Progress and Prospects of Indian Engineering Goods Exports

Progress and Prospects of Indian Engineering Goods Exports initiationThe signifi screwingceance of tradeings to economic growing has been considerably documented in empirical as well as theoretical literature. A heel of studies come examined how exports be beneficial for economic development of an economy. A vernacular point among them is that, exports may lead to greater capacity utilization, economies of scale, in pennyive for technological improvement and efficient circumspection due to competitive pressure a bulky. The interest in the relationship between exports and economic proceeds has take to placence of two schools of thought, namely export led growth (higher export leads to higher economic growth).Although India has been interest an import substitution strategy for long, exports promotion has always got the attention of the policy-makers and planners. Export promotion strategy became more(prenominal) pronounced in India particularly aft(prenominal) the new economic policy (NEP) of 1991. It is a fact that although Indias appoint in world exports is less than 1 per cent today, its section in total GDP of the republic is more than 11 per cent which is a substantive helping that can play an important office in ushering faster economic development to the country.Exports from India constitute agricultural and exclusivelyied commodities (10.10%), ores and minerals (5.29%), manufactured goods (73.40%) (Such as plan goods, gems jewellery, chemical intersection points and so on), crude oil and pet spotum crossroads (8.5%) and former(a)s (2.64%). Engineering labor has logical implication to the economic development of the country. Engineering goods industry constitutes the prime mover of industrial growth in Indian economy as it has played a pivotal role in industrial resurgence of India since the advent of independence, especi completelyy after the adoption of the Mahalanobis bang-up goods oriented strategy from the second plan onwards. The following facts highlight the very significance of the Indian engineer industry in Indian economy.The engine room goods industry enjoys 30.5 per cent weight in the business leader of industrial drudgery, 29.9 per cent sh ar of total investiture in all industry, 33.5 per cent share in the value of output of all industry, 37.1 per cent share in valued added by all industry. 30.6 per cent share in employment of all industry, and 62.8 per cent share in number of outside(prenominal) collaborations (EEPC). Further more, recently it has emerged as a major exporting sector and similarly provides technical know-how and consultancy flirt to a number of African and Arabian states. As per the data available for the year 2004-05, design industry has emerged as the ace large-scalest item of total Indian exports pushing aside gems jewellery export which had been tyrannic Indian export basket as the single largest item for well-nigh time now. Thus engineer industry is r eckoned as an engine of economic development and one of the dynamic sectors of the Indian economy.DISTINCTIVE section TO THE EXPORT EFFORTIndian engine room exports put one over come onn phenomenal growth over m each days and are fashioning a distinctive contribution to the overall export effort. The up trend in the export of engineering goods during half a century of our independent existence is a reflection of the distribute achieved by the engineering industry over the years. Engineering industry is now exporting an increasingly panoptic variety of light, medium and heavy engineering goods. Engineering goods exports have with child(p) by leaps and bounds from a mere Rs 5.16 crore in 1956-57 to an impressive and all time high of Rs. 73,800.39 crore in 2004-05. Thus they have grown over many hundred folds in Rupee terms. They have been among the most dynamic elements of Indias exports, and have taleed for the largest maturation (in constant prices) of Indias exports duri ng 1960-61 2004-05. Besides, at that place has been a marked shift in the commodity composition as well as direction of engineering exports over the years. Developed mart of the west now accounts for nigh 40 per cent of the total engineering exports in 2004-05 as against the 9 per cent in 1960-61.The progress of export of engineering goods vis-a-vis total exports from the country for select years can be better judged from mesa 1 carry over 1 engineer EXPORTS VIS--VIS TOTAL EXPORTS (in Crores) Rs. CroreYearTotal ExportsEngg Exports% share of Engg Exports to Total Exports1956-579775.160.51960-611,011.6510.311.01970-711,535.16115.767.51980-816,710.70874.1713.01990-9132,552.004,245.0013.01996-97118,817.3217,481.7514.71997-98130,100.6519,580.1415.041998-99141,603.5318,444.4713.101999-00159,288.9222,154.2313.912000-01201,684.9330,887.9515.312001-02209,729.0633,193.9915.832002-03255,799.5543,625.9417.052003-04294,143.2356,802.8319.312004-05356,795.4673,800.3920.68 2007-08133926.232008-0 9173801.7 change magnitude in 2008-09 by 29.77%(Source Ministry of commerce and industry) DGCIS, KOLKATTA.The figures in Table 1 indicate that engineering goods exports have shown commendable per formulateance on the export front over the years and it is steadily increasing over time. The constituent share of engineering exports in total exports increased from a mere 0.5 per cent in 1956-57 to a respectable 15.3 per cent in 1992-93 and again to 20.68 per cent in 2004-05, emerging as an important and single largest item of export basket in India. All these are a reflection of increased acceptability of Indian engineering products in developed countries market, aggressive marketing strategy, entry into new markets and promotional role of engineering export promotion council and more liberal policies of the Government especially after 1991. Average yearbook Growth RateEngineering exports have been registering a practically higher annual average growth rate than total exports during the decades of 1960s, 70s and 90s. The average annual growth rate of engineering as well as all Indias exports is depicted in Table 2.TABLE 2 AVERAGE ANNUAL GROWTH treasurePeriodTotal ExportsEngg. Exports1956-57 to 1960-611.1519.31961-62 to 1970-714.6429.711971-72 to 1980-8116.3623.991981-82 to 1990-9117.1016.81991-92 to 2000-0120.08329.352001-02 to 2004.0517.0025.59From Table 2 it is clear that engineering exports had registered an impressive growth rate of 29.71 per cent during 1961-61 to 1971 to 72 which marginally declined during 1971-72 to 1981 to 82. However, engineering exports precipitously declined to 16.8 per cent during 1981-82 to 1990-91. This decreasedown in engineering exports is accounted for by stagnancy of engineering exports during the early on on 1980s, especially the negative growth rate of -4.78% in the year 1985-86, which was an offshoot of industrial recession on developed countries and near completion of construction activities in Middle East. However, the position alter since 1985-86. Then onwards, engineering exports have grown at a faster rate. Economic liberalization of 1991 was a major boost to the engineering exports. It has opened new vistas, opportunities as well as challenges. A some factors that gave fillip to the development of Indian engineering exports under new regime are adoption of export policy resolution, conferring priority to exports, recognition and c erst temporary hookupssion to export houses and EPZ, liberalization of imports, relaxation of investment and licensing policies, priority to parcel and hardware engine room parks and so on.It is to be remembered that although there has been a quantum jump in the all India exports after liberalization of 1991, there has been a large slowdown in all India exports since 1995-96. After stretchiness peak annual growth of 20 per cent in 1995-96, it had slipped to low growth rate in 1997-98 and 1998-99. This slowdown in total exports has in fact affected engineerin g exports also evident from the figures for 1996-97 and 1998-99. This slow down can be explained by slow growth rate of world export demand, to the south East Asiatic financial crisis and consequent overvaluation of Indian Rupee, reducing exports to these countries which account for nearly 15 per cent of the total Indian engineering exports and also reducing the competitive edge of Indian engineering exports in the world market, since some of these countries are major competitors of Indian engineering exports.However, total exports exhibited a sharp turn more or less since 1999-2000. Bulk of the rise was contributed by a volume increase in exports. This acceleration in exports reflected buoyant global demand coupled with improvement in world commodity prices in 2000 and the revival of world trade following the Asian crisis. Besides various export facilitating measures announced by the Government, significant gains in selected sectors exchangeable textiles, engineering goods, el ectronics goods, chemicals, leather leather manufactures, ores minerals and petroleum products also contributed to this strengthening of exports. The sub rate of Rupee remained relatively stable in real effective terms during 2000-01 suggesting a broad retention of the competitiveness of Indias exports in global market. ITEMWISE DISTRUBITON OF COMPOSITIONEngineering exports now consist of a broad(a) variety of items such(prenominal) as iron firebrand, machine tools, machinery instruments, manufacture of metals, project goods, Ferro alloys, aluminium products, transport equipment, residual engineering items, management technical work.During the initial period, Indias engineering exports consisted mainly of steel, pig iron based items, consumer products like casting, buckets, drum, tubes, trunks, hand tools, builders hardware, lock, pad lock, steel furniture, aluminium, brass copper utensils, electric fans and batteries. However, over the years there has been substantial va riegation in the export of engineering products, especially after the mid seventies. A close fashion at the change in composition of engineering exports during 1960-61 to 1996-97 highlights the forward march of engineering industry exports. Table 3.a and Graph 1 depict the changing composition of Indian engineering exports during 1960-61 to 1996-97.TABLE 3.a CHANGE IN COMPOSITION OF engine room EXPORTS (1960-61 TO 1996-97)(US$ Million)ItemsYear (1960-61)% ShareYear (2007-08)% ShareCapital Goods2.7012.461,370.8332.69Primary Metals6.6930.851,406.5633.54Non-ferrous Metals2.8913.33309.537.38Consumer Durables9.4043.35928.0322.13 attention Consultancy Services00177.544.23Total21.681004,192.49100GRAPH 1Table 3.b exhibits the fate of share of major engineering goods, as per the latest data available for 2004-05 TABLE 3.b SHARE OF plan GOODSSr. No.Engineering Goods% Share01Machinery and Instrument21.3002Manufacture of Metals20.0003Transport Equipments17.204Iron Steel obstruct and prim ary and semi finished iron steel22.1405Electronics10.706Non-ferrous metals4.607Aluminium products1.1008Ferro Alloys1.1109Project Goods0.2910Machine tools0.9811Residual engineering goods0.42From table 3 it is understood that there has been marked shift and significant changes in the composition of the engineering exports in last four decades. The most significant change has been in the export of capital goods whose share in total engineering exports increased from 12.46 per cent in 1960-61 to 32.69 per cent in 1996-97, which is a symptom of the marked progress by engineering industry. Thus, capital goods sector presently occupies a pride position. The primary steel which accounted for 30.85 per cent in 1960-61 has marginally increased to 33.54 per cent in 1996-97. On the other hand, the share of non ferrous metals has come down from 13.33 per cent to 7.38 per cent. More significantly, the share of consumer durables has declined from 43.35 per cent in 1960-61 to 22.13 per cent in 199 6-97. Lastly, the management and consultancy services that account for zero percentage in 1960-61 has started making its presence felt by contributing around 4.23 per cent in the year 1996-97. All these show the increasing significance of capital goods exports as well as management and consultancy services, while the significance of non ferrous metals and consumer durables have been switch offd.DESTINATION OF INDIAN ENGINEERING EXPORTSIndian engineering products are exported to a large number of developed and developing countries of the world. A close look at the destination of Indian engineering exports shows that there has been substantial diversification in the destination of exports. Up to 1980s, the major destinations of Indias emerging exports were Asia and Africa. However, in the early eighties, the trend has changed substantially with share of Europe, Australia and North America increasing substantially. During the eighties, East European countries emerged as a big market f or Indian engineering products, whose share has declined after the disintegration of erstwhile Soviet Union. Fortunately, this deficit has been compensated by larger exports to developed countries. Region wise / Country wise export of Indian engineering goods between 1956-57 and 2004-2005 is shown in Table 4 and Graph 2.TABLE 4DESTINATION OF ENGINEERING EXPORTS REGIONWISE (1956-57 TO 2004-2005)(Rupees Crore)Region1956-571990-911998-992004-05Asia3.76 (73.9)975 (27.9)5681 (30.8)22041.68 (29.87)Africa1.2 (23.3)351 (10.0)1410 (7.64)3195.21 (4.33)EuropeZero1410 (40.3)4017.07 (21.7)16680.99 (22.60)N. AmericaZero40.00308.34 (1.67)834.82 (1.13)Total (incl. Others)5.16 (100)3500 (100)18444.14 (100)73800.39 (100)Note- Figures in the brackets show percentage sharesTable 4 reveals that there is a steady decline of Indian engineering exports to Asia and Africa from 96.2 per cent in 1956-57 to 34.20 per cent in 2004-05. At the same time, engineering exports to Europe and North America which wer e less than once per cent in the mid fifties now account for 39 per cent. This is a pointer to the diversification of market for Indian engineering products and growing acceptability of our products in he developed world.The important countries that account for the major chunk of our engineering exports in 2004-05 are USA (16.4%), UAE (6.60%), UK (5.23%), China (4.80%), Singapore (4.52%), Germany (4.2%), Italy (3.76%), Sri Lanka (2.67%) and Belgium (2.65%). These countries account form more than 50 per cent of Indian engineering exports.Estimate of Indias Exports of Thrust Products in Thrust Markets(Unit US$ Mn.)Thrust Markets2004-052009-10Country ImportsIndia ExportsIndias Est. Share %India ExportsIndias Est. Share % pick up Thrust MarketsNorth AmericaUSA313.7039900.32%2.3590.36%Canada54.333250.05%560.07%Mexico12.955300.23%650.36%EuropeGermany116.3422610.22%6190.27%France69.292710.10%1720.14%UK84.4284180.5%9340.61%Italy48.5511340.28%2770.32%AsiaChina49.3454460.90%1.8360.80%Japan24. 49930.38%2610.58%Thailand10.1731331.30%2781.45%UAE9.3133213.45%1.1554.43%Singapore5.0161142.27%3222.71%Sub-total Key Thrust Markets797.9413.0378.330Other Thrust Markets95.4773260.34%8800.46%Grand Total Thrust Product Exports to Thrust Markets893.4183.3620.38%9.2100.49%Indias Exports of Thrust Products in other non-thrust markets1.4603.809Indias Exports of Thrust Products to the World (Thrust + non-thrust markets)4.82213.019Est. Total Exports of Engg. Products from India13.29627.415Share of Thrust Product Exports to Thrust Markets in Indias Engg. Exports25.29%33.59%ENGINEERING SERVICES THE EYE OF OPPORTUNITYIndian IT industry was evolving -from a low-cost, back office, destination into a preferred supplier of high-end engineering services. And firing the imagination of the Indian IT industry is the huge market opportunity that makes a compelling business case for companies to seriously evaluate the engineering services domain. With the market potential for outsourced engineering se rvices estimated at between $ 7 and 12 billion, Indian vendors have barely scratched the surface. The value of work currently undertaken by these fakers is estimated to be a mere $ 400-500 million, according to Nasscom. Demystifying engineering servicesIn simpleton terms, engineering services augment or manage surgeryes associated with the creation of a product or service, as well as those associated with a product or asset.This not only includes design elements of the product or services itself, but also theme, equipment and processes engaged in manufacturing or delivering them. Engineering services outsourcing is the practice of sourcing some or all of a engineering services find applications in justs such as automative, aerospace, minerals and metals, FB, plastics and account. untesteder verticals are likely to emerge strongly in near future. These include utilities, chemicals, pharmaceuticals and medical equipment. Showing the way cardinal categories of stakeholders are i mplementking to exploit the opportunities thrown up by the engineering services market.Engineering services is not just design. Engineering services offers end-to-end services, including conversion, drafting, modelling for product definition, modelling for analysis, product design, analysis, prototyping, testing and validation, tooling and even limited manufacturing of prototypes. PLM refers to the entire product life cycle management after production to see if there are bugs or errors. The errors are then removed.Industry estimates peg the market potential for process engineering, asset management and industrial embedded systems at over $5 billion, taking the total outsourced / inshore market potential to a whopping $ 12 billion. Automative design accounts for a bulk 65-70 per cent of the market, followed by aerospace at 15 16 per cent, and electric/electronic machinery design at 10-12 per cent. Other key vertical surgical incisions considered good targets for outsourced enginee ring services include utilities and pharmaceutical companies.The biggest opportunity within engineering services is the automative segment where the potential offshore outsourceable components close to $ 4. 8 billion. This is followed by aerospace segment with a market potential of $1 billion, construction and heavy machinery space where the potential stands at $ 800 million. The opportunity in the medical segment is about $ 300 million.India leads the outsourcing market when it comes to auto-sourcing with 24 per cent of auto manufacturing giving it the thumbs up for outsourcing. Bigger automotive markets such as China and Mexico lag behind at 15 per cent and 13 per cent respectively, while other locations such as Brazil, Thailand and Philippines corner less than 10 per cent, of the actual outsourcing markets. Opportunities and challengesIndia is a significant player in the overall offshorable outsourcing market for engineering services in the Asia-Pacific region today, China and Ta iwan could emerge as formidable rivals in coming years.Indias gain lies in its reputation and ability to deliver applied science services to global customers at great value and high speed. India also has a tremendous pussycat of engineering and scientific talent, which can be tapped for the sector. Access to cutting -edge engineering science through global alliances with product companies, availability of prototyping and testing facilities, and sourcing domain acquisitions through collaboration with the domestic industry are some of the advantages Indian vendors leave have.Engineering services involves significant investments in software and design tools, making more investment intensive than vanilla IT servicesSome areas of application Product EngineeringThe services offered ex hunt from the early stages of idea generation, through engineering analysis and design, virtual simulation, documentation and conversion, prototyping and production, testing, knowledge based engineeri ng and PLM solutions. move EngineeringProcess engineering entails the use of computational tools and techniques at the plant design stage to perfect expenditures Capital or Operational and achieve efficient production of products and services.Plant mechanisationPlant automation broadly comprises engineering design and development of automation systems that facilitate the management and execution of day-to-day production activities and their associated information to be shared across the organisation in real-time for analysis and decision purposes. limited services offered include Control System Integration Process and Production Optimisation Manufacturing Execution Systems. go-ahead Asset Management (EAM)Traditionally asset management services have been restricted to managing the life-cycle cost of assets. However, technology now enables integration of maintenance activities and functions with plant control systems, MES, CAD/CAM, ERP and SCM.Today, EAM services comprise product i mplementation, supervise and maintenance, process assessment and re-engineering, interface development and system integration. EAM helps companies manage physical assets production plants, capital equipment, fomite fleets, and facilities complexes over the complete asset life cycle.In conjunction with powerful reporting and analysis, EAM capabilities enable you to reduce operating costs, better manage capital expenditure, and improve asset utilisation.PROBLEMS OF ENGINERING EXPORTSSo far as the paper has dealt with a general scenario of the engineering goods exports that does not mean that engineering goods exports are free of problems. Like any other item of export, engineering goods are also facing a number of problems, prominent among them are discussed below.Stiff CompetitionIndian engineering exports have been facing stiff competition from other countries. China, Mexico, Hungary, Czechoslovakia and Korea which have emerged as the fastest growing engineering export countries provide formidable challenges and fierce competition to Indian engineering exports. And recently, the South East Asian financial crisis which was under way since mid 1997 had put our exports at receiving end due to overvaluation of Indian Rupees, curtailment of Indian import by these countries (this is because 15% of total engineering exports is accounted for by these countries). Therefore, it has reduced the competitive edge of Indian exports in the world market. However, recently there has been tremendous improvement in export performance. This may be attributed to the revival of South East Asian economies, increase in the world export demand, etc.Technological problemsTechnological competitiveness of Indian engineering goods sector is low. Some of the Indian exporters are still at disadvantage in International market vis-a-vis their counterparts in terms of product design, finish, specific features, performance and raw materials substitutes. India can be product of having the sec ond larges scientific and technical manpower in the world. But his advantage due to high availability of graphic symbol engineers and scientists is lost partly due to brain drain and partly due to stagnation of skill sets of scientists and engineers within India. Although Indian firms are capable of achieving high levels of precision, they are unable to provide high flavour products due to lack of supporting process, technologies such as precision measuring, material engineering and process control. extravagantly cost of Industrial InputsThe engineering industry mainly uses raw materials of domestic origin. The raw materials price index has risen faster than the machinery price index. It is difficult of engineering manufacturers to pass on the rise in prices to the consumers thereby impacting their profitability. Similarly the quality of raw materials is also not up to the international standards and it in turn affects the quality of final products.BarriersAnother major problem is protectionism by developed countries. Developed countries have always move to block the products from developing countries through barriers both tariff and non tariff. Recent hike in the tariff of Indian steel by the US is a case in point. This will definitely affect the steel exports from India.Infrastructural BottlenecksA recent study by CII and World Bank has found that although India has the advantage of cheap labour, this advantage is nullified by infrastructural bottlenecks. Infrastructural bottlenecks are the major problem hindering both domestic and exports production. The quality of foot (transport, communication, and power) is poor, thus affecting competitive delivery schedule and increasing operating costs. The delivery time of locally made engineering goods in many cases is 1.5 to 2 times longer than in industrialized countries. Companies tend to lose orders on delivery schedule. The inland transport is slow although the rail road density is the highest in the world. The cost of electric power is comparable to that in other nations, but reliability is poor. Overall infrastructure inadequacies are estimated to translate into 5 per cent cost disadvantage of Indian engineering manufacturers vis--vis foreign manufacturers. utmost Transaction CostThe export transaction costs for Indian engineering goods industry are among the highest in the world. Heavy transactions costs not only increase the prices of the final export products, but also result in inordinate delay in export fulfilment, thus affecting export competitiveness. accord to available studies, total cost of transaction of engineering goods in India works out to be around 10 per cent of total export earnings.STRATEGY FOR EXPORT PROMOTIONIn the light of the discussion of numerous problems faced by engineering exports, it is necessary to evolve a scientific strategy, which should aim not only at consolidating the gains achieved so far but also in promoting higher exports of engineering prod ucts. planning of such strategy will enable engineering industry to sustain the extreme competition in international market. Various measures envisaged under this strategy are listed belowEngineering EPZs and SEZsThere is strong indispensableness for establishing separate engineering exports touch on zones and export oriented units. A few engineering items with highest potential have to be selected for development in these special processing zones. The locations of the export processing zones are to be set where there is a large concentration of these items. We have already established general export processing zones as well as agricultural export processing zones. Establishment of separate zones for engineering products will enable them to overcome the problems of infrastructure and raw material shortage. In addition it can attract more foreign direct investment into the production and export of engineering products.Technological Up gradationUp gradation of technology and moder nization of plant and equipment are prime requirement for export oriented units. New industrial policy (1991) and various announcements there after as well as export import policy provide a number of incentives such as automatic permission for foreign technology agreements in high priority industries, no permission needed for hiring of foreign technicians, foreign testing of indigenously developed technologies, liberal import of capital goods, raw materials and components, liberal import of second hand capital goods with a minimum life of 5 years without license etc. Further, a number of other steps like offering these units a deferred payment facility for purchase of capital goods and machinery (as this would reduce much of the burden of modernization), partnership with technical institutions like IITs for product adaptation and technological up gradation, accreditation of testing laboratories in India by overseas agencies to enable them to offer test inspection certificate / marki ng of products etc. can be thought of.Selectivity approachWhile most of our competitors export a few selected products, we have hard on too much products. For instance, China, Mexico, Korea, Hungary, Czechoslovakia which have emerged as fastest growing engineering export countries, it is spy that 85 per cent of engineering export were contributed by fewer product categories as compared to that of India. In 2002, the number of categories contributing to 85 per cent of engineering export for these countries was Mexico 10, Hungary 13, Korea 18 and China 20 while that of India was 26. face numerous problems due to lack of raw material and infrastructural deficiencies, most of engineering units can hardly meet overseas requirement in terms of technology, quality and cost. In the light of the above, we must concentrate on selected or thrust products and give them a full policy package and incentives and other contemporary inputs necessary for exports production. The Engineering Expor t Promotion Council Strategy Paper for growth to engineering exports from 2005-06 to 2009-2010 prepared by A. F. Ferguson Co. had identify 19 engineering products as thrust products for export development. These include commercial vehicles (luxury buse