Light Engineering

Light Engineering

Sub - Sectors Covered

Bearing Industry

Welding Equipment and Consumables

Medical and Surgical Instruments

Ferrous Castings

Process Control Instrument Industry

Seamless Steel Pipes & Tubes

Electrical Resistance Welded (ERW) Steel Pipes & Tubes

Submerged-Arc Welded (SAW) Pipes

Industrial Fasteners

Steel Forgings

Bicycle Industry

Food Processing Machinery

Packaging Machinery Industry

Water Pollution Control Equipment

Industrial Gears

Metal Container Industry

Watch Industry

Background

Engineering industry is integrated with various core sectors for its demand. The products covered under the engineering industry are largely used as input to the capital goods industry. Hence the demand of this sector is a derived demand of the capital goods industry. The demand is thus derived primarily from capacity creations in sectors like infrastructure and general manufacturing including process industries.

The enterprise mix of the Indian engineering industry, which is reasonably technology intensive, comprises primarily large Indian companies without foreign collaborations, subsidiaries of multinational companies (MNCs), joint ventures of domestic and foreign companies, medium sized companies maintaining regional dominance. While smaller players (including some unorganised players) are present in the Indian Engineering industry, they primarily act as vendors to medium and large players in the heavy engineering industry and form part of the light engineering industry.

The Light Engineering Industry is a diverse industry with a number of distinctive sectors. This industry includes low-tech item castings, forgings and fasteners to the highly sophisticated microprocessors- based process control equipment and diagnostic medical instruments. This group also includes industries like bearings, steel pipes and tubes, etc.

Size

The Indian engineering industry, including the transport equipment segment, is estimated at around Rs. 1.2 trillion. Light engineering contributes to about 20% of the entire engineering industry amounting to approximately Rs. 20-25 billion, while heavy engineering contributes the rest.

Structural Characteristics

The products covered under the light engineering industry are largely used as input to the capital goods/heavy engineering industry. Hence the demand of this sector is dependent on the capital goods industry to a considerable extent.
While the light engineering industry caters to various types of industries, sectoral cyclicality can be observed in major sectors like power, refineries, manufacturing, infrastructure, mining, which also affect the light engineering industry.
The light engineering industry is predominantly characterized by low capital intensity and technology requirements and its high labour intensity results in a large number of small and unorganised players mainly in the low value added segments that contribute about 30-40% of the domestic production by value. The high value added segments are dominated by a few medium to large scale companies. Large unorganized sector also leads to a high degree of competition in the industry.
In some specific areas including hydraulic machines, CNC machines, equipment for specific purposes, high tensile fasteners, the competition from the unorganised sector is comparatively lower than areas like general machine tools, mild steel fasteners, small gears etc.
Over 80% percent of the consumption by value fall under heavy engineering (typically capital goods) while light engineering contributes the rest.
The raw materials contribute almost 55% of the operating costs of light engineering companies.
The light engineering industry is endowed with a diverse mix across a varied range of end-user segments which means low volatility in revenues over a normal business cycle. But, at the beginning of a widespread economic slowdown, cancellation of investments on capital goods, adversely affects the light engineering industry much before it does other industries.
Conversely, the light engineering industry is also among the last to gain from an upturn as capacity creation occurs after end-user industries have fully exhausted their capacities and long-term demand projections permit so.

Policy

The demand in the engineering sector is derived primarily from new investments and modernisation and upgradation of existing facilities. While in the manufacturing sector, the demand is driven both by the government as well as the private sector, the demand from infrastructure sector comes mainly from projects taken up by the government.
Recent growth initiatives in infrastructure sectors like power, roads, ports, water supply are primarily government policy driven. They are therefore, expected to maintain the demand for the Indian light engineering industry.
The Government has extended the DEPB Scheme by one year which is expected to benefit exporters.

Outlook

The demand in the engineering sector is expected to sustain primarily on account of the buoyant industrial production and the government’s focus on infrastructure development in the country, which is expected to continue in the medium term.
The light engineering sector has been growing, driven by growth in end user industries and the new projects being taken up in the power, railways, infrastructure development, private sector investment fields etc.
The investments in infrastructure are likely to accelerate and manufacturing sector is also showing signs of recovery. Key indicators that point towards a positive outlook for the sector include:

Ø Ongoing investments by national Thermal Power Corporation Ltd (NTPC), National Hydropower Corporation Ltd (NHPC), National Highways Authority of India (NHAI), State Highway Authorities and private investments in institutional/commercial buildings.

Ø TNTPC and NHPC’s new capacity additions programmes with expected addition of 9,370 MW; new gas based power projects from private players; over 60,000 MW generation capacity coming up during the 11th Five Year Plan.

Ø Expected investments in new berths in major ports as most ports have reached peak berth utilisation.

Ø Metals and refining sector are in a positive capex phase.

Ø Around Rs. 1,720 billion expected to be spent on the various National Highway projects for the period 2005-06 to 2012.

Major beneficiaries from these are likely to include light equipment used in construction, grinders and drilling machines, welding machines, Lathes and machining related equipment, industrial fasteners, besides some special purpose machines.

India is emerging as a preferred outsourcing destination for design and manufacture of heavy machinery and equipment. India has a large pool of skilled labour force and the labour costs are amongst the lowest in the world.
Indian companies are benefited by cost-advantage in production of machinery and equipment, resulting in significant potential for engineering exports. Though labour productivity in India is lower than the global average, Overall labour costs in India are still less than half of those in the developed countries.
Exports of engineering products are expected to grow to around US$27 billion by FY2010. India’s engineering exports are likely to increase from 0.5% to about 0.79%.
Despite rising raw material costs and higher imports, players reported a substantial jump in overall profits in 2006-07 (based on 9 months results), on the back of strong volume growth. CRISIL research expects volume growth to continue in 2007-08 while pofitability is expected to remain stable.

Light engineering industry comprises a number of sub-segments. An overview of some of the major sub-segments of the industry is provided below;

a) Bearing Industry

Bearings are used to minimize friction between moving parts and find application in rotating parts of virtually all machines and across all sectors such as automobiles, electric motors, diesel engines, industrial machinery & machine tools, etc. Roller bearings generally consist of inner ring, outer ring, rolling elements, cage & seals and come in two general shapes – ball or roller. Rollers come in four basic styles - cylindrical, needle, tapered and spherical. Bearings are produced in various sizes and shapes with the smallest bearing weighing only a few grams to the largest ones weighing a few tonnes.

A vast and diversified range of general purpose bearings are being manufactured indigenously. Bearings, generally used for special applications, requiring high technology and/or required in low volumes are still being imported. There is considerable scope for development of bearings of smaller sizes and lighter weight with improved performance in harsh operating conditions like high temperature or low temperature.

The bearings industry consists of bimetal bearings and anti-friction bearings. The total size of the bearings market by revenues is estimated in the range of Rs. 25 - 30 billion. The anti-friction bearings contribute to Rs. 15-20 billion of the bearings market and bimetal bearings comprise the rest of the market. The anti-friction bearings can be further divided into ball bearings and other types of bearings like roller, needle, taper, cylindrical, etc. The ball bearings segment is the biggest segment of the industry and contributes to approximately half of the total market size in volume terms.

Imports contribute to approximately 25-30% of the total market. Imported bearings are mostly of large dimensions and are not produced in the country due to relatively low demand for the specialised segments.

Automobile industry accounts for bulk of the total demand of this industry with estimated share of 35 per cent, electrical industry share is 12 per cent, after market (replacement) share is 40 per cent and the remaining 13 per cent consumption is by other industries. As large numbers of automobile companies have already set up units and some are planning to set up units in the country, the demand for bearings is going to increase in coming years. The approximate export and import figures of the ball & roller bearings for the year 2005-06 are Rs.809.3 crore and Rs.1533.1 crore, respectively. The production of ball & roller bearings during the year 2005-06 was 327.6 million pieces.

The bearing industry is delicensed and is eligible for 100 per cent FDI under automatic route.

b) Welding Equipment and Consumables

Traditionally, welding has been used as a means of fabrication. But, now welding is effectively used for cladding, hard-surfacing, cutting and a number of other applications for maintaining and reclaiming old machinery and equipment. The demand of the industry depends on the automobile, steel and heavy engineering sectors.

The welding equipment and consumables (electrodes) market is estimated at around Rs. 12-14 billion in terms of revenues. Welding consumables comprise about 75% of the total market in value terms while welding equipment comprises rest. Manual Metal Arc welding equipment contributes to approximately 80% of the equipment revenues, while the semiautomatic and automatic welding equipment contribute the rest.

The organised sector has a dominating presence in the automatic and semiautomatic welding equipment and higher end electrodes while the unorganised sector serves mainly manual metal arc welding equipment and low-end electrode segments. The unorganised sector contributes to about half of the welding industry market. There are around 20 large and medium scale companies in the organised sector and about 300-400 small-scale companies in the unorganised sector. The automatic and semiautomatic welding equipments are finding greater acceptance in the industry and the share of manual metal arc welding equipment is expected to decline in the future.

c) Medical and Surgical Instruments

Medical and surgical equipment industry has been playing a critical role in the health care delivery system. Although medical equipments are being produced in this country for the last 30-35 years, its production till recently remained small. During the last 15 years or so, with the liberalisation taking place and increased awareness for health, the demand for medical/surgical instruments has gone up substantially. This has accelerated the growth in indigenous production as well as imports.

The present day healthcare has become completely dependent on electro medical instruments and these have become indispensable tools for medical professionals mainly for diagnosis, therapy, and patient monitoring and health care. Indigenous manufacturers are currently in a position to manufacture wide variety of electro medical equipment such as electrocardiograph (ECG ) machine, X-ray scanner, CT scanners, short wave physiotherapy unit, electro surgical units, blood chemistry analyser, etc. However, sophisticated instruments such as Nuclear Magnetic Resonance (NMR) scanners, multi channel monitors, etc. are not currently manufactured in the country. Most of the units manufacturing medical equipments are in the SSI sector. The production for the year 2005-06 in the non-SSI sector is reported to be 262.8 crores.

d) Ferrous Castings

Indian Ferrous castings industry is one of the largest in the world. A peculiarity of the foundry industry in India is its geographical clustering. Typically, each foundry cluster is known for catering to some specific end use markets. For example, the Coimbatore cluster is famous for pump sets castings, the Kolhapur & Belagaun cluster for automotive castings, Rajkot cluster for diesel engine castings and Batala and Jalandhar cluster for machinery parts and agricultural implements.

This industry has large potential for export since developed countries are withdrawing from the manufacturing of such casting as these are polluting industries. This is a polluting industry hence sufficient value addition is needed in the manufacture of these items. The Indian industry, because of its technological strength has advantage over other developing countries in exports. This is evident from current trend for increase in outsourcing by international manufacturers of engineering products from India. Considering the wide range of engineering applications of these castings and high potential for exports, there is considerable scope for establishing additional capacity particularly for high end applications.

The approximate export and import figures of the casting industry for the year 2005-06 are Rs. 1643.3 crore and Rs.35.95 crore respectively. The production of steel castings and C.I. castings for the year 2005-06 in the organised sector was 6.42 lakh tonnes. The industry is de-licenced and is eligible for automatic approval up to 100 per cent of Foreign Direct Investment.

e) Process Control Instrument Industry

Process control instruments and systems cover a wide range of instruments and systems required for monitoring and measuring of physical, chemical and biological properties. These instruments are required for measurement and control of process parameters like pressure, temperature, humidity, level, flow, etc. in the process industry. In all process industries the products of this sector have become indispensable for precise measurement and control of whole processes, physical parameters, raw material, etc. This industry covers wide range of instruments and systems required for monitoring and measuring physical, chemical & biological properties. Their importance is significant in high cost, large & sophisticated process industries like fertilizer, steel, power plant, refineries, petrochemicals, cement & other process industries.

Transfer of technology has been the major foundation of indigenous development. The technology tie-ups with internationally reputed manufacturers have brought in technological breakthrough in various areas of industry. Today it provides open control systems and smart control devices. However, the total integrated management and control approach which is currently used in developed countries is yet to be attempted in the country. Present technology of process control system is microprocessor based centralised control system. Future Technology is for decrease in the sensing and response time of the equipment and more & more automation control, i.e. without manual interference.

The demand for this sector is basically a derived demand and depends largely on progress on implementation of various projects such as fertilizer, steel, power plant, refineries, petrochemicals, cement, etc. The export trend has not registered significant growth over the years. At present it is difficult to sustain export market in the field because of level of quality and sophistication required. Fast obsolescence, lack of standardisation and quality control also adds up for low exports.

Low volume of manufacture leads to high cost of manufacture and hence less cost competitiveness for export. The production for the year 2005-06 in the non-SSI sector is reported to be Rs. 232.8 crore. There was export for Rs 108 crores against import of around Rs 836.9 crore during 2005-06.The Industry is delicenced and 100 per cent Foreign Direct Investment is allowed in this sector under automatic route.

f) Seamless Steel Pipes & Tubes

Seamless steel pipes and tubes comes in all kinds of sizes including thin, small, precise, slender and other special pipes. Seamless steel pipes also come in different forms such as hot rolled cold drawn, turned, rotorolled, etc. It has applications in aircraft, missile, nuclear power plants and anti friction bearing, etc. Ultra high strength and corrosion-resistant properties make these perfect for oil & gas industry, steam boilers, chemical and other processing industries, pipelines, installation with high and supercritical steam conditions, etc.

Oil sector accounts for around 60 per cent of total requirement of seamless pipes. Bearings and boiler sector contribute around 30 per cent of demand. The Industry is able to manufacture tubes up to 14” outer diameter. With upcoming substantial growth in the power sector and increase in demand of bearings from automobile sectors, the demand pattern may change in favour of these two sectors. The approximate export and import figures of the Seamless Steel pipes & tubes industry for the year 2005-06 are Rs. 760.37 crore and Rs. 1985.93 crore, respectively. The Seamless steel pipes and tubes industry is delicensed and upto 100 per cent foreign equity is allowed for the manufacture of this item under automatic route.

g) Electrical Resistance Welded (ERW) Steel Pipes & Tubes

Based on the end-user customers’ requirement, ERW steel pipes and tubes are available in various qualities, wall thickness and diameters of the finished pipes. While manufacturing ERW steel pipes, only high quality continuous-cast, fully-kilned, control-rolled, fine-grain, low-carbon steel is used. High performance ERW steel pipes and tubes possess high corrosion resistance, high deformability, high strength and high toughness. These pipes are used in fencing, lining pipes, oil country tubulars, scaffolding, water and gas conveyance, structural, engineering purposes, etc.

There has been tremendous increase in the production of ERW steel pipes due to higher demand in oil and gas industry, infrastructure and automobile uses. There are large numbers of units in the SSI Sector. The industry is de-licenced and is eligible for automatic approval up to 100 per cent Foreign Direct Investment.

h) Submerged-Arc Welded (SAW) Pipes

There are two types of SAW pipes namely longitudinal and helical welded SAW pipes. Longitudinal SAW pipes are preferred where thickness of pipe is more than 25 mm and in high pressure gas pipe line. Helical welded SAW pipes are used for low pressure applications. The cost of helical SAW pipes is less than longitudinal pipes. Total installed capacity of SAW pipes in the country is around 6.5 lakh tones. There is huge demand of SAW pipes in the country due to transportation of oil and gas and transmission of water. The approximate export and import figures of the SAW pipes Industry for the year 2005-06 are Rs. 2223.47 crore and Rs. 212.77 crore, respectively. This industry has very good export potential. The industry is delicensed and upto 100 per cent foreign equity is allowed for the manufacture of this item under automatic route.

i) Industrial Fasteners

The fastener industry in India may be classified into two segments: high tensile and mild steel fasteners. High tensile and mild steel fasteners broadly include nuts, bolts, studs, rivets and screws. All types of fasteners except high tensile and special type of fasteners are reserved for SSI Sector. Mild steel fasteners are primarily manufactured by the unorganised sector while high tensile fasteners require superior technology and are dominated by companies in the organized sector.

Fasteners are used in almost all engineering and chemical industries. Automobile industry accounts for bulk of the total demand. Consumer durables and railways are the other primary users of the high tensile fasteners. Automobile sector is likely to drive growth in the fastener industry. The approximate export and import figures of the industrial fastener industry for the year 2005-06 are Rs. 844.34 crore and Rs. 650.48 crore, respectively. The production of nuts & bolts in the organized sector for the year 2005-06 was 77,888 tonnes. There is scope for more export in this sector. The fastener industry is delicensed and is eligible for 100 per cent FDI under automatic route.

j) Steel Forgings

Forging is the product of work on plastic state of metal to a desired shape by application of pressure. The working of metal into the shape by means of modern forging methods refines the grain structure, develops its inherent strength, improves the mechanical properties and produces the structural uniformity free from hidden internal defects. Forgings are produced through various methods which include open die forging, closed die forging and near net shape/precision forging.

The Indian forging industry has emerged as a major contributor to the manufacturing sector of the Indian economy. The key driver of demand of forging 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.

India’s forging industry not only meets almost the entire domestic demand of forgings but is also a large exporter and is making a significant contribution to India’s exports. The industry has shown a commendable performance on export front. Technological developments have also contributed to the industry’s steady growth in export. The major markets are USA, Europe, China, etc. The indigenous industry constitutes of about 10 large units followed by large number of medium, small & tiny units. The approximate import and export figures of the forging industry for the year 2005-06 was Rs.1,182.03 crore and Rs. 957.00 crore respectively. The production of stamping & forging for the years 2005-06 in the organized sector was 3,31,519 tonnes.

The future is bright in terms of the expected surge in global demand. As a result of the liberalisation, more MNCs have entered the domestic automobile market. This has opened up more business opportunities for the forging industry. The forging industry is delicensed and is eligible for 100 per cent FDI under automatic route.