyprus, Syria, Iraq and Far East countries. Switchgear and Control Gear: The switchgear and control gear industry in India is a fully developed one, producing and supplying a wide variety of switchgear and control gear items required by the industrial and power sectors. The entire range of circuit breakers from bulk oil, minimum oil, air blast, vacuum to SF6 are manufactured to standard specification. The range of products produced cover the entire voltage range for 240V to 1000KV, switchgear and control gear, manual circuit breakers, air circuit breakers, switches, rewireable fuses and high rupture capacity fuses with their respective fuse bases, holders and starters. 18
Electrical Furnaces: Electrical furnaces are used in metallurgical and engineering industries such as forging and foundry, machine tools, automobiles, etc. Shunting Locomotives: Shunting locomotives for internal transport facilities are essentially used in railways, steel plants, thermal power plants, etc. Textile machinery The Indian textile machinery segment comprises more than 1,446 machinery and components manufacturers and 598 units producing complete machinery and 848 units make parts and accessories. 80% of them are small & medium manufacturers. Major textile machineries include weaving machine, spinning machine, winding machine, processing machine, synthetic fibre machine, textile testing instruments, etc. The global market crisis that hit the textile industry in 2009 had a serious impact on the Indian textile machinery segment as well. Demand (market size) for textile machinery grew at a slow pace of 2.9% during the six year period ended FY11 to ` 10,500 crore. Share of domestic production in total market has risen over the last few years, however over 40% of the demand for textile machinery is catered by imports. Chart 2.8: Textile Machinery (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan 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. 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 equipments 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. Earth moving and mining equipment Currently 20 large & global manufacturers and nearly 200 small & medium manufacturers of Earthmoving & mining machinery are present in India. The product range comprises of Backhoe Loaders, Compactors, Mobile Cranes, Pavers, Batching Plants, Crawler Crane, Transit Mixer, Concrete Pump, Tower Cranes, Hydraulic Excavators, Dumpers, Mining Shovel, Walking Draglines, Dozers, Wheel Loaders, Graders, Drilling Equipment, etc. 19
Supported by the accelerated economic growth from the year 2003 onwards, construction and mining machinery sector has grown by leaps and bounds to sustain rapid expansion happening in infrastructure and core sectors projects. Construction and Mining industries in India have exported a wide range of machinery to countries in Africa, Indonesia, Malaysia and South America and the value of export is about ` 228 Crore during 2010-11. Machine Tool Industry Machine tool is another heavy engineering segment dominated by SMEs in terms of number of companies. Out of 800 manufacturers of machine tools and its parts most are SMEs, about 25 units are mid-size manufacturers which have annual turnover varying between ` 200-300 crore each. Coimbatore is one of the major manufacturing hubs of the machine tools 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. Type of machine tools currently manufactured in India are General/Special Purpose Machines, Standard CNC machines, Gear cutting, Grinding, Medium sized machines, EDM, Presses, Press Brakes, Pipe Bending, Rolling, Bending, Measuring, metrology and gauging, etc. 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. The import content is 30% in domestic production for standard machine tool and 40% in high technology machine tools. The market size of the machine tools industry has grown at a CAGR of 16% during the five years ended FY11 to ` 10,236 crore. During this period, domestic production grew at a CAGR of 12%, while imports grew by 20%. Chart 2.9: Machine tools industry (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan 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. 20
Oil Field Equipment Industry The oil field equipment manufacturing industry manufactures drilling rigs for on-shore drilling. Offshore drilling equipments 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, Mazagon Dock and Burn & Co. are some of the leading producers. The recent couple of years have witnessed a surge in exports of oil field equipments. However, the industry remains a net importer. 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. Plastic Processing machinery There are 11 major manufacturers of machinery in the organized Sector and nearly 200 small & medium manufacturers. Major plastic machineries include Injection Moulding Machine, Blow Moulding Machine and Extrusion Moulding Machine. Total demand and production of the Plastics Machinery industry is ` 3850 Crore and ` 2403 crore in 2010-11 and it has been growing @ 30.6% and 28.8% CAGR respectively. Around 37.5% of total demand is met through imports. Chart 2.10: Plastic processing machinery (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan Metallurgical machinery Metallurgical machinery includes all types of steel plant equipment such as blast urnace, steel melting furnace and equipment, rolling mills, continuous casting machines, etc., coke oven equipment, mineral beneficiation plant, crushers, screens, mixer, magnetic separators and metal converters, metallurgical foundry, etc. Since the nature of technology is specialized and derived from the steel making technology, very few large manufacturers like HEC, L&T and about 200 mid size companies and SMEs making such machines and its accessories. Out of 200 units 85% are SMEs. Demand for metallurgical machinery has increased over the years, however most of the demand is met through imports. Domestic production caters to just around 15% of the total demand. 21
Chart 2.11: Metallurgical machinery (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan Engineering goods Demand (market size) for engineering goods grew at a CAGR of 14.9% during the six years ended FY11. Production grew by 13.4% while imports rose by around 25.5%. Most of the requirement (~90%) for engineering goods is met through domestic production. Engineering goods considered for the report are Bearings, Steel pipes and tubes, Seamless pipes and tubes, Nuts, Bolts, Rivets etc., Castings, Forgings, Metal Containers including cylinders, Steel wires and ropes, Engines, Pumps, Compressors, valves & actuators, gears, etc. Chart 2.12: Engineering Goods (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan Dies, Molds & Tools industry Indian toolroom industry is very fragmented and consists of more than 500 commercial tool makers engaged in design, development and manufacturing of tooling in the country. In addition to commercial tool makers, 18 Government toolrooms cum training centers are also operating in the country. The key commercial toolroom locations are Mumbai, Bangalore, Chennai, Pune, Hyderabad and NCR. 22
Chart 2.13: Dies, molds & tools industry (` cr) Source: Report of the working group on capital goods and engineering sector for the 12th Five-year Plan 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 light engineering serve as inputs for 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. Table 2.9: Snapshot of Key Segments in the Light Engineering Industry % Growth in Production (FY12 over FY11)* Bearings (Ball/Roller) industry 7.94 C.I. castings 6.29 Steel castings 39.67 Food processing machinery -3.48 Fluorescent tubes -9.79 Hose pipe -28.71 Fasteners(high tensile)/bolts& nuts 6.96 PVC pipes and tubes 5.89 Aluminium tubes/pipes 9.63 Spun pipes 1.77 Stampings & forgings 13.16 Bicycles 4.11 Bicycle parts 8.63 Tube, truck 6.61 Medical and surgical equipment (except x-ray) -15.03 * Apr-Nov Source: Department of Industrial Policy & Promotion 23
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 very 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 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. Antifriction 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. 24
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 forging 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. 25
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. Outlook The engineering sector is expected to grow in coming years due to investments in power, metal, oil & gas and petrochemical industries, infrastructure development and favaourable government policies. Growth in the manufacturing and industrial sector would also boost growth in the engineering sector. 26
Section C: Food Processing Industry The food and agro industry is one of the largest sectors in India in terms of production, consumption and export and growth prospects. India has one of the largest arable lands in the world. It has diverse agro-climatic zones: hot and humid along the long coastal regions, dry and cold in the mountainous regions and hot and dry in plateau regions. This diversity makes India a unique destination for producing different kinds of horticultural and agro-products. Agriculture and allied sectors are estimated to have grown by 2.5% in FY12. In FY12, contribution of agriculture including allied activities to India s GDP at 2004-05 prices is around 13.9% with agriculture alone accounting for 12.3% followed by forestry and logging at 1.4% and fishing at 0.7%. Although the share of agriculture in GDP has shown a declining trend, but the importance of the sector to the economy cannot be undermined with the fact that it provides a vocation to about 70% of the population. The food processing industry is of great significance for the country s development as it is connected to the economy, industry and agriculture. It is one of the most diverse sectors of manufacturing, covering marine products, dairy products, fruits and vegetables, sugar, edible oils and beverages. During Apr-Nov 2011, it has grown at 17.2% as against 4.3% growth of the overall manufacturing sector. Currently, under manufacturing, food processing is one of the fastest growing segments accounting for about 27% of the average industrial growth. Table 2.10: Rate of growth of output of some processed food products (in %) FY08 FY09 FY10 FY11 FY12* Sugar 15.2 (33.9) (6.0) 30.2 38.3 Fruit pulp 87.0 (2.0) 5.0 35.1 30.4 Fruit juices 20.9 41.0 46.6 16.8 26.0 Cashew kernels 8.4 (4.2) (0.9) (7.9) 22.2 Instant food mixes 30.8 19.4 20.8 10.6 17.9 Mineral water 29.4 6.9 28.3 19.9 15.4 Chocolate 8.9 24.2 11.3 13.7 13.3 Malted foods 8.5 (36.8) (8.8) 8.4 6.4 Butter 4.8 3.4 (22.7) (4.7) 0.1 Biscuits (0.9) 29.2 10.4 (1.4) (1.6) Frozen meat (12.9) 76.8 27.4 (21.8) (1.7) Source: Economic survey 2011-12 Note: * Apr-Dec Food processing involves any type of value addition to agricultural or horticultural produce and includes processes such as grading, sorting and packaging which enhance the shelf life of food products. The food processing industry provides vital linkages and synergies between industry and agriculture. The government has announced various fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce, for minimising pre/post-harvest wastage, generating employment and contributing to export growth. India s food processing sector covers a wide range of products such as fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups including confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc. The food processing industry directly employs about 13 mn people and nearly 35 mn people indirectly. The food processing sector contributes over 14% of manufacturing GDP of which unorganised sector accounts for more than 70% of production in terms of volume and 50% in value terms. India annually yields 110 mn tonnes of milk, 150 mn tonnes of fruits and vegetables, 485 mn livestock, 230 mn tonnes of foodgrains, 7 mn tonnes of fish, 489 mn poultry and 45,200 mn eggs. However, in processing, India trails the developed and some developing countries by a wide margin. Only 2.2% for fruits and vegetables are processed in India as against 65% for the US, 78% for the Philippines and 23% for China. India s processing of 26% of marine products, 6% of poultry and 20% of buffalo meat is also lower as against 60 70% average for the developed countries. 27
Export Market Chart 2.14: Trend in exports of food and agro products: FY08 to FY12 Source: APEDA Overall exports of food and agro products grew at four-year CAGR of 28% duringfy08 FY12 to ` 860 bn in FY12. This growth was driven largely by superior growth of export of animal products such as buffalo meat, poultry products, animal casting and other processed foods growing, which grew at more than 30% each. The contribution of animal products to exports registered an upward trend from 16% in FY08 to 17.6% in FY12 whereas the contribution of cereals declined from 47% in FY08 to 36% in FY12 mainly due to export ban on non-basmati rice, export duty on basmati rice, and restrictions on private participation in wheat purchases. Table 2.11: Segment-wise major export destinations Segments Floriculture Fresh Fruits & Vegetables Processed Vegetable and Fruits Animal Products Cereals Source: APEDA Major markets US, Netherlands, UK, Pakistan, Germany, Japan, Ethiopia, Italy, Bangladesh UAE, Netherlands, UK, Pakistan, Bangladesh, Malaysia, Saudi Arabia, Sri Lanka, Malaysia, Qatar US, UK Malaysia, Netherlands, Philippines, Germany, Pakistan, Canada, Nepal, Russia, China, Australia, France, Angola, Belgium, Singapore, Yemen, Thailand Kuwait Egypt, Philippines Kuwait, Iraq, Angola, Jordan, Oman, Congo, US, Afghanistan, Vietnam, Malaysia, Saudi Arabia Vietnam, Malaysia, Bangladesh, Yemen, US, UK, Taiwan, Indonesia Sudan, Singapore, UAE, Iran, Kuwait, Saudi Arabia Schemes for Technology up-gradation, establishment and expansion of FPIs Government of India (GoI) has implemented schemes for upgrading technology and expanding and modernising the food processing industries to attract potential entrepreneurs. The table below indicates the financial assistance released by the Ministry for food and agro products. 28
Table 2.12: Segment/Year FY09 FY10 FY11 (Dec 2010) Fruits & Vegetable Processing NA NA 190.1 Meat Processing (As on 28/2/11) 0.18 0.23 0.46 Diary Processing NA NA 108.8 Fish Processing NA NA 12.6 Grain Processing - Oil (As on 24/1/11) 205.15 56.26 36.13 Pulses 68.87 16.23 43.15 Flour 99.83 39.36 90.75 Alcoholic Beverages NA NA 27.3 Consumer Industries 183.7 224.72 196.74 Source: Ministry of Food Processing Industry Foreign direct investment policy The country s food processing market is opening up to a wide range of investors across the globe. Government is also actively encouraging investment in agro processing industries to reduce wastage and boost value addition. As per extant policy, FDI up to 100% is permitted under the automatic route in the food infrastructure (Food Park, Cold Chain/Warehousing). Foreign participation of up to 100% for most processed items except alcoholic beverages and items reserved for small scale units has also been approved by GoI. During FY01 FY12, the cumulative FDI inflows in the food processing sector which includes food processing industries, fermentation industries, vegetable oils & vanaspati and tea & coffee industries stood at ` 127.5 bn. The cumulative FDI inflows during this period in the sector accounted for 1.65% of the total FDI inflows in the country. In the sector, maximum cumulative FDI inflows has been done in food processing industries at ` 64.9 bn followed by fermentation industries at ` 45.1 bn during FY01 FY12. Credit deployment by the scheduled commercial banks to the food processing sector has also shown a growing trend over the period of past few years. As per RBI, the total bank credit outstanding to food processing sector stood at ` 922.53 bn as on Dec 31, 2011, 17% higher than the amount as on the same period previous year. Outstanding bank credit includes any principal amount which has become due from the units which must have not reapid the amounts. The share of food processing sector in the total credit outstanding to all Industries stood at 4.96%, almost the same as during the previous year. Chart 2.15: Credit deployment to food processing industries Source: Ministry of Food Processing Industry, D&B Research 29
Eleventh and twelfth five year plan The total plan outlay of the Ministry rose from ` 6.5 bn during the 10th Plan to ` 40.3 bn during the 11th Five Year Plan. In the 11th plan, maximum increase in the outlay was seen under Scheme for Infrastructure Development, wherein the plan outlay has increased from `. 1.8 bn in 10th plan to `. 26.13 bn. The scheme-wise outlays for 11th Plan are given below: Table 2.13: Total Outlays for the 11th Plan period (2007-2012) (Rsbn) Scheme for Infrastructure Development 26.13 Scheme for Technology Up-gradation/Establishment/ Modernisation of Food Processing Industries 6.00 Scheme for Quality Assurance, Codex standards, R&D and promotional activities 2.50 Scheme for Human Resource Development 0.65 Scheme for strengthening of institutions 3.25 Scheme for Up-gradation of Quality of Street Foods 1.78 Source: Ministry of Food Processing Industry, D & B Research The 11th Five Year Plan approach was mainly driven by Vision 2015 which focused on increasing level of processing of perishables, value addition and share in global food trade. The plan included various new components such as promoting the spirit of public private partnership and integrated approach with appropriate emphasis on backward linkages. The major thrust areas of the 11th five year plan were development of value chain and processing infrastructure, upgrading or modernisation of technologies, promoting quality certification and standards, strengthening of institutional mechanism for skill development etc. Some of the policy measures and initiatives taken by GoI during the plan period include: Most processed food items have been exempted from the purview of licensing under the Industries (Development & Regulation) Act, 1951. The industry is includedon the priority sector list facilitating easy availability of finance. Excise duty levied on ready-to-eat products, instant food mixes, aerated drinks and fruits and vegetables processing units have been reduced. GoI has approved foreign participation of up to 100% for most processed items except alcoholic beverages and items reserved for small scale units. A large number of foreign collaborations have been approved. Excise Duty of 16% on dairy machinery has been completely waived off and excise duty on meat, poultry and fish products has been reduced from 16% to 8%. Tax concessions (100% IT deduction for 5 years and 25% in next 5 years for new agro processing, waiver of excise duty on dairy machinery, zero input duty on EOUs etc) External commercial borrowings to be available for cold storage Launching of National Mission on Food Processing Capital investment in creation of modern storage capacity eligible for viability gap funding Ministry of Food Processing industries also formulated appropriate policies and implemented many schemes targeted to infrastructure development, technology upgradation, quality assurance, reduce wastage and increase value addition in the value chain. 30
Major schemes implemented by the Ministry of Food Processing Industry Infrastructure development Mega Food Parks (MFPs) 10 MFPs were approved in the first phase Five MFPs were approved in the second phase Proposals have been invited for additional 15 MFPs Each of these MFPs is likely to consist of 30 40 food-producing units in the cluster Cold chain, value addition and preservation infrastructure Eight of the 10 projects approved in the first phase in 2008 09 have started commercial production. 39 projects approved in the second phase in 2011-12. Likely to reduce wastage especially among perishable food products. Modernisation and setting up of abattoirs 10 projects assisted so far with a grant assistance of ` 357.4 mn as on Jan 31. 2012 Focusses on hygienic and more humane slaughtering of animals. Technology up-gradation, establishment/modernisation of FPIs 852 units have been assisted with a grant of ` 1,358.7 mn during FY12 (Apr-Jan) Quality assurance, codexs standards, R&D, and promotional activities in FY12 Five projects for setting up/upgradation of food testing labs approved Two proposal for implementation of HACCP/ISO certification of units approved Eight proposals for R&D approved Human resource development during FY12 One proposal for creation of infrastructure facilities 25 proposals for setting up of Food Processing Trading Centres (FPTCs) 122 entrepreneurship development programmes have been held Strengthening of institutions as centres of excellence. Following have been strengthened: Indian Institute of Crop Processing Technology, Thanjavur National Institute of Food Technology and Entrepreneurship Management, Kundi, Haryana Indian Grape Processing Board National Meat and Poultry Processing Board Source: Economic Survey 2011-12 For the 12th Five Year Plan (2012-2017) greater emphasis would be laid on decentralised process of implementation with greater involvement of states in selection of projects and monitoring their implementation. In this five year plan, major thrust would be on addressing critical issues impacting the value chain in the sector by focusing on policy making and coordination instead of project implementation, so as to. Also, the existing focus on infrastructure development will be continued with the expansion of scope and depth so as to ensure sustainability of the value chains. Some of the key recommendations of the working group for the 12th plan activities include: Setting up of National Mission on Food Processing to improve coordination and implementation of schemes and to enable greater involvement of state governments. Expanding and modifying existing infrastructure development schemes New Mega Food Parks Additional cold chain projects Establishment of new abattoirs and modernization of existing abattoirs Develop and strengthening of existing and new institutions Taking up a nationwide skill development program along the lines of special projects for skill development of rural youths under SGSY of MoRD. Putting in place a network of food testing labs (Government/ Private) by providing incentives. 31
Encouragement for larger participation in Codex deliberations and setting up of Codex Cell to promote, coordinate and monitor related initiatives at the level of stakeholders such as industry associations, national research institutions etc. Setting up of an Innovation Fund and Venture Capital Fund for Food Processing to promote innovations and technology development as well as to support conversion of the innovations into viable business opportunities. The total outlay of ` 52.25 bn for the 12th plan period has been proposed. During 12th plan, scheme for Mini Food Parks is being proposed to provide for a maximum grant of ` 200 mn, over a minimum area of 30 acres which may facilitate setting up of 15 such Mini Food Parks. It has been proposed to support 120 more integrated cold chain projects, out of which 20 projects would be of irradiation facilities. During the 12th plan, establishment of 90 new abattoirs and modernisation of 150 existing abattoirs has also been proposed out of which 40 abattoir projects would be taken up during first two years of the 12th Plan, which would include 20 projects for setting up new abattoirs and 20 projects for modernisation of existing abattoirs. In the field of strengthening of institutions, establishment of 10 regional centres for National Institute of Food Technology Entrepreneurship & Management (NIFTEM) and 8 Indian Institute of Crop Processing Technology (IICPT) centres across the country has been proposed. Issues and Challenges Although food processing industry in India is enjoying the benefits of diverse and rich resource base and locational advantage, there are many constraints which the industry is facing some of which include non-availability of adequate critical infrastructural facilities, like cold chain, packing and grading centres, lack of adequate quality control and testing infrastructure, inefficient supply chain, insufficient credit supply, obsolete machinery, lack of skilled manpower, high taxation, high packaging cost, high inventory carrying cost affordability and cultural preference for fresh food. Besides, presence of fragmented industry players and multiple laws also pose barriers to the growth prospects. Strict maintenance of quality standard, labelling and traceability and increasing competition are some of the threats faced by this industry. The Road Ahead India has the potential of becoming one of the largest producers in the food and agricultural sector globally. The country is endowed with a large production base for a variety of food crops due to its varied agro-climatic conditions. To realise the vast potential of Indian agriculture, enhance the farmer s income, generate employment opportunities, provide choice to consumers at affordable price and contribute to overall national growth, GoI, through the Ministry of Food Processing Industries, has adopted Vision 2015 which envisages: Increasing level of processing of perishables from 6% to 20% Enhancing value addition from 20% to 35% Increasing share in global food trade from 1.5% to 3% The initiatives identified for development to provide support and thrust to the food processing industries in India include: establishing Mega Food Parks; modernised abattoirs, cold chains and infrastructure for preservation of foods, upgrading safety and quality of street food and establishing and upgrading quality control laboratories. 32
Section D: Textile Industry The Indian textiles industry plays an important role in the country s economic growth. It contributes around 14% to the industrial production, 4% to the GDP, and 17% to the country s export earnings. It also accounts for nearly 12% share of the total exports basket, provides direct employment to over 35 mn people, and is also the second largest provider of employment after agriculture. India is the second largest producer of silk in the world and a major producer of both raw jute and jute products. Further, 95% of the world s hand-woven fabric comes from India. The Indian textile industry is fragmented, with only a few large players and numerous small and medium-size companies. The textiles industry is classified as the hand-spun and hand-woven sector and the capital intensive, organized mill sector, which consists of spinning and composite mills. The decentralized power looms/hosiery and the knitting sector form the largest section of the textiles sector. The major sub-sectors within the textiles sector include the organized cotton/man-made fibre textiles mill industry, manmade fibre/filament yarn industry, wool and woollen textiles industry, sericulture and silk textiles industry, handlooms, handicrafts, jute and jute textiles industry, and textiles exports. Trends in the Domestic Market As per the Ministry of Textiles, between FY07-FY12, India s cloth production (including Khadi, wool, and silk) grew at a 2.8% CAGR, mainly driven by the small scale, independent powerloom sector. During the same period, India s cloth production recorded y-o-y growth in each of the years, except FY09 and FY12. During FY09, cloth production declined by 2% to 54,966 mn sq mtrs, mainly due to lower output by the handloom and decentralized power loom sector. In FY10, cloth production increased 9.8% to 60,333 mn sq mtrs. However, the growth lost momentum during FY11 with production growing 3.7 % to 62,559 mn sq mtrs. The total cloth production however, faced a decline in production by 2% during FY12 to 61,364 mn sq mtrs. During Apr-Aug 2012, cloth production stood at 26,554 mn sq mtrs. Chart 2.15: India s Cloth Production (Mn Sq Mtrs) *April August 2012 Source: Ministry of Textiles The composition of cloth production has remained more or less unchanged during the past decade. Between FY07-FY12, the average share of cotton in total cloth production was around 49% and average share for non-cotton cloth was 38%. During FY11, production of cotton cloth grew 9.7% 31.7 bn sq mtrs and declined 3.5% in FY12 to 30.5 bn sq mtrs and stood at 14.1 bn sq mtrs as on Aug 2012. Production of non-cotton cloth declined 4.6% in FY11 and further declined 0.82% in FY12 to 61.3 bn sq mtrs and stood at 26.5 bn sq mtrs as on Aug 2012. 33
Export Scenario Textile exports play an important role in the overall exports of the country. The Indian textiles and clothing industry is one of the largest contributors to the country s exports. Exports of textiles have increased steadily over the last few years, particularly after 2004, when textiles exports quota stood discontinued. India s textiles exports reached US $ 22.2 bn in FY08. However, exports declined 5% to US $ 21.1 bn in FY09 but picked up growth again by 6.5% to reach US $ 22.4 bn in FY10 to US $ 27.8 bn in FY11, an increase of 23.8%. In FY12, textile exports stood at US $ 33.1 bn, an increase of 19.4%. The total textile exports during Apr Aug 2012 (provisional) were valued at US $ 10.1 bn. Chart 2.17: India s Textiles Exports (US $ billion) *Apr Aug 2012 Source: Ministry of Textiles India has the potential to increase its textile and apparel share in world trade. The Indian textiles industry produces a wide variety of fibres, from cotton to man-made, wool, silk, jute, and multiple blends catering to different demands and needs of companies. India has become a popular destination for many big global retailers due to its strength of vertical and horizontal integration. The quality of the country s products is seen in the repeat orders from these global companies and the significant growth in their outsourcing from India. Textiles form one of the largest components of India s exports and can grow further and faster. Given the growth in textile exports due to the investment flowing in this sector to expand the capacity in the entire value chain, the working group constituted by the Planning Commission has estimated the overall growth for exports at 15% with an export target of US $ 65 bn and creation of 25 mn additional jobs by end of Twelfth Five Year Plan (FY17). Table 2.14: Projections of Exports for Twelfth Five Year Plan (2012-17) US $ Mn FY13 FY14 FY15 FY16 FY17 Cotton Textiles 8400 9408 10537 11801 13218 Man Made Textiles 6380 7401 8585 9959 11552 Silk Textiles 880 968 1065 1171 1288 Woollen Textiles 770 847 932 1025 1127 Clothing 16520 19494 23002 27143 32029 Total 32950 38117 44121 51099 59214 Jute, Coir & Handicrafts 4235 4659 5124 5637 6200 Grand Total 37185 42776 49245 56736 65414 Source: Planning Commission, Working Group for Twelfth Five Year Plan (2012-17) 34
Investment: FDI in textile Industry In the textile sector, 100% Foreign Direct Investment (FDI) is allowed under the automatic route. The industry attracted FDI worth US $ 1.15 bn between Mar 2001 and Jun 2012, which accounts for 0.66 % of the total FDI inflows in the country. FDI in the textile industry stood at US $ 164 million in FY12 and stood at US $ 33 million as on Jun 2012. Plan Expenditure The total plan expenditure as on Mar 2012 is ` 42.59 bn (provisional). This is 85.19% of the budgeted estimates of ` 50 bn for FY12. The total plan expenditure as on Sep 2012 is ` 10.86 bn (provisional). This is 15.51 % of the budgeted estimates of ` 70 bn for FY13. Union-Budget FY13 A reduction of excise duty on readymade garments is expected to result in a decline in the cost burden on the manufacturers. Further, a reduction in customs duty on titanium dioxide is expected to make imports of titanium dioxide cheaper. Two more mega handloom clusters were announced in addition to four mega handloom clusters already operational. These clusters will help the weavers in technology upgradation and product diversification. Besides that, a power loom mega cluster is also proposed to be set up in Maharashtra. It is expected that the power loom cluster will have modern machinery, testing services, and have a Computer-Aided Design (CAD) studio to address the need of the local artisans and weavers. In addition to this, a pilot scheme has also been proposed for promotion of geotextiles. Government Initiatives for Textile SMEs Automated shuttle-less looms exempted from basic customs duty of 5%. Full exemption from basic customs duty on automatic silk reeling and processing machinery and its parts. Currently, excise duty of 10% is applicable on branded readymade garments, with abatement of 55% from the retail sale price. Now, with the proposed increase in duty to 12%, the abatement has been enhanced to 70%. As a result, the incidence of duty, as a percentage of the retail sale price would come down from 4.5% to 3.6%. Reduction in basic customs duty from 15% to 5% on wool waste and wool tops. Reduction in customs duty from 10% to 7.5% on titanium dioxide. Financial package of ` 38.84 bn for waiver of loans to handloom weavers and their co-operative societies. New handloom cluster in Prakasam and Guntur districts of Andhra Pradesh. Weaver Service Center in Mizoram, Nagaland, and Jharkhand. Powerloom mega cluster in Maharashtra with a budget allocation of ` 700 mn. ` 5,000 mn pilot scheme in the 12th Five Year Plan for promotion and application of geo-textiles in the North-Eastern region. Source: Union Budget FY13, D&B Analysis. Future Outlook The Working Group of the Twelfth Plan (2012-17) projects an average industrial growth of 11-12% along with significant growth in export and employment. With growth in textiles production, employment in this sector is also expected to grow 15%. The employment in textiles is expected to increase to 52 mn persons by the terminal year of the Twelfth Plan. 35