Industry Overview - Automotive Components

8/12/2019 Industry Overview - Automotive Components

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Industry Overview

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 ve 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 araction 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 StructureThe Indian auto components industry can be broadly classied 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 aermarket. There are around 600 players in the organized sector accounting

for around 70% of the industry’s total revenues.

Chapter II



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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 ClassicationThe auto components industry in India can be classied based on dierent parameters, these include, product range and

size and location.

Product rangeThe Indian auto components industry oers 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 classied as Tier I, TierII and Tier III rms.

Tier I Tier II Tier III

Comprises large rms•

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 rms•

Comparatively less access to latest•

technology

Mostly multiple component•

manufacturers and have comparatively

beer operational eciency

Medium penetration of IT which are•

mostly fragmanted.

Comprises of smaller, single-auto•

component manufacturing rms, largely

unorganised players

Comparatively less access to latest•

technology and generally use traditional

technology

Mostly single component manufacturers•

and no operational eciency

Low level of IT penetration and hence•use traditional method of manufacturing

Auto component ClustersThe 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.



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Table 2.2: Auto components: Regional clusters

Cluster Cities

Western Cluster Pune, Aurangabad, Nashik (Maharashtra)

Southern Cluster Chennai & Coimbatore (Tamil Nadu); Bengaluru (Karnataka)

Central Cluster Pithampur, Dewas, Indore (Madhya Pradesh)

NCR Cluster Faridabad & Gurgaon (Haryana); Alwar, Bhiwadi, Khuskhera & Chopanki (Rajasthan)

Eastern Cluster Jamshedpur & Guptamani near Kharagpur; Singur (West Bengal)

Source: D&B Research

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


Investments in the sectorThe auto components industry in India has been witnessing a steady ow 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 seing up their own production plants. Domestic component

players are also investing heavily in the industry to reap benets of long-term growth prospects.

Chart 2.3: Investments in the Auto Components Industry (` crore)

Source: ACMA Annual Report FY12



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Demand for auto componentsBeing an ancillary industry, demand for auto components is greatly inuenced by the demand for automobile industry.

Auto components cater to both the OEM segment as well as the aermarket 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


Supply DynamicsRaw 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.

ExportsLow labour costs, availability of skilled labour and high quality consciousness among Indian vendors have spurred the

growth of auto component exports from India.



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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 aermarket 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 aermarkets accounted for the rest.



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Chart 2.6: Share of OEMS and Aermarket in exports (%)


Table 2.4: Some OEMs and Tier I companies procuring from India

OEMs Tier I component manufacturers

BMW•

Caterpillar•

Ford•

FIAT•

GM•

MAN•

Mercedes-Benz•

Nissan•

Peugeot•

Renault•

Toyota•

Volkswagen•

Bosch•

Continental•

Cummins•

DANA•

Delphi•

Denso•

Eaton•

Getrag•

Kolbenschmidt•

Magna•

Meritor•

TRW•

Valeo•Source: ACMA Annual Report FY12

Table 2.5: Global Best Practices

Quality certication & recognition Number of companies Quality certication & 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




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Exhibit 2.2: SWOT analysis of Indian auto component industry


ChallengesThe 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 puing pressure on prot margin•

Slowdown in global economy aecting exports•

Players losing bargaining power with larger OEMs•Increasing rivalry among players with numerous small rms 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•

OutlookThe 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 likelyto 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 prot

margins. In such a scenario, cost control programmes would assume greater signicance for the industry players, both big

and small.



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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, reneries, 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 beer 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, renery and consumer durables drives growth in this

sector.

Table 2.6: Classication of Heavy and Light Engineering sub-segments

Heavy engineering industry Light engineering industry

Textile machinery Rolling bearingCement machinery Medical and surgical instruments

Sugar machinery Process control instruments

Rubber machinery Industrial fasteners

Material handling equipment Ferrous castings

Oil eld 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



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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 suers 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 rms 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 boom 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

nished products.

• Focus on branding, marketing and customer orientation is comparatively low.

FDIInitiatives undertaken by the government towards FDI has also served as a catalyst to raise the demand for engineering

goods and machinery. The engineering industry aracts around 35% of th total FDI through the automatic route. Removal

of tari 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 inow: 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

Scientic instruments 477.79 91.11

Boilers and steam generating plants 305.75 61.83

Source: Department of Industrial Policy & Promotion



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I. Heavy Engineering SectorThe heavy engineering sector can be classied into two broad segments: Capital goods/machinery (which is further classied

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 equipmentFortunes 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%.



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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 segmentNumerous 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.

Classication of heavy electrical industry:

Turbines and Generator Sets• : The Indian industry has established a manufacturing capacity of various kinds ofturbines 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, rectiers, 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

specication. 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.



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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 machineryThe 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

bre 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)


TUF Scheme a boon for textile machinery manufacturersTechnology Upgradation Fund Scheme (TUFS), the agship programme of the Ministry of Textiles, has aracted 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 beneted 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 EquipmentUnder 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 equipmentCurrently 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.



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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 IndustryMachine 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-cuing 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 cuing, 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 ve 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)


Cement Machinery IndustryThe 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 ofcomplete cement plant machinery.



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Oil Field Equipment IndustryThe oil eld equipment manufacturing industry manufactures drilling rigs for on-shore drilling. Oshore drilling

equipments like jack-up rigs, etc are not manufactured indigenously. The industry however manufactures oshore

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

eld equipments. However, the industry remains a net importer.

Dairy Machinery IndustryThe 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, clariers, 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, clariers, agitators, homogenizers, spray dryers and heat exchangers, etc in the organised sector,

both in private as well as public sector.

Plastic Processing machineryThere 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)


Metallurgical machineryMetallurgical 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 beneciation 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.



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Chart 2.11: Metallurgical machinery (` cr)


Engineering goodsDemand (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 andtubes, 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)


Dies, Molds & Tools industryIndian 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 toolroomscum training centers are also operating in the country. The key commercial toolroom locations are Mumbai, Bangalore,

Chennai, Pune, Hyderabad and NCR.



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Chart 2.13: Dies, molds & tools industry (` cr)


II. Light Engineering IndustryA 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 isrestricted to assembly of imported components.

Most products in light engineering serve as inputs for capital goods industry. Therefore, the industry’s nancial 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 6.29Steel 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-NovSource: Department of Industrial Policy & Promotion



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SMEs have a signicant 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 nd 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 aer-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 aect the

operation of a manufacturing process. These variables include humidity, pressure, temperature, liquid level, ow, vacuum,

vibration, specic gravity, and chemical composition including pH, among others. Use of process control instruments and

systems is highly signicant in large and sophisticated process industries such as fertilisers, power plant, steel, cement

plants, petroleum reneries and petrochemical industries, among others.

The industry is a liberalised one and 100% FDI is permied 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 nds 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 dierent types ofroller 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.



25

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 classied 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 qualityand a number of them are now suppliers to the OEMs in the automobile sector. The automotive industry is the major end-

user 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 nd 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 nd application in industries where

strength, resistance to corrosion and long shelf life are critical. The industry is liberalised and 100% FDI is permied in thesector 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.



26

Electrical Resistance Welded (ERW) Steel Pipes & Tubes: ERW steel pipes & tubes nd widespread usage across industries

and elds. In addition to various engineering industries, they are used for water, oil and gas distribution, line pipes, fencing,

scaolding, 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 dierent types

include line precision pipes, tubular poles, electric poles, lightweight galvanised pipes for sprinkler irrigation, among

others. The industry has sucient capacity to manufacture the dierent 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 beer

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 laer 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 permied 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 eorts to increase exports.

Outlook

The engineering sector is expected to grow in coming years due to investments in power, metal, oil & gas and petrochemicalindustries, infrastructure development and favaourable government policies. Growth in the manufacturing and industrial

sector would also boost growth in the engineering sector.



27

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 dierent 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

shing at 0.7%. Although the share of agriculture in GDP has shown a declining trend, but the importance of the sector tothe 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 signicance 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

Buer 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 scal 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, sheries, 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 processingsector 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 sh, 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 bualo meat is also lower as against 60–70% average for

the developed countries.



28

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 bualo meat, poultry products, animalcasting 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 Major markets

Floriculture US, Netherlands, UK, Pakistan, Germany, Japan, Ethiopia, Italy, Bangladesh

Fresh Fruits & Vegetables UAE, Netherlands, UK, Pakistan, Bangladesh, Malaysia, Saudi Arabia, Sri Lanka, Malaysia, Qatar

Processed Vegetable and Fruits US, UK Malaysia, Netherlands, Philippines, Germany, Pakistan, Canada, Nepal, Russia, China,Australia, France, Angola, Belgium, Singapore, Yemen, Thailand Kuwait

Animal Products Egypt, Philippines Kuwait, Iraq, Angola, Jordan, Oman, Congo, US, Afghanistan, Vietnam,

Malaysia, Saudi Arabia

Cereals Vietnam, Malaysia, Bangladesh, Yemen, US, UK, Taiwan, Indonesia Sudan, Singapore, UAE, Iran,

Kuwait, Saudi Arabia

Source: APEDA

Schemes for Technology up-gradation, establishment and expansion of FPIsGovernment of India (GoI) has implemented schemes for upgrading technology and expanding and modernising the food

processing industries to aract potential entrepreneurs. The table below indicates the nancial assistance released by the

Ministry for food and agro products.



29

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 36.13Pulses 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 policyThe 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 permied 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 inows in the food processing sector which includes food processing industries,

fermentation industries, vegetable oils & vanaspati and tea & coee industries stood at ` 127.5 bn. The cumulative FDI

inows during this period in the sector accounted for 1.65% of the total FDI inows in the country. In the sector, maximum

cumulative FDI inows 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



30

Eleventh and twelh ve year planThe 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 ve year plan were development of value chain and processing infrastructure, upgrading or

modernisation of technologies, promoting quality certication 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 nance.•

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 o and excise duty on meat, poultry and sh•

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 storageLaunching 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.



31

Major schemes implemented by the Ministry of Food Processing Industry

Infrastructure development

Mega Food Parks (MFPs)

10 MFPs were approved in the rst 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 rst 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 seing up of abaoirs

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 seing up/upgradation of food testing labs approved•

Two proposal for implementation of HACCP/ISO certication of units approved•

Eight proposals for R&D approved•

Human resource development during FY12

One proposal for creation of infrastructure facilities•

25 proposals for seing 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 ve 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:

Seing 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 abaoirs and modernization of existing abaoirs•

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.

Puing in place a network of food testing labs (Government/ Private) by providing incentives.•



32

Encouragement for larger participation in Codex deliberations and seing up of Codex Cell to promote, coordinate•

and monitor related initiatives at the level of stakeholders such as industry associations, national research institutions

etc.

Seing 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 seing

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 abaoirs and modernisation of

150 existing abaoirs has also been proposed out of which 40 abaoir projects would be taken up during rst two years of

the 12th Plan, which would include 20 projects for seing up new abaoirs and 20 projects for modernisation of existing

abaoirs. In the eld 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 ChallengesAlthough food processing industry in India is enjoying the benets 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, inecient supply chain, insucient credit supply, obsolete machinery, lack of skilled manpower, high

taxation, high packaging cost, high inventory carrying cost aordability 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 AheadIndia 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 aordable 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 identied for development to provide support and thrust to the food processing industries in India include:

establishing Mega Food Parks; modernised abaoirs, cold chains and infrastructure for preservation of foods, upgrading

safety and quality of street food and establishing and upgrading quality control laboratories.



33

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 aer 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 classied 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 kniing sector form the

largest section of the textiles sector.

The major sub-sectors within the textiles sector include the organized coon/man-made bre textiles mill industry, man-

made bre/lament yarn industry, wool and woollen textiles industry, sericulture and silk textiles industry, handlooms,

handicras, jute and jute textiles industry, and textiles exports.

Trends in the Domestic MarketAs 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 coon in total cloth production was around 49% and average share for non-coon cloth was 38%.

During FY11, production of coon 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-coon 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.



34

Export ScenarioTextile 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 aer 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 bres, from coon to man-made, wool, silk, jute, and multiple blends catering to dierent 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 signicant 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 owing in this sector to expand the

capacity in the entire value chain, the working group constituted by the Planning Commission has estimated the overallgrowth for exports at 15% with an export target of US $ 65 bn and creation of 25 mn additional jobs by end of Twelh Five

Year Plan (FY17).

Table 2.14: Projections of Exports for Twelh Five Year Plan (2012-17)

US $ Mn

FY13 FY14 FY15 FY16 FY17

Coon 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 & Handicras 4235 4659 5124 5637 6200

Grand Total 37185 42776 49245 56736 65414

Source: Planning Commission, Working Group for Twelh Five Year Plan (2012-17)



35

Investment: FDI in textile IndustryIn the textile sector, 100% Foreign Direct Investment (FDI) is allowed under the automatic route. The industry aracted FDI

worth US $ 1.15 bn between Mar 2001 and Jun 2012, which accounts for 0.66 % of the total FDI inows 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 ExpenditureThe 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 FY13A 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 diversication. 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 shule-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 OutlookThe Working Group of the Twelh Plan (2012-17) projects an average industrial growth of 11-12% along with signicant

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 Twelh Plan.



Table 2.15: Sector-wise and bre-wise cloth production during the Twelh Plan (2012-17) (Mn Sq Mtrs)

Type FY13 FY14 FY15 FY16 FY17 Forecasted CAGR (%)

FY13-FY17

Mill 2724 3201 3761 4419 5193 17.5

Powerloom 43922 48973 54605 60885 67886 11.5

Handloom 8082 9011 10047 11203 12491 11.5

Hoseiry 16743 18577 20611 22868 25371 10.9

Khadi, Wool, silk 863 874 884 895 906 1.2

Total 72334 80636 89908 100270 111847 11.5

Coon 36693 41096 46027 51551 57737 12.0

Blended 9524 10619 11841 13202 14721 11.5

100 per cent Non-coon 25248 28026 31109 34530 38329 11.0

Khadi wool & silk 891 931 973 1017 1063 4.5

Total 72356 80672 89949 100300 111848 11.5

Source: Planning Commission, Working Group for Twelh Five Year Plan (2012-17)

Industry Overview - Automotive Components

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