With the push in public spending on infrastructure, the Indian heavy engineering industry has a chance to counter inherent challenges and foster growth.
by Mitalee Kurdekar
Following both new and replacement investments in industrial sectors, the Indian heavy engineering industry has achieved good growth numbers over the past few years. While local demand has generally been good in the manufacturing and infrastructure sectors, what is heartening to note is the fact that Indian industry has embarked upon a journey to export its goods to developed economies such as the US and European countries. With an ambition to become a global power in the coming years, India has made a tremendous march towards developing its heavy engineering base, in areas like aerospace and precision applications, thus opening up new vistas to explore. On top of the initial push provided by public sector undertakings like SAIL, BHEL, BEL, BEML, etc., we now find many private sector players doing well too. Not just that, many MSMEs have entered the field to support large players as ancillary units. In all, the current scenario suggests an all-round development of this industry, with all stakeholders keen to lift the scale of business, and share a piece of the growing economic pie.
Economic Relevance
As a part of the capital goods sector, the heavy engineering industry contributes significantly to India’s GDP, and is therefore a huge support when it comes to building the economy. In a way, it is a key cog of the economic wheel. In essence, the industry boasts a strong manufacturing platform that provides equipment and machinery to other segments of the economy, widely spanning defence, railways, aerospace, chemicals, infrastructure, mining, agriculture and so on. And with many of these witnessing a fillip, the heavy engineering industry stands to benefit.
As Sathyamurthy Kumaraswamy, site general manager, Savli, Bombardier Transportation, explains, “Companies engaged in heavy engineering are virtually on a roll. Capacity creation in sectors like infrastructure, power, mining, oil & gas, refinery, steel, automotive, and consumer durables has been driving demand in the engineering sector. The capital goods and engineering turnover in India is expected to have reached $ 125.4 billion by FY 2016-17. The comparative advantage vis-à-vis peers in terms of manufacturing costs, market knowledge, technology and creativity, has been a driving force for the heavy engineering industry in India.”
The sense of optimism pervades across industries in so far as future growth expectations within the Indian market are concerned. Narendra Patwardhan, senior GM – operations, aerospace division, Godrej & Boyce Mfg Co., echoes this sentiment, when he states, “In the aerospace part of the industry, we see a very big interest and activity from overseas, in terms of JVs, ToTs and sourcing efforts materialising in the defence as well as civil aerospace sectors. Thanks to the Government’s push through Make in India, the domestic segments in defence and space are also showing signs of acceleration.”
He further claims that, “As an active player in all these business areas, we perceive this as a very encouraging position. We expect it to generate a lot of opportunities for us in the next 3-5 years, and, in fact, we are ramping up our capacities to match up to it.”
N Venkatachari, regional director – South, Essar Steel India, also feels that these developments would benefit construction and special grade steel manufacturers in the industry. He points out, “The steel construction industry is at its peak as the order book position has improved, and now it will have to work towards the expansion of facilities in terms of capacities and automation, which are in sync with the complex design requirements of these projects. The announcement of big ticket projects like MTHL (Maharashtra Trans Harbour Link Road), DFCC (Dedicated Freight Corridors), Bullet Train etc., which are most likely to be completed in 3-5 years’ time clearly indicates significant growth in the sector.”
Kumaraswamy believes that the infrastructure-related push in India would spur continuous demand for the heavy engineering industry. He suggests, “The approval of a significant number of Special Economic Zones (SEZs) across the country and the development of the Delhi Mumbai Industrial Corridor (DMIC) across seven states is expected to further bolster the heavy engineering sector. With 100% Foreign Direct Investment (FDI) allowed through the automatic route, and initiatives like Make in India, major international players have entered the Indian heavy engineering sector due to significant growth opportunities available.”
Need for Technological Collaboration
Having said that, heavy engineering equipment manufacture is a complex exercise if one looks at the business requirements, including capital investment, improving operational efficiencies and, more importantly, staying abreast with the latest technologies in order to remain competitive. All this means that Indian enterprises must invest in R&D for value-adding research or troubleshooting processes, in addition to also collaborating with high-end technology providers.
As a result, many global players have realised that there is an opportunity presented by the competitive Indian market. Given the competitive advantage in terms of manufacturing costs, and the adaptive ability towards new technologies & innovation by Indian entrepreneurs and their teams, the heavy engineering industry, like many others, invites tremendous interest from global players, who are keen to set up shop or collaborate in terms of joint ventures. If this interest is supported by conducive policies from the Government, as is happening now, it only creates a multiplier effect for the industry’s growth momentum. In fact, this is also being indicated by the FDI inflow numbers of around $ 3.34 billion in India’s mechanical and engineering industries between April 2000 and June 2017, as per the data released by the Department of Industrial Policy & Promotion.
Patwardhan acknowledges this need, stating, “We have entered into a collaboration with foreign partners in the sense of becoming a reliable source in their supply chain by quickly learning and establishing specific technical capabilities qualified (certified) to the applicable global standards in aerospace. We are in the process of augmenting the same further, rapidly, by making investments in technologies rarely seen in the region.”
Explaining their strategy, Kumaraswamy suggests, “Bombardier has been investing in India for over 50 years. Bombardier has a well-established manufacturing operation, innovative technologies, engineering capabilities, a supplier base and over 2,400 highly skilled employees in India. Bombardier aims to invest in India or enter into partnerships with a long-term perspective, in terms of manufacturing facilities, enhancing local talent, developing a local supplier base, creating engineering capabilities and new technologies in projects which are strategic to our growth in India.”
Operational Challenges
Arranging cost-effective financing for capital-intensive projects of the industry has always been a challenge. With competitive financing means now available both from local institutions as well as foreign agencies/ governments, the players in the industry have been able to address this issue to a large extent. The government support in terms of collateral guarantees also works well in many viable and sustainable projects. The other major challenge is finding a market for products. Industrial units address this while evaluating projects for viability and sustainability. In this context, the Indian economy’s future prospects seem to be working favourably.
Patwardhan says that they are encouraged by the state of affairs and expect a lot of opportunities to be generated in the next 3-5 years, and are even ramping up their capacities in anticipation. “For skill development, presently, we are taking employees through the qualification processes set by global majors that we have started working with,” he adds.
Speaking about creating a supportive supply chain, Kumaraswamy explains, “Our commitment and investment has attracted world-class rail suppliers to India, making our local content and sourcing between around 60% (varies from project to project as per customer requirements) from India itself, created around 2,500 direct jobs and 5,000 indirect jobs, with our suppliers setting up manufacturing facilities in India, thus meaning less dependency for spares.”
On the issue of skill-set development and talent retention to ensure that activities are sustainable in the long-term, he says, “Our employees in Gujarat are fully-trained on special tools and processes to ensure a standard quality across Bombardier. Our Savli site started with rail engineering experts from across the globe moving to India to set up a manufacturing site, which has rapidly evolved into a truly Indian production and export hub with high international standards. As part of our commitment to developing local talent, our goal is to continue to grow the team in Hyderabad and support our product development strategy and innovation, as well as improve our services to our customers.”
Venkatachari proclaims, “We expect institutions for the development of the blue-collared skill-set, coupled with advanced practical courses, synchronising with the needs of the industry.”
Summarising the industry’s aspirations very well, Kumaraswamy says, “We are determined to make our sites in India one of the best in the world, with a common and focused goal to be lean sites with flexibility, innovation, respect for the environment and a customer-oriented approach.”
Thus, given the rising demand from various sectors and the focus on improvements within the heavy engineering industry to fulfil these requirements, things are certainly looking up for the industry, and, in turn, for the economy at large.