Export procedure of engineering goods with prime focus on submersible pumps in india

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Engineering and Capital good base of India is strong. The engineering sector is among the largest sector in overall industrial segments in Indian. Machinery, forgings, fasteners, instruments, Casting, electronic goods and project export are the important group of the engineering sector. Directly or indirectly total 4 million Skilled and Semi Skilled workers are working in this sector. For the quarter ended June 2009, the total engineering production was about US$ 5 billion. It is a diverse industry with a number of segments, and can be broadly categorized into two segments:

Ø Heavy Engineering Segment

Ø Light Engineering Segment

Heavy engineering segment involves sophisticated technology and greater competence, calling for a more organized format. However, for the light engineering segment, the entry barrier is low in terms of lower capital and technological requirement, which has resulted in many unorganized, fragmented medium and small enterprises.

Heavy engineering constitutes over 80 per cent of the total industry, while light engineering contributes the rest. The heavy engineering industry includes capital goods/machinery and equipment, and transport equipment.

The light engineering industry includes items like castings, forgings and fasteners and sophisticated microprocessor-based process control equipment and diagnostic medical instruments. Growth in India's manufacturing sector has provided a stimulus for the engineering industry to develop capabilities in product development and advanced manufacturing technology. India manufactures the entire range of industrial machinery. Apart from demand from user industries, the availability of technical education infrastructure that provides an increased number of technically trained human resources, each year has been another key factor aiding the engineering industry in India.

The capital goods required in bulk for fertilizer, power projects, steel, cement and mining equipment are made in India. India also makes machinery used for constructions, irrigation projects equipment, tractors, diesel engines, cotton textile, and machinery for sugar mill. The recent spurt in the domestic construction and infrastructure industry has accelerated the demand for most of the products. India also exports a range of heavy and light engineering goods.

Another categorization of players in the engineering industry can be based on the role they play, such as:

Ø Equipment manufacturers - such as Bharat Earth Movers Limited (BEML), Siemens, Cummins India, ABB, etc

Ø Execution specialists - such as Bharat Heavy Electricals Ltd.(BHEL), Larsen &Toubro (L&T), Engineers India, etc

Ø Niche players - such as Thermax in environmental solutions, Voltas in electro-mechanical projects, ABB for automation technologies and so on

Industry Demand is Driven by Investments in Core Sectors

The demand from this sector depends largely on GDP growth, which in turn is a function of expenditure in core segments like power, railways, and infrastructure development, private sector investments, and the speed at which projects are implemented.

The power sector is the largest contributor to the revenues of engineering companies. Engineering majors like Bharat Heavy Electricals Limited (BHEL) and ABB Limited derive a significant chunk of their revenues (69 per cent and 60 per cent, respectively) through the supply of equipment to the power sector.

Infrastructure is another key area of operation. Larsen & Toubro Limited, for example, garners around 35 per cent of its sales from infrastructure activities like engineering, design and construction of industrial projects, social and physical projects like housing, hospitals, information technology (IT) parks, expressways, bridges, ports, and water/effluent treatment projects.

The industrial segment contributes to around 30 per cent of the total revenues of the engineering sector. While India's engineering industry has capabilities in manufacturing the range of machinery required by the different user sectors, the rapid rise in demand has led to a large part of the machinery requirements being met through imports. This indicates the size of opportunity for investment in the engineering and capital goods sector in India.

The engineering industry has attracted FDI inflows of US$ 1,196.73 million from August 1991-July 2006.


The heavy engineering segment and light engineering segment can be further classified as shown in the table 1. As the sector demands a high level of capability and investment, it is dominated by large organized players.

The Sector consists of Joint ventures, regional players, multi national companies, large domestic players in the organized sector and huge quantity of small companies in the unorganized sectors. Some unorganized players also exist at lower levels where the technology required is basic.

In heavy engineering sector of India public sector enterprises play a crucial part. Total 34 public sector enterprises are operating in this sector. The detailed profiles of different sub segments in the heavy and light engineering segments are shown in the appendix.

Table 1: Classification of Heavy Engineering and Light Engineering Industry

Industry Segment

No. of Organized Players

Heavy Engineering Industry

Machinery of Cement Industry

19 Companies only

Machinery of Sugar Industry

27 Companies only

Machinery of Rubber Industry

19 Companies only

Machinery of Metallurgical

39 Companies only

Tool of Machines

125 Companies only

Material Handling Tools

50 Companies only

Machinery of Mining Industry

32 Companies only

Machinery of Dairy Industry

16 Companies only

Light Engineering Industry

Welded Steel Tubes & Pipes

123 Companies only

Process Control Equipment

26 Companies only

Antifriction roller Bearing

19 Companies only

Plain Papers Copier Industry

12 Companies only

Source: Ministry of Heavy Industries as public enterprises, Annual Report 2009 and www.indiainbusiness.inc.in


The engineering sector in India has been growing on the back of growth in the user industries and several new projects being undertaken in various core industries such as railways, power, infrastructure, etc. Capacity creation in sectors such as infrastructure, oil & gas, power mining, automobiles, auto components, steel, refinery, consumer durables, etc, is driving growth of the engineering industry.

Ø Growth of the key user-industries

Ø Government's thrust on the power and construction industries

Ø India being preferred by global companies as an outsourcing destination as it enjoys lower labour cost and better designing capabilities

The machine tools production is increased from US$ 359.2 million in the first half of 2007-08 to US$ 388 million in the corresponding period in 2008-09. Production of machinery for the power sector has witnessed the highest growth rate with electric generators, boilers and turbines growing at rates above 44 per cent. After continuous growth rates of above 50 per cent in the past 2 years, industrial machinery production has seen some correction in the recent months. The automobile industry accounts for bulk of the total demand of this industry, with an estimated share of 35 percent. The share of the electrical industry is 12 percent, after market share is 40 percent and the remaining 13 percent comprises consumption by other industries. The production of ball and roller bearings during the year 2007-08 was 345.67 million. During the year 2008-09 (Up to December 2008), the production was reported at 255.98 million numbers. The bearing industry is eligible for 100 percent foreign direct investment (FDI) under the automatic route.

The Indian foundry industry is the fifth largest in the world. Usually, each foundry cluster caters specifically to some end use markets. For example, the Coimbatore cluster is famous for pump-sets castings, the Kolhapur and Belagaun cluster for automotive castings, the Rajkot cluster for diesel engines castings and Batala and Jalandhar cluster for machinery parts and agricultural implements.

The production of steel castings and C.I. castings for the year 2007-08 in the organised sector was 8.10 lakh tonnes. During the year 2008-09 (up to December 2008) the production stood at 6.30 lakh tonnes. The industry is eligible for automatic approval up to 100 per cent FDI.

Most of the units manufacturing medical equipments are in small-scale industries SSI sector. The production for the year 2006-07 in the non-SSI sector is reported to be Rs 330.8 crores. During 2008-09 (up to December 2008) the production was reported at Rs 285.60 Crores.

The production for process control instruments for the year 2007-08 in the non-SSI sector is reported to be Rs. 326.03 crore (US$ 66.89 million). During the year 2008-09 (up to December 2008) the production was reported at Rs. 289.01 crore (US$ 59.30 million).

The Indian forging industry has evolved as a major contributor to the manufacturing sector of the Indian economy. The key demand driver is the automobile industry. About 65 per cent of the total forging production is used in this sector. Thus, the fortunes of the forging industry are dependent upon the growth of automobile industry. The other industries that use forgings include Railways, Defence, Oil Exploration, Cement, Steel Industry and other engineering industries. During the year 2008-09 (up to December 2008) the production stood at 3,52,662 tonnes.

The total production of all kinds of bicycles in the organized sector was 109.78 lakh numbers during the year 2007-08. During the year 2008-09 (up to December 2008) the production was reported at 86.13 lakh numbers.

The production of nuts and bolts in the organized sector for the year 2007-08 was 93,639 tonnes. During the year 2008-09 (up to December 2008) the production of the industrial fastener industry stood at 69,752 tonnes.

The machinery sector (except the transport equipments), which grew at a robust rate of 13.2 per cent during April-November 2008, presents a mixed picture. The index of production of industrial machinery grew at 27.9 per cent during the period. The other drivers of growth included boilers, turbines and computer system and its peripherals, whose indices of production grew by 36.6 per cent, 57.4 per cent and 36.5 per cent, respectively, during April-November 2008 compared to the corresponding period in 2007. While the production of insulated cables/wires of all kinds increased by more than 2.5 times, the production of telecommunication cables, telephone instruments, TV receivers, and power and distribution transformers declined during the period.

The EEPC conducted a series of workshops in 15 cities across India to increase the capacity of Indian engineering SMEs post-FTA.

Engineering exporters are now looking at the domestic market seriously, as inventories are mounting due to global slowdown and crunch in demand.

Source India Brand Equity Foundation www.ibef.in

Growth of Key Segments

Industrial Machineries


Machines Tools


User industries like automotive, consumer durables, infrastructure and power have been growing over the past few years. The drivers for this growth include factors such as:

Ø Strong growth in the economy and conducive and stable regulatory mechanism.

Ø Focus on infrastructure and power sector development by the Government. More than 35000 MW capacity has been added in the 10th five year plan period. This has led to increase in demand for electrical machinery

Ø Increase in private consumption levels due to favorable demographic shifts - low average age of population, increase in income levels and number of double income families, etc.

Ø Due to low labour cost and better designing capabilities, India is one of the favorable places for the outsourcing destination by global manufacturing companies.


India's competitiveness in engineering sector can be assessed by using the following outlines:

Competitive Industry With Well Developed

Indian engineering industry is highly competitive with a number of players in each segment. A large number of multi national companies such as Cummins, ABB and Alfa Laval have also entered the industry.

The intense competition has led to Indian players developing improved capabilities that have made them more competitive. Companies have become more quality conscious and upgraded their technology base, besides diversifying their manufacturing range in tune with global market requirements. For example, more than 2500 firms in the engineering sector in different areas such as castings and forgings, automobile parts, machine tools, electrical machinery, pumps, textile machinery, etc. have acquired ISO 9000 accreditation. Most firms are becoming more competitive in R&D, product development and service. This has resulted in MNCs increasingly leveraging their Indian arms to support their global operations. For example, ABB Group plans to leverage its Indian operations as a production and resource base for its global operations. The group has a manufacturing facility for its new range of ACS 550 drives in Bangalore to reduce lead delivery times for the

Customers Cummins India Limited (CIL) is developing into a key sourcing hub for its parent company, Cummins Inc, in the engine and component segment. The company is the single worldwide source of K-38 power-generation engines and the V-28 engines and is looking at opportunities in the area of components as well. The parent company Cummins Inc also recently started sourcing 50 litre power-generation engines (K-50) exclusively from India for worldwide use. With most firms getting focused on becoming globally competitive, India has the potential and the ability to become a major global sourcing hub in the engineering sector.


Among developing countries, India offers the best combination of low costs availability and skills and capabilities of manpower for the engineering sector. In terms of availability and skills, India produces over 500 PhDs, 200,000 engineers, 300,000 non-engineering postgraduates and 21, 00,000 other graduates each year, thus ensuring a steady supply of qualified manpower for the sector. India also has a significant labour cost advantage over most other countries.

Several companies in the engineering sector have leveraged India's advantages in labour effectively. In order to leverage India's intrinsic technology strengths and the pool of qualified software professionals, ABB has set up a global Corporate R&D Centre in Bangalore, which focuses on Industrial IT development and deployment. It also helps maintain and support a range of software intensive products and partners with the ABB R&D centres as well as business areas within the group. This was the first such centre to be established outside US and Europe

The combination of ABB's global know-how and India's skilled manpower enables the Indian subsidiary to produce products for the global markets. The Indian subsidiary is a base for production of high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers and magnetic actuators. It also exports several other products including transformers

Cummins has opened a new R&D centre in Pune, Cummins Research & Technology India Pvt. Ltd., which will offer engineering design and analysis capabilities for the company's' technical centres worldwide

India also has a wealth of raw material resources to meet the demands of the engineering industry. Key raw materials required by the engineering sector are ferrous and non-ferrous metals such as mild steel and aluminium which are available in India. Ready availability of these materials gives India a major cost advantage, as materials account for nearly 50 per cent of the industry's operating costs.


Presence of supporting industries provides a facilitating environment for the engineering sector to grow and prosper. India's engineering industry has significant support from India's well established IT sector, as well as institutions of higher education. India has a well-developed technical and tertiary education infrastructure of over 250 universities, 1500 research institutions and over 10,000 higher education centres, which support the engineering sector not only by supplying a steady stream of qualified manpower, but also in areas of research and development.

India has a well developed vendor base for supporting engineering industries. Industries such as machine tools, textile machinery, auto components, etc, provide ample support to the engineering sector and promote self sufficiency. Some of these sectors have developed global capabilities and help the engineering sector to achieve global competitiveness.


Capacity creation and transformation in sectors such as infrastructure, power, mining, oil & gas, refinery, steel, automotive, consumer durables are driving growth in the engineering industry. The framework below captures some of the key factors that are contributing to domestic and international demand for engineering goods from India.

Restructuring of the state electricity boards in different states, growth of private sector players and focus on capacity creation have driven growth in the power sector. Governmental projects like the World Bank-funded

Golden Quadrilateral Project and the North-South and East-West corridors have fuelled growth in the construction industry and the overall industrial sector. Industrial growth (measured in terms of the Index of Industrial Production) recorded a rate of 13.6 per cent during the April- March 2006-07 compared with 9.9 per cent achieved during the same period the previous year. Sectors such as automotive and textiles have benefited from the changing demographic profile of the Indian market. Key demographic changes include:

Ø Increasing income levels and greater propensity to spend

Ø Lifestyle changes, driven by trends like increase in nuclear families, working women and exposure to global trends

These changes have been driving consumption in end-user sectors such as consumer durables. In turn, this has facilitated growth in the engineering sector.

Demand Drivers for the Engineering Sectors in India


Recognising the critical importance of the engineering sector, the Government of India has taken several initiatives over the years to help the sector grow. The government established EEPC in 1955 under the umbrella of the Ministry of Commerce to diversify and restructure the narrow export base of the industry. From a small base, the EEPC has grown to become the largest export promotion council in India, with 60 per cent of its members being SMEs.

EEPC has constituted a task force in December 2008 mainly to survey the current export pattern post meltdown in terms of both value and volume. A key element of the study would be to understand how the banks were now looking at export finance for the SMEs, who dominate export production in the engineering sector.

Government of India has reviewed its Foreign Direct Investment (FDI) policy constantly, in a bid to attract more investment. 100 per cent FDI has been permitted in construction and development projects. India has opened up to private sector participation and FDI in infrastructure projects for power, roads, ports, mining sector and pharmaceutical sector.

Around 36 per cent of the total FDI is directed towards engineering industry through an automatic route, but subject to a limit of US$ 2 million lump sum payments. Royalty payment is restricted to 5 per cent and 8 per cent on domestic and exports respectively. Depreciation on general plant and machinery is around 15 per cent. Some specific initiatives by the Government which have a positive impact on the engineering sector are:

Ø SEZ policy and industrial corridor development across centres of development

Ø Removal of tariff protection on capital goods

Ø Delicensing of heavy electrical industry and allowance of 100 per cent FDI

Ø The reduction of custom duties on various equipments

Ø Incentives for R&D activities

Ø Various initiatives focused on infrastructure development and construction, initiatives to increase power generation and improve quality of power supply

The above initiatives are aimed at creating a facilitating environment wherein the engineering sector can thrive and have been beneficial in helping the sector become competitive.


  • Potential Sectors that Promise Rapid Growth:

The various segments that comprise the engineeringindustry in India offer different levels of growth andinvestment attractiveness. For a comparative assessment,the following criterion can be applied, based on the currentdrivers and trends in the market.

Ø Segment size

Ø Projected growth in domestic and exports markets

Ø Presence of supply base and supporting industries

Ø Readiness of the market to accept global products and services

Based on the above factors, the following segments emerge as potential investment areas.

o Electrical Generation/Transmission Equipment

o Earthmoving Machinery

o Thermal Equipment - primarily Boilers, Furnaces

All the above segments support the ongoing development of infrastructure, construction and power generation capacity, which is expected to sustain over the long term.

  • Key Sates for Investment:

Several states in India are looking to attract investment into manufacturing and services through a combination of regulatory policies, infrastructure development and providing conducive industrial ecosystems. For the engineering industry, the potential locations can be assessed based on the following factors.

Ø Number and size of engineering/multi-product SEZs being developed in the state

Ø Market size, growth of user segments

Ø Availability of raw materials, strong supplier base and human resources

Ø Proximity to ports

Based on these factors, Maharashtra, Gujarat and Tamil Nadu appear to be attractive locations. With a number of engineering/multi-product SEZs being developed across these states, factor and demand conditions being conducive and being home to the major ports in India, these states offer attractive opportunity for investment.


  • Opportunities:

Ø World-class infrastructure has emerged as one of the most important necessities for unleashing high and sustained growth and alleviation of poverty in any economy. And with poor infrastructure to support other growth initiatives, the Indian economy continues to be a laggard when compared to its developing peers. From a policy perspective, however, there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. The realization finally seems to be setting in. This makes the future of the Indian engineering sector extremely bright. Apart from highway development and construction and modernization of airports, the potential for the sector lies in the oil and gas space, where high global demand has led to increased action in exploration and production activities. Considering these factors, the sector is expected to grow strongly into the future. However, scale and execution capabilities will be the key mantras for success for the engineering companies.

Ø Impetus given for growth of infrastructure and core industry in the last two budgets of the central government is expected to increase capacity utilization of producers of coal, cement, iron ore and likely to increase demand for construction and mining equipments. Industrial growth and capital investment levels have improved and this will drive the growth in the coming years.

Ø The Government's initiative to bring clarity to the power sector reforms is a welcome sign for the industry. More coordination between the Centre and states for infrastructure development is a step in the right direction. The Electricity Act 2003 has introduced a lot of reforms in the power sector. The unbundling in the sector will definitely boost private investment. PSUs like NTPC are expected to almost double their generation capacity in next few years, which is a good sign for the engineering companies.

Ø The shift in focus towards reducing T&D losses will further increase the order book size of the companies operating in this realm. With power generation and distribution looking up, power equipment companies can look forward to a promising future.

Ø Deregulation combined with high global demand for crude has led to a surge in exploration and production activities in India and globally. Also, there has been a radical change in the government's approach to E&P (Exploration and Production) activities in the country. This thrust in development of new wells and improvement of output from old wells promises bright prospects for engineering companies

Ø Automation business has perked as the user industries started realising its benefits. With increasing competition among the power companies, the consumers will demand better quality and uninterrupted power supply. In such a scenario automation will play an important role. With the automation technologies gaining momentum, companies like ABB and Siemens will benefit a lot going forward.

Ø Capacity addition and de-bottlenecking exercise being carried by various industries like steel, power, refineries, chemicals etc is likely to provide a fillip to the industrial segment of the engineering companies.

Future Outlook:

Demand in the engineering sector is expected to remain healthy primarily on account of the Government's increased thrust on infrastructure development. The continuing growth of the manufacturing sector and favourable regulatory policies would provide further boost to the sector's growth. Fresh investments in the power equipment, metals, oil & gas, and petrochemicals industries, coupled with robust industrial activity is expected to drive the growth momentum in the capital goods industry in the near term.

Investment projects worth Rs 218.6 billion were outstanding, as at the end of January 2007, in the electrical and non-electrical machinery industry. The sharp increase in investments (announced/ proposed/under implementation) witnessed during the last 1 year or so, indicates the buoyant demand outlook on the user-industry, and thereby on the future prospects of the machinery industry.

Outstanding Investment as of January each year (Rs. Bn)

Source: CapEx(CMIE) and D&B Research

Emerging trends such as outsourcing of engineering services can provide new opportunities for quantum growth. Engineering and design services such as new product designing, product improvement, maintenance and designing manufacturing systems are increasingly getting outsourced to countries like India. India's engineering sector has a significant potential for future growth, both in manufacturing as well as services.

Engineering Process Outsourcing (EPO) services from India as it would have a far-reaching impact on the Indian engineering industry as a whole. The EPO market in India has the potential to exceed US $ 40 billion by 2020. To tap this EPO market all the important stakeholders, including the Government, academic institutions, service providers and trade bodies will need to boost investments in infrastructure and improve marketing efforts.


The Engineering sector's future outlook is promising. Drivers like power projects, other infrastructure development activities, industrial growth and favorable policy regulations will drive growth in manufacturing. The Indian engineering industry has been witnessing significant level of capability enhancement over the years. As export markets open up, this will help India develop a strong presence in global engineering exports.

Power sector contributes the largest to the engineering companies' revenues. Major players in this sector like ABB and BHEL derive 60 per cent and 69 per cent of their revenues from supplying equipments to the power sector. Going forward, with the Government clearing the blueprint for adding 100,000 MW in the tenth (2002-07) and eleventh (2007-12) five-year plans, the potential is high for the engineering majors.

Emerging trends such as outsourcing of engineering services can provide new opportunities for quantum growth. Engineering and design services such as new product designing, product improvement, maintenance and designing manufacturing systems are increasingly getting outsourced to countries like India and China.

India's engineering sector has significant potential for future growth, in manufacturing as well as services. With development in associated sectors like automotive, one of the largest evolving markets for engineering and industrial goods, and a well developed technical human resources pool, India is poised to make significant strides in all segments of engineering.


Indian Institute of Planning & Management Page 23