The automotive industry in India The fabricated metal products industry in India

ForewordIndia has been one of the world’s fastest growing economies during the last few ye-ars. However, India has still not recovered from the effects of the former inwardori-ented policies it followed until the 1990s. Economic reforms started taking place in the beginning of the 1990s when India started opening up gradually. The question is whether India can implement the required policy changes effectively and develop a conducive business climate for industry to grow, and thus be able to sustain the strong rate of growth it has achieved over the past few years.

During this time there has been increasing confidence in the manufacturing sector in India and its long term potential as a manufacturing hub. Importance of the engine-ering industry is supreme in this regard and it also plays a crucial role in the economic growth of the country. To understand the driving forces of India better, it is essential to develop an understanding of prevailing fundamentals in the engineering industry.

In this report we provide an overview of the engineering industry in India with relevant facts regarding the structure and size, growth rates, main challenges, trends in international trade, research and development initiatives, as well as an indication of future outlook of the main segments in the engineering industry. It is a series of seven different reports that includes an overview of the engineering industry, the automotive industry, the machinery and equipment industry, the electrical machi-nery industry, the automotive components industry, the electronic equipment indu-stry and the fabricated metal products industry.

This series of seven different reports has been commissioned by Teknikföretagen, the Association of Swedish Engineering Industries, to provide a detailed overview of the Indian engineering industry covering various aspects of the main segments. It is hoped that the reports will help identify areas of business interest for Swedish engineering companies and give the reader increased knowledge of the present industrial development in India.

The reports have been authored by Mr. Rahul Sanyal. He is an economist from New Delhi in India, and has been appointed by Teknikföretagen to prepare these seven reports.

Stockholm, September 2008

Anders RuneChief Economist

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Table of contents

Overview of the fabricated metal products industry in India ............................................ 5 A snapshot of the fabricated metal products industry ......................................................... 6

Evolution of the Indian fabricated metal products industry ............................................... 6 Growth of the fabricated metal products industry ............................................................... 7

Growth in the manufacture sector is leading to development of the industry ................. 10

Size and structure of the fabricated metal products industry ........................................ 10 Forging industry ................................................................................................................... 10

Stampings and pressings ...................................................................................................... 13 Railway containers ................................................................................................................ 14 Ship containers ..................................................................................................................... 16

Metal containers ................................................................................................................... 17 Safes and vaults ..................................................................................................................... 17 Railway coaches and wagons ............................................................................................... 18

Ship-building ........................................................................................................................ 19

Research and development .................................................................................................. 20

Future outlook ......................................................................................................................... 21

References ............................................................................................................................... 23

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The fabricated metal products industry is one of the smaller industries in the manufacturing sector of India. However, with growth in many other industries, there is an increase in derived demand for fabricated metal products. The highly fragmented and largely unorga-nized industry is now a focus area in the Indian engi-neering industry and measures are being taken by the Government of India and the industry to develop the fabricated metal products industry further.

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The fabricated metal products industry in India

Overview of the fabricated metal products industry in IndiaThe fabricated metal products industry is more unique compared to other indu-stries due to the way in which it is organized. Compared to the larger and more mature industries such as the machinery and equipment industry and the automo-tive industry, the fabricated metal products industry is not as well organized. There are some ambiguities about the entire range of products being manufactured in the industry. Thus, from a statistical point of view, information regarding production, number of people employed and international trade in the industry is very limited. However, for this chapter, information has been obtained from premier industry as-sociations like Federation of Indian Chambers of Commerce and Industry (FICCI) and interviews of industry experts.1

This industry is one of the more fragmented industries in the manufacturing sector in India. There are a large number of small and unorganized manufacturers in the small scale industry and few large companies in each segment. Some of the segments in the industry like railway and ship containers, forging, stamping and pressing, and containers of metals are dominated by large Public Sector Enterprises (PSEs) whereas segments like safes and vaults, gas cylinders, other fabricated metal products are dominated by Small and Medium Enterprises (SMEs).

The industry’s development has been hampered by general issues like erratic power supply, gridlocked seaports, poor infrastructure, restrictive government policies etc. Yet the industry is developing slowly and growing as domestic demand is increasing

1) The Ministry of Statistics and Programme Implementation is responsible for compiling data on the industry. But the method of compiling data is not clear and that is why it is uncertain whether the figures are accurate. There is less information available on the industry and that is why information from industry associations, interviews of industry leaders, journals and news articles have been referred in this report.

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and as an increasing number of global companies are off-shoring their manufactur-ing capacities to India.

A snapshot of the fabricated metal products industryThe fabricated metal products industry is small in comparison to most segments of the engineering industry in India. However the industry is comparable to other industries in terms of the number of factories and the number of workers employed. This is because the industry is highly fragmented where there are a very large num-ber of companies producing a wide range of metal components and parts. Due to the basic nature of being labour intensive, the industry employs a very large num-ber of people. According to the Ministry of Commerce and Industry, the industry employed 3.69 per cent of the workers and 3.78 per cent of the employees in the manufacturing sector in India in the year 2004–2005.2

Since the industry has been growing at a slow pace, industry associations and research institutes have formulated plans to help develop the industry faster. It is believed that a balanced growth approach for accelerating growth of large scale ma-nufacturing clusters across states is essential to give a boost to the fabricated metal products industry.

Evolution of the Indian fabricated metal products industrySurge in the automotive industry, machinery and equipment industry, electronic equipment industry and electrical machinery industry has increased domestic demand for fabricated metal products tremendously. The fabricated metal products industry like many other industries in India has been developing to a large extent, due to the shift of manufacturing facilities from western countries to India. Increa-sing globalization combined with more open trade regimes has helped the industry tremendously. As a result, over the past few years, the industry has witnessed an increase in exports across segments, although over a small base.

After the Asian crisis in the late 1990s, India’s exports of fabricated metal products increased substantially accompanied by an increase in share of world production. At the same time, the industry also witnessed a steady increase in employment in the industry. However, even though employment was increasing, an increasing num-ber of innovations were also being made to make technological changes to increase

2) Reference has been made to Ministry of Commerce and Industry (2008a)

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productivity in the industry. Competitive pressures from other Asian tigers, Korea, Taiwan, China and Malaysia also led to an increase in productivity and exports.3

Growth of the fabricated metal products industry The fabricated metal products industry is a skill intensive industry requiring technical expertise – an area in which India is likely to become a primary sourcing and manufacturing base for companies worldwide. The industry, has not been a major contributor to the manufacturing sector and hence to the GDP of India, when compared to other industries within the manufacturing sector.4 The growth of the industry too has been flat, except for a short spurt in industrial production in the year 2006–2007, when the industry grew by 11.4 per cent. Production between the years 2002–2003 and 2006–2007 has grown at an annual average rate of 5.22 per cent. As can be seen from the figure, the growth trend in the industry has not been uniform. Recently, according to the Ministry of Commerce and Industry, the industry growth rate has been declining. In the year 2007–2008, between April and December production declined by 7 per cent.

GROWTH TREND OF THE FABRICATED METAL PRODUCTS INDUSTRYThe table below depicts the growth rates in the fabricated metal products industry between the years 2002–2003 and 2007–2008.

6.4

3.7

5.7

11.4

-7.0

-1.1

2003–20042002–2003 2004–2005 2005–2006 2006–2007 2007–2008(April to December)

3) Reference has been made to The Hindu Business Line (1st May 2008)4) Reference has been made to a report prepared by McKinsey & Company. See Luthra et al.

Source: Ministry of Commerce and Industry

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Several measures are being undertaken under the recommendations of the newly formed National Manufacturing Competitiveness Council (NMCC), Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII) among others. Chief among some of the measures being suggested are changes in the tax structure, consolidation of SMEs, facilitation of foreign parti-cipation and provision of easier access to required resources.

Some of the factors that affect growth in the fabricated metal products industry are given below.

Growth closely linked to international trade scenario

The growth of the industry is very closely linked to the international trade scenario. For instance, an increase in exports would lead to an increase in container traffic, which would then lead to an increased demand and thus increased production of metal containers, ship and railway containers etc. Currently, due to the slowdown in the American and European markets, slack in the construction and real estate markets in western countries and a surge in ocean freight rates, it is believed that exports would decline and thus, with respect to the fabricated metal products indu-stry, container production would remain flat.5

Low labour productivity

An analysis was conducted by FICCI on the laggard industry segments of the ma-nufacturing sector in India. Fabricated metal products industry was one of those segments. The main focus of the study was to make recommendations to enable increase in productivity. There is increasing competition to India from Asian players such as China, Malaysia and Korea in this regard. The study revealed that the fabri-cated metal products industry in India was suffering from low labour productivity. FICCI suggested, that enhancement of productivity can be achieved by adopting the cluster approach. It is believed that if productivity can be increased in the industry, the fortunes of the fabricated metal products industry would be much higher than are projected now.6

5) Reference has been made to The Hindu Business Line (16th June 2008)6) Reference has been made to The Hindu Business Line (7th March 2005)

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Punjab

Karnataka

West Bengal

Uttar Pradesh

Distribution of the largest fabricated metal products producers in India

In the year 2005–2006, according to FICCI, the largest states that were producing fabricated metal products in India were Uttar Pradesh (12 per cent), Punjab (5 per cent), West Bengal (5 per cent) and Karnataka (5 per cent) of production.7

LARGEST STATES BY PRODUCTION OF FABRICATED METAL PRODUCTS IN INDIARough ocations of these states have been shown in the figure below.

Source: Federation of Indian Chambers of Commerce and Industry

7) Reference has been made to The Hindu Business Line (7th March 2005)

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Growth in the manufacture sector is leading to development of the industryWith the domestic manufacturing sector growing steadily, the market for the fa-bricated metal products industry is set to increase, because the user industries are growing steadily. Currently, the industry is highly fragmented and scattered. The industry is undergoing much needed structural changes and evaluating solutions to challenges such as low productivity. Measures are being undertaken to develop the industry close to manufacturing hubs. For instance, Chennai in South India is a major automotive hub. Since the forging industry derives 65–70 per cent of its de-mand from the automotive industry, more forging companies are being set up near Chennai; for instance, Caparo Plc from the United Kingdom.8

Size and structure of the fabricated metal products industryThe fabricated metal products industry produces a wide range of products. It is characterized by very few large companies, mostly PSEs at the top of the pyramid followed by a large number of SMEs and even smaller enterprises that are run as family businesses. The industry is highly fragmented, but over the last few years, it has been going through significant structural changes.

Forging industryThe Indian forging industry has emerged as a major contributor to the fabrica-ted metal products industry in India. Forging industry is a basic industry, where forgings are produced through different methods which include open die forging, closed die forging and near net shape/ precision forgings. Such industries tend to grow in a country in relation to the rate of growth of its GDP. The Indian GDP is expected to grow steadily, so the basic industries will grow and so will the forging industry.

The industry was more labour intensive previously. It is estimated that the indu-stry provides employment (direct and indirect) to about 200 000 people. Now with increasing globalization, the industry is becoming more capital intensive. However, the high cost of capital (technology) still remains a major constraint facing the forging industry (especially the SMEs).9

8) Reference has been made to The Hindu Business Line (12th May 2004)9) Reference has been made to Association of Indian Forging Industry (3rd August 2008)

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Size and structure of the industry

The composition of the Indian forging industry can be categorized into four parts – large, medium, small and tiny. The Indian forging industry still remains highly fragmented, with approximately 400 units (out of which only 9–10 are large units scattered all over India). Hence, SMEs form the backbone of the industry. The organized sector accounts for about 65–70 per cent of the total forging production in the country, while unorganized players cater mainly to job work and the replace-ment market or tier 3 or tier 4 component manufacturers. A wide range of products are being manufactured through technological developments catering to a diverse market. It is perhaps because of this, that cases of domestic consolidation have been few in the industry, unlike in other industries.10

Given below is the production trend of the forging industry in India. It can be seen that there has been a slow but steady increase in rate of growth of production. Production grew substantially in the year 2006–2007 but is set to record relatively flat growth in 2007–2008. This can be attributed partly to the slight decline in the automotive industry in recent times.

PRODUCTION TREND OF FORGING INDUSTRY IN INDIAProduction figures from 2003–2004 till 2007–2008 (April–December) have been shown in ‘000 Tonnes.

297.3

2003–2004 2004–2005 2005–2006 2006–2007 2007–2008(April to December)

318.1 331.5

416.5

352.6

Source: Ministry of Commerce and Industry

10) Reference has been made to Ministry of Commerce and Industry (2008b) and Association of Indian Forging Industry (3rd August 2008)

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Key driver of demand for the forging industry

The key driver of demand of forged products is the automotive industry. About 65 per cent of the total forging production is used in this industry. Thus, the fortunes of the forging industry are to a large extent dependent upon the growth of the au-tomotive industry. Since the automotive industry is set to expand significantly, the forging industry is also expected to develop strongly. The other industries that use forgings include railways, defence, oil exploration companies, cement, steel industry and among other industries.11

The forging industry market

India’s forging industry not only meets almost the entire domestic demand of for-gings but is also an exporter and is making a sizable contribution to India’s exports. Technological developments have also contributed to the industry’s relatively steady growth in export. The major markets are USA, Europe and China. As a result of the liberalisation, multinational companies are entering the domestic automo-tive industry. This has opened up business opportunities for the forging industry. Thanks to outsourcing, opportunities for exports are huge. An increasing number of companies from all over the world are coming to India to procure components and products.12

Growth of the industry through acquisitions

The industry is growing through acquisitions made abroad by Indian companies in the recent past. In fact the industry is very active in terms of Mergers & Acquisitions (M&As) overseas. These acquisitions have largely been made in Europe and USA because the automotive components industry in these places has been stagnating. Indian forging companies like Amtek Auto, Bharat Forge, Sundaram Fasteners and some others have also setup bases in other emerging economies to establish them-selves as low cost suppliers. An example of an international acquisition by an Indian company is the acquisition of the Swedish forging giant Imatra Kilsta AB in 2005 by Bharat Forge to increase its presence in Europe.13

11) Reference has been made to The Hindu Business Line (30th September 2007)12) Reference has been made to Association of Indian Forging Industry (3rd August 2008)13) Reference has been made to The Hindu Business Line (22nd September 2005)

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Stampings and pressings

Stampings

The stampings industry consists of a few hundred units spread all over India close to the production centres that manufacture electrical and mechanical machinery and equipment. Although SMEs dominate the market, large global manufactu-rers are setting up their own stamping facilities to reduce their costs. For instance, Honda has started a new plant in India where it plans to manufacture stampings and thereby reduce its costs. Large companies like Caparo Plc of the United King-dom have also setup manufacturing facilities in India. Caparo Plc also plans to use its facilities in India for exports. Mr. Angad Paul, CEO Caparo Plc, said that the company’s Indian operations will contribute 20 per cent to global revenues by 2010.14

Some of the large companies in the stampings industry in India are:

• RadhikaEximwhichisoneofthelargestmanufacturersofstampingsproducingsheet metal, steel punching, galvanized steel and heavy stampings, stamped bars and rods, threaded bars and rods etc. The company exports to the United King-dom, France, United Arab Emirates and South Africa.

• RajvinElectricalStampingswhichmanufacturesandexportselectricalstampings,laminations, sheet metal press components and dies. The company supplies stam-pings to reputed companies like Crompton Greaves, Mark Electric and Anchor Electrical etc.

• PrecisionPressToolsisamanufacturerandsupplierofsheetmetalpressedcom-ponents, press tools and precision machined parts for different industrial uses like automobile industry, electrical and electronic industries.

Pressings

Manufacture of pressings has developed as an ancillary industry supplying parts to large industries manufacturing automobiles, industrial machinery and consumer durables. As a result, manufacturing facilities for pressings are located around the industries that consume their products. They have developed their product range to closely match the needs of the industries or the clients they serve.

14) Reference has been made to The Hindu Business Line (26th September 2006)

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In India, pressings are manufactured mainly by SMEs, some of which have out-grown their initial ambitions and have become larger in scale. While many have been limited to local markets, which are able to absorb their production capacities, some of them are national in their market reach, and many export their products as well.15

Some of the large companies in the industry are:

• RasandikEngineeringIndustriesLimitedthatsuppliespressingstothemajorautomotive companies like Tata Motors, Honda, General Motors, and Renault among others

• FairfieldPressingsLimitedthatisarenownednameinmanufacturingsheetmetalpressings and sub-assemblies. It is a major supplier to Tata Motors, John Deere, Larsen & Toubro, LG Electronics, Whirlpool Corporation etc.

• RajhansPressingsPrivateLimitedthatmanufacturescomponentsfortheautomo-tive industry and precision sheet metal parts among others

• MetalandPressings(MNP)thatmanufacturessafetybelts,powerwindows, power looms etc

Railway containersThe railway containers market has been booming especially since 2006. This is because the Indian Railways started allowing private participation in container transportation in the year 2006 that led to the emergence of a large number of pri-vate train operators, and hence increased transport through railway containers. The industry has been growing on the back of an increase in demand for custom built containers for oil exploration, defence and space research etc.

New innovations leading to development of the industry

Containerised cargo transport is set to get cheaper bringing a whole new population of small craftspeople and manufacturers into India’s export basket. Some innova-tions have also been made to further the growth of container transport through rail. The Indian Railways is introducing double stack container trains for the first time in the country and this will make India the second country in the world to run these trains after North America. According to the Ministry of Railways in India, in the

15) Reference has been made to The Hindu Business Line (8th August 2007)

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first phase, double stack containers will be introduced between the mainland and the port. This has been seen as a welcome development. Hence, it is believed that there will be a structural and developmental change in the container manufacturing industry with the manufacture of double stack containers for railway traffic also.16

Joint ventures are being formed for container manufacturing

Due to more open trade regimes, there has been an increase in foreign participation in this industry segment. The industry has witnessed several joint ventures of late. For instance, Transafe Services Limited, a joint venture between Balmer Lawrie and ICICI Venture, is setting up three container manufacturing plants in Kharag-pur in East India, Dharuhera in North India and Coimbatore, in South India. The company, formerly known as Indian Container Leasing Company Ltd, has a total production capacity of 300 containers per month, which will increase to 1 000 containers per month by 2010. The container manufacturing industry has potential to grow and this can be seen from the growth rate of some of the companies in this segment. Transafe Services Limited, for instance, registered a growth of 100 per cent in the year 2006–2007.17

Euro-Asian land bridge can increase container traffic and hence production

The concept of Eurasian Land-Bridge, also known as the New Silk Road, received a big boost recently when a freight train loaded with containers left Beijing for Ham-burg on a 10 000 km long journey. The route is through China, Mongolia, along the Trans-Siberia Rail route and then through Belarus and Poland finally reaching Hamburg and in all, six national Railways are involved. This train will be twice as fast as ocean going vessels. At the same time, the rail transportation will be cheaper than airfreight for various types of cargos. It is believed that increased rail traffic of this nature, may take place in India also, and thus this would increase the demand for railway containers.18

16) Reference has also been made to The Times of India (24th October 2005)17) Reference has been made to The Hindu Business Line (17th October 2007)18) Reference has been made to The Hindu Business Line (21st January 2008)

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Ship containersThe Government of India (GOI) is promoting ‘box trade’ in a big way. However there are a number of challenges surrounding the same. The Light House Act which was framed way back in 1927 has clauses that threaten to slow down the growth of container trade on ships, thus also posing as a threat to thedemand for ship contai-ner manufacturing in India.19

DCM Hyundai Limited is one of the few large companies in India that manufactu-res marine freight containers on a large scale. The company is promoted by DCM Shriram Industries Limited and Hyundai Mobis, Korea.

Low penetration and awareness in the industry

According to Mr. Anil Devli, Chairman, Container Shipping Lines Association (CSLA), traditional Indian cargo has moved in general cargo vessels and in break-bulk forms, and containers began coming in India only in the 1980s. He adds that there is a very low density of containerization and less awareness about containeri-zed movement.20 Thus, since potential and awareness of ship containers is develo-ping, the industry segment will witness an expansion of facilities for manufacturing ship containers in India.

Demand for reefer containers is on the rise

Till a few months ago, there was large demand for containers due to the increase in exports of Indian manufactured goods to the western countries. More recently, there has been a drop in trade through containers due to the downturn of the Ame-rican and European economies. However, according to Mr. G.K. Mukerjea, Mana-ging Director and CEO, Transafe Services Limited, there is an increasing demand for reefer containers in the industry. This is confirmed by the fact that there are a large number of cold chains being launched in India.21

19) Reference has been made to The Economic Times (7th July 2007)20) Reference has been made to The Economic Times (13th July 2008)21) Reference has been made to Kharagpur News (25th October 2007)

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Metal containersThe principal types of metal (tin) containers are food containers generally known as OTS (Open Top Sanitary) cans and general line containers for packaging non-food commodities such as paints, lubricants, pesticides, etc., ranging in size and shape for packaging fruit pulps for institutional consumption etc. The production of metal containers during 2006–2007 was 55 987 tonnes.

According to the Ministry of Commerce and Industry, there are 40 units manu-facturing general line containers and OTS cans with an installed capacity of about 127 000 tonnes and 37 000 tonnes respectively. Besides, there are a large number of units in the small scale sector mainly manufacturing oil containers. The metal (tin) container industry has made significant technological advancements during the last few years. Foreign technical collaborations in some cases have enabled the industry to adopt newer technology, especially for manufacture of OTS cans.22

Safes and vaultsThere are only a few large players in this market segment having all India presence, the majority belonging to the small scale industry sector serving local markets. Two large manufacturers are Gunnebo India Limited, a subsidiary of Gunnebo of Sweden, and Godrej Industries, a large Indian business group having interests in consumer durables, industrial equipment and security systems.

Godrej group is more than a hundred years old, having started way back in 1897 with launching of the first ever branded lock made by an Indian manufacturer. The Godrej lock is still the market leader in India. Today, the Godrej group covers a wide range of industry sectors. The group has a strong presence in the engineering sector and is a premier manufacturer of products related to vaults, security doors and safes, and security systems.

Gunnebo India Ltd, formerly known as Steelage Industries Ltd., was established in 1932 with the set up of its first manufacturing plant for physical security products at Mazagaon in Mumbai, India. In 1999, the majority stake in the company was acquired by Williams Plc, a leading international security group based in the UK. Steelage Industries Ltd. then became an integral part of the Chubb Safes Group. In March 2000, the Sweden based Gunnebo Group acquired the ChubbSafes business. Gunnebo Group made a public offer for the remaining shares in Steelage Industries

22) Reference has been made to Ministry of Commerce and Industry (2008b)

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Ltd. and at the end of 2005 the name of the company was changed to Gunnebo India Ltd. The employee strength today stands at over 806 people spread across 14 branch offices located in all major towns and cities across India. It has three plants – the oldest at Mazagaon in Mumbai, one at Ambattur near Chennai in the southern state of Tamilnadu, and the new plant at Halol in Gujarat.

Railway coaches and wagons

Manufacture of railway coaches

Manufacture of passenger coaches in India began in 1955 with the establishment of the Integral Coach Factory (ICF) in Perambur located in the state of Tamilnadu in South India. ICF was set up with the collaboration of the Swiss Car and Elevator Manufacturing Company of Schlieren, Switzerland. ICF, over the decades became very successful in producing the signature integral design (under-frames, sidewalls, and roof integrated to form a single tube structure) anti-telescopic coaches of Indian Railways, in many different configurations. It now has a capacity of 1 000 coaches a year, maintains production capability for 170 different kinds of coaches, and has thus far manufactured over 35 000 coaches for the Indian Railways.

In addition to coaches, ICF also produces diesel railcars, EMUs (Electrical Multiple Units), DMUs (Diesel Multiple Units) and special purpose rail vehicles such as track recording vehicles and overhead equipment monitoring vehicles. It has also exported coaches to many countries including Myanmar, South Africa, Taiwan, Thailand, Tanzania, Philippines and Vietnam.

Manufacture of railway wagons

Railway wagons are being manufactured in India for several decades both by public and private sector companies. Indian Railways purchase wagons from four public companies and six private sector companies. Indian Railways runs about 11 000 trains everyday including 7 000 passenger trains over a route length of over 63 000 km. Owning over 222 000 freight wagons, the Indian Railways buys a large number of wagons every year, both for capacity expansion and replacing old assets. In 2007, Indian Railways procured 10 200 wagons of various kinds.23

23) Reference has been made to Business Knowledge Resource Online (22nd July 2008). Also refer Viswanath (13th March 2008)

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Most of the wagon manufacturers were established by the British. Some of these companies are Burn Standard Company, Braithwaite, Texmaco, Jessop & Company. Hindustan Engineering and Industries Limited (HEIL) is one of the largest manu-facturers of freight cars and wagons for transport of containers. Titagarh Wagon Limited is a large manufacturer of wagons, bridges, prefabricated shelters and other such fabricated metal products for railways and defence sectors. With private players allowed entry into freight movement using Railways, and with the cost of road transport increasing with the rising price of oil, there is a shift in favour of rail transport and hence the railway wagon manufacturing industry is expected to witness strong growth

Ship-buildingIndia has a very large ship building industry. There are approximately 28 established shipyards in the country. However, 10 shipyards dominate the industry, seven of which are PSEs and the remaining 3 are privately owned. In the previous century the industry has witnessed a decline, and at present, India builds very few vessels for export and fulfils only 10 per cent of the needs of the shipping industry. A brief profile of some of the ship building activities is given below.

Largest shipyards

Shipyard under the Ministry of Surface Transport – Cochin in South India has one of the largest shipyards in India and also has some of the most advanced technolo-gies for fabrication of metal products. The shipyard has a technical collaboration with Mitsubishi Heavy Industries of Japan. The Cochin shipyard manufactures ships and tankers for internationally renowned companies in Europe and Middle East Asia. The shipyard has the distinction of having the largest hull fabrication shop in India.

Shipyard under the Ministry of Defence – Mazagon Dock Limited (MDL), Mumbai, is one of the leading shipbuilding and offshore fabrication yards in India, employ-ing over 10 000 workers. After its takeover by the GOI in 1960, Mazagon Dock grew rapidly to become the premier war-shipbuilding yard in India, producing sophisti-cated warships and offshore structures. It has grown from a single unit, small ship repairing company into a multi-unit and multi-product company, with significant rise in production, use of modern technology and sophistication of products. The company’s current portfolio of designs spans a wide range of products for both do-mestic and overseas clients. The yard has designed and constructed surface comba-

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tants, submarines, cargo vessels, tankers, tugs, dredges, and offshore structures. Steel fabrication facilities include 600-ton rolls, latest technology welding systems, and bending and shaping machines.

Privately owned shipyard – Larsen & Toubro Limited, India’s leading engineering, technology and construction company, has created its shipbuilding facility at Hazira in West India, to cater to the needs of growing global demand for construction of specialized ocean-going-vessels.24

The shipbuilding facility recently set up for construction of high tech vessels and the facilities at the shipyard include pre-fabrication facilities such as shot blasting and priming , CNC cutting machine, semi panel line fabrication, unit assembly bay, block assembly and a slipway to launch the vessels along with a jetty for outfitting jobs for the ships under construction. The shipyard is geared up to take up con-struction of niche vessels such as specialized Heavy lift Cargo Vessels, CNG carriers, chemical tankers, defence and paramilitary vessels and other role specific vessels.

Research and developmentNot much is known publicly about the Research & Development (R&D) initiatives being undertaken in the industry. Since the fabricated metal products industry is characterized by a large number of small scale manufacturing units, it is expected that the level of R&D in the industry is not sufficiently high. This is because the SMEs in the industry have a poor technological base in many cases and do not have the scale of production to be able to increase spend on R&D. From the perspective of the SMEs, spending on R&D is risky because of the fast changing and dynamic technological environment, and they find it difficult to continue spending on R&D to cope up with world standards.

We believe that to overcome this challenge the Japanese model can be followed. Japan relied on adoption of borrowed or imported technology rather than spending on innovations. This strategy was coupled with reverse engineering, adaptation and improvement of that technology. Having achieved a certain level of technological development, Japan’s strategy was to allocate more resources to develop technologi-cally advanced products, and thus close the gap with the large American companies that had huge spends on R&D. India can also adopt this model in a cost effective way, after further consolidation takes place to be able to develop more advanced

24) Reference has been made to The Hindu Business Line (20th March 2007)

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products rather than remain a largely low skill industry. For this an increasing num-ber of foreign collaborations is required. A start has been made in this regard but it is far from enough.

Future outlookThere are clear indications that India is beginning to get noticed and recognized as a global strategic necessity. The global Original Equipment Manufacturers (OEMs) and Tier I companies are increasingly appreciating the advantages of India’s open market economy, its engineering and manufacturing skills as well as its ability to handle global business. In view of the above, the market potential continues to grow for the fabricated metal products industry. The future is undoubtedly contingent on the growth of the automotive industry, machinery and equipment industry, electro-nic equipment industry and electrical machinery industry.

There is an increasing trend of consolidation. Several acquisitions, joint ventures and tie-ups are taking place across industry segments. Expectedly, the route for con-solidation will be through M&As where the smaller units that are unable to stand the process of competition will ultimately sell up to the larger players in the market. The entry of global majors in the industry to set up their manufacturing facilities is only going to lead to an increase in the scale of consolidation of companies in the industry. Technology, enhanced quality and competitiveness across segments have been improving but there is a long way to go in this regard. Increasing threats from other Asian countries such as China, Taiwan and Korea have led to an increase in the levels of competency in the industry.

Very few Indian companies in the industry have a global view either due to their small scale or due to the fact they want to tap the burgeoning domestic market. The focus is largely on the domestic market. While the Indian companies will certainly base their business decisions on the basis of expectation of demand in the Indian market, the industry’s perspective on the export market is required to undergo a transformation. Indian companies till now have lacked a thrust on exports. Ho-wever, the emergence of a global market has led to a blurring of margins between export and domestic markets.

A number of initiatives are being taken to enable the industry to grow and mature at a fast rate. These include measures such as building technology leadership, in-crease in emphasis on diversified products, customer bases and markets, enhanced

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cost competitiveness, provision of fiscal incentives and export promotion measures. Against this background, India is also preparing to become a global hub for sub-contracting in the industry. To sum up, a two pronged approach needs to be follo-wed for growth of the industry. An increase in exports of fabricated metal products is required along with an increase in production to satisfy domestic demand.

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References

Association of Indian Forging Industry (3th August 2008), http://www.indianforging.org, Association of Indian Forging Industry

Business Knowledge Resource Online (22nd July 2008), National level infrastructure –Railways, www.business.gov.in, Business Knowledge Resource Online

Kharagpur News (25th October 2007), “Container manufacturing plant at Kharagpur”, Kharagpur News

Luthra S, R Mangaleswaran and A Padhi (2008), When To Make India A Manufacturing Base, McKinsey & Company

Ministry of Commerce and Industry (2008a), Review of Industrial Performance, Chapter 3, Industrial Production, Ministry of Commerce and Industry

Ministry of Commerce and Industry (2008b), Annual Report (2007–2008), Department of Industrial Policy and Promotion, New Delhi

The Economic Times (7th July 2007), “Container ship operators find light dues too taxing”,

The Economic Times

The Economic Times (13th July 2008), “There is no option to containerisation”, The Economic Times

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The Hindu Business Line (16th June 2008), “$200 billion export target difficult to meet: FICCI”, The Hindu Group of Publications

The Hindu Business Line (7th March 2005), “FICCI moots cluster approach to improve labour productivity”, The Hindu Group of Publications

The Hindu Business Line (12th May 2004), “Bharat Forge benefits from robust auto sales”, The Hindu Group of Publications

The Hindu Business Line (26th September 2006), “Caparo opens fasteners plant”, The Hindu Group of Publications

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The Hindu Business Line (22nd September 2005), “Bharat Forge buys Swedish co Imatra”, The Hindu Group of Publications

The Hindu Business Line (21st January 2008), “Eurasian land bridge”, The Hindu Group of Publications

The Hindu Business Line (17th October 2007), “Domestic container market poised to grow”, The Hindu Group of Publications

The Hindu Business Line (8th August 2007), “Ranvik set to open 12 Cr unit in Pune”, The Hindu Group of Publications

The Hindu Business Line (20th March 2007), “Shipbuilding sector order books full”, The Hindu Group of Publications

The Times of India (24th October 2005), “Railway container rates to get cheaper”, Times News Network

Viswanath (13th March 2008), Indian Railways to invest INR 2.5 trillion for upgrading over the next 5 years, Machinist

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