3. Foreword
India has been one of the world’s fastest growing economies during the last few years. However, India has still not recovered from the effects of the former inwardoriented policies it followed until the 1990s. Economic reforms started taking place in
the beginning of the 1990s when India started opening up gradually. The question
is whether India can implement the required policy changes effectively and develop
a conducive business climate for industry to grow, and thus be able to sustain the
strong rate of growth it has achieved over the past few years.
During this time there has been increasing confidence in the manufacturing sector in
India and its long term potential as a manufacturing hub. Importance of the engineering industry is supreme in this regard and it also plays a crucial role in the economic
growth of the country. To understand the driving forces of India better, it is essential
to develop an understanding of prevailing fundamentals in the engineering industry.
In this report we provide an overview of the engineering industry in India with
relevant facts regarding the structure and size, growth rates, main challenges, trends
in international trade, research and development initiatives, as well as an indication
of future outlook of the main segments in the engineering industry. It is a series of
seven different reports that includes an overview of the engineering industry, the
automotive industry, the machinery and equipment industry, the electrical machinery industry, the automotive components industry, the electronic equipment industry and the fabricated metal products industry.
This series of seven different reports has been commissioned by Teknikföretagen,
the Association of Swedish Engineering Industries, to provide a detailed overview
of the Indian engineering industry covering various aspects of the main segments.
It is hoped that the reports will help identify areas of business interest for Swedish
engineering companies and give the reader increased knowledge of the present
industrial development in India.
The reports have been authored by Mr. Rahul Sanyal. He is an economist from New
Delhi in India, and has been appointed by Teknikföretagen to prepare these seven reports.
Stockholm, September 2008
Anders Rune
Chief Economist
5. Table of contents
Overview of the fabricated metal products industry in India............................................. 5
A snapshot of the fabricated metal products industry.......................................................... 6
Evolution of the Indian fabricated metal products industry................................................ 6
Growth of the fabricated metal products industry............................................................... 7
.
Growth in the manufacture sector is leading to development of the industry.................. 10
Size and structure of the fabricated metal products industry......................................... 10
Forging industry.................................................................................................................... 10
Stampings and pressings....................................................................................................... 13
Railway containers................................................................................................................ 14
.
Ship containers...................................................................................................................... 16
Metal containers.................................................................................................................... 17
Safes and vaults..................................................................................................................... 17
.
Railway coaches and wagons................................................................................................ 18
Ship-building......................................................................................................................... 19
Research and development................................................................................................... 20
Future outlook.......................................................................................................................... 21
References................................................................................................................................ 23
6. The fabricated metal products industry is one of the
smaller industries in the manufacturing sector of India.
However, with growth in many other industries, there
is an increase in derived demand for fabricated metal
products. The highly fragmented and largely unorganized industry is now a focus area in the Indian engineering industry and measures are being taken by the
Government of India and the industry to develop the
fabricated metal products industry further.
4
7. The fabricated metal
products industry in India
Overview of the fabricated
metal products industry in India
The fabricated metal products industry is more unique compared to other industries due to the way in which it is organized. Compared to the larger and more
mature industries such as the machinery and equipment industry and the automotive industry, the fabricated metal products industry is not as well organized. There
are some ambiguities about the entire range of products being manufactured in the
industry. Thus, from a statistical point of view, information regarding production,
number of people employed and international trade in the industry is very limited.
However, for this chapter, information has been obtained from premier industry associations like Federation of Indian Chambers of Commerce and Industry (FICCI)
and interviews of industry experts.1
This industry is one of the more fragmented industries in the manufacturing
sector in India. There are a large number of small and unorganized manufacturers
in the small scale industry and few large companies in each segment. Some of the
segments in the industry like railway and ship containers, forging, stamping and
pressing, and containers of metals are dominated by large Public Sector Enterprises
(PSEs) whereas segments like safes and vaults, gas cylinders, other fabricated metal
products are dominated by Small and Medium Enterprises (SMEs).
The industry’s development has been hampered by general issues like erratic power
supply, gridlocked seaports, poor infrastructure, restrictive government policies etc.
Yet the industry is developing slowly and growing as domestic demand is increasing
1) The Ministry of Statistics and Programme Implementation is responsible for compiling data on the industry. But the
method of compiling data is not clear and that is why it is uncertain whether the figures are accurate. There is less
information available on the industry and that is why information from industry associations, interviews of industry
leaders, journals and news articles have been referred in this report.
5
8. and as an increasing number of global companies are off-shoring their manufacturing capacities to India.
A snapshot of the fabricated metal products industry
The fabricated metal products industry is small in comparison to most segments
of the engineering industry in India. However the industry is comparable to other
industries in terms of the number of factories and the number of workers employed.
This is because the industry is highly fragmented where there are a very large number of companies producing a wide range of metal components and parts. Due to
the basic nature of being labour intensive, the industry employs a very large number of people. According to the Ministry of Commerce and Industry, the industry
employed 3.69 per cent of the workers and 3.78 per cent of the employees in the
manufacturing sector in India in the year 2004–2005.2
Since the industry has been growing at a slow pace, industry associations and
research institutes have formulated plans to help develop the industry faster. It is
believed that a balanced growth approach for accelerating growth of large scale manufacturing clusters across states is essential to give a boost to the fabricated metal
products industry.
Evolution of the Indian fabricated metal products industry
Surge in the automotive industry, machinery and equipment industry, electronic
equipment industry and electrical machinery industry has increased domestic
demand for fabricated metal products tremendously. The fabricated metal products
industry like many other industries in India has been developing to a large extent,
due to the shift of manufacturing facilities from western countries to India. Increasing globalization combined with more open trade regimes has helped the industry
tremendously. As a result, over the past few years, the industry has witnessed an
increase in exports across segments, although over a small base.
After the Asian crisis in the late 1990s, India’s exports of fabricated metal products
increased substantially accompanied by an increase in share of world production. At
the same time, the industry also witnessed a steady increase in employment in the
industry. However, even though employment was increasing, an increasing number of innovations were also being made to make technological changes to increase
2) Reference has been made to Ministry of Commerce and Industry (2008a)
6
9. productivity in the industry. Competitive pressures from other Asian tigers, Korea,
Taiwan, China and Malaysia also led to an increase in productivity and exports.3
Growth of the fabricated metal products industry
The fabricated metal products industry is a skill intensive industry requiring
technical expertise – an area in which India is likely to become a primary sourcing
and manufacturing base for companies worldwide. The industry, has not been a
major contributor to the manufacturing sector and hence to the GDP of India,
when compared to other industries within the manufacturing sector.4 The growth
of the industry too has been flat, except for a short spurt in industrial production in
the year 2006–2007, when the industry grew by 11.4 per cent. Production between
the years 2002–2003 and 2006–2007 has grown at an annual average rate of 5.22
per cent. As can be seen from the figure, the growth trend in the industry has not
been uniform. Recently, according to the Ministry of Commerce and Industry, the
industry growth rate has been declining. In the year 2007–2008, between April and
December production declined by 7 per cent.
GROWTH TREND OF THE FABRICATED METAL PRODUCTS INDUSTRY
The table below depicts the growth rates in the fabricated metal products industry between the years
2002–2003 and 2007–2008.
11.4
6.4
5.7
3.7
-1.1
-7.0
2002–2003
2003–2004
2004–2005
2005–2006
2006–2007
Source: Ministry of Commerce and Industry
3) Reference has been made to The Hindu Business Line (1st May 2008)
4) Reference has been made to a report prepared by McKinsey & Company. See Luthra et al.
7
2007–2008
(April to December)
10. Several measures are being undertaken under the recommendations of the newly
formed National Manufacturing Competitiveness Council (NMCC), Federation of
Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian
Industries (CII) among others. Chief among some of the measures being suggested
are changes in the tax structure, consolidation of SMEs, facilitation of foreign participation and provision of easier access to required resources.
Some of the factors that affect growth in the fabricated metal products industry are
given below.
Growth closely linked to international trade scenario
The growth of the industry is very closely linked to the international trade scenario.
For instance, an increase in exports would lead to an increase in container traffic,
which would then lead to an increased demand and thus increased production of
metal containers, ship and railway containers etc. Currently, due to the slowdown
in the American and European markets, slack in the construction and real estate
markets in western countries and a surge in ocean freight rates, it is believed that
exports would decline and thus, with respect to the fabricated metal products industry, container production would remain flat.5
Low labour productivity
An analysis was conducted by FICCI on the laggard industry segments of the manufacturing sector in India. Fabricated metal products industry was one of those
segments. The main focus of the study was to make recommendations to enable
increase in productivity. There is increasing competition to India from Asian players
such as China, Malaysia and Korea in this regard. The study revealed that the fabricated metal products industry in India was suffering from low labour productivity.
FICCI suggested, that enhancement of productivity can be achieved by adopting the
cluster approach. It is believed that if productivity can be increased in the industry,
the fortunes of the fabricated metal products industry would be much higher than
are projected now.6
5) Reference has been made to The Hindu Business Line (16th June 2008)
6) Reference has been made to The Hindu Business Line (7th March 2005)
8
11. Distribution of the largest fabricated metal products producers in India
In the year 2005–2006, according to FICCI, the largest states that were producing
fabricated metal products in India were Uttar Pradesh (12 per cent), Punjab (5 per
cent), West Bengal (5 per cent) and Karnataka (5 per cent) of production.7
LARGEST STATES BY PRODUCTION OF FABRICATED METAL PRODUCTS IN INDIA
Rough ocations of these states have been shown in the figure below.
Punjab
Uttar Pradesh
West Bengal
Karnataka
Source: Federation of Indian Chambers of Commerce and Industry
7) Reference has been made to The Hindu Business Line (7th March 2005)
9
12. Growth in the manufacture sector
is leading to development of the industry
With the domestic manufacturing sector growing steadily, the market for the fabricated metal products industry is set to increase, because the user industries are
growing steadily. Currently, the industry is highly fragmented and scattered. The
industry is undergoing much needed structural changes and evaluating solutions
to challenges such as low productivity. Measures are being undertaken to develop
the industry close to manufacturing hubs. For instance, Chennai in South India is a
major automotive hub. Since the forging industry derives 65–70 per cent of its demand from the automotive industry, more forging companies are being set up near
Chennai; for instance, Caparo Plc from the United Kingdom.8
Size and structure of the fabricated
metal products industry
The fabricated metal products industry produces a wide range of products. It is
characterized by very few large companies, mostly PSEs at the top of the pyramid
followed by a large number of SMEs and even smaller enterprises that are run as
family businesses. The industry is highly fragmented, but over the last few years, it
has been going through significant structural changes.
Forging industry
The Indian forging industry has emerged as a major contributor to the fabricated metal products industry in India. Forging industry is a basic industry, where
forgings are produced through different methods which include open die forging,
closed die forging and near net shape/ precision forgings. Such industries tend to
grow in a country in relation to the rate of growth of its GDP. The Indian GDP is
expected to grow steadily, so the basic industries will grow and so will the forging
industry.
The industry was more labour intensive previously. It is estimated that the industry provides employment (direct and indirect) to about 200 000 people. Now with
increasing globalization, the industry is becoming more capital intensive. However,
the high cost of capital (technology) still remains a major constraint facing the
forging industry (especially the SMEs).9
8) Reference has been made to The Hindu Business Line (12th May 2004)
9) Reference has been made to Association of Indian Forging Industry (3rd August 2008)
10
13. Size and structure of the industry
The composition of the Indian forging industry can be categorized into four parts
– large, medium, small and tiny. The Indian forging industry still remains highly
fragmented, with approximately 400 units (out of which only 9–10 are large units
scattered all over India). Hence, SMEs form the backbone of the industry. The
organized sector accounts for about 65–70 per cent of the total forging production
in the country, while unorganized players cater mainly to job work and the replacement market or tier 3 or tier 4 component manufacturers. A wide range of products
are being manufactured through technological developments catering to a diverse
market. It is perhaps because of this, that cases of domestic consolidation have been
few in the industry, unlike in other industries.10
Given below is the production trend of the forging industry in India. It can be
seen that there has been a slow but steady increase in rate of growth of production.
Production grew substantially in the year 2006–2007 but is set to record relatively
flat growth in 2007–2008. This can be attributed partly to the slight decline in the
automotive industry in recent times.
PRODUCTION TREND OF FORGING INDUSTRY IN INDIA
Production figures from 2003–2004 till 2007–2008 (April–December) have been shown in ‘000 Tonnes.
416.5
297.3
2003–2004
318.1
2004–2005
352.6
331.5
2005–2006
2006–2007
2007–2008
(April to December)
Source: Ministry of Commerce and Industry
10) Reference has been made to Ministry of Commerce and Industry (2008b) and Association of Indian Forging
Industry (3rd August 2008)
11
14. Key driver of demand for the forging industry
The key driver of demand of forged products is the automotive industry. About 65
per cent of the total forging production is used in this industry. Thus, the fortunes
of the forging industry are to a large extent dependent upon the growth of the automotive industry. Since the automotive industry is set to expand significantly, the
forging industry is also expected to develop strongly. The other industries that use
forgings include railways, defence, oil exploration companies, cement, steel industry
and among other industries.11
The forging industry market
India’s forging industry not only meets almost the entire domestic demand of forgings but is also an exporter and is making a sizable contribution to India’s exports.
Technological developments have also contributed to the industry’s relatively steady
growth in export. The major markets are USA, Europe and China. As a result of
the liberalisation, multinational companies are entering the domestic automotive industry. This has opened up business opportunities for the forging industry.
Thanks to outsourcing, opportunities for exports are huge. An increasing number
of companies from all over the world are coming to India to procure components
and products.12
Growth of the industry through acquisitions
The industry is growing through acquisitions made abroad by Indian companies in
the recent past. In fact the industry is very active in terms of Mergers & Acquisitions
(M&As) overseas. These acquisitions have largely been made in Europe and USA
because the automotive components industry in these places has been stagnating.
Indian forging companies like Amtek Auto, Bharat Forge, Sundaram Fasteners and
some others have also setup bases in other emerging economies to establish themselves as low cost suppliers. An example of an international acquisition by an Indian
company is the acquisition of the Swedish forging giant Imatra Kilsta AB in 2005 by
Bharat Forge to increase its presence in Europe.13
11) Reference has been made to The Hindu Business Line (30th September 2007)
12) Reference has been made to Association of Indian Forging Industry (3rd August 2008)
13) Reference has been made to The Hindu Business Line (22nd September 2005)
12
15. Stampings and pressings
Stampings
The stampings industry consists of a few hundred units spread all over India close
to the production centres that manufacture electrical and mechanical machinery
and equipment. Although SMEs dominate the market, large global manufacturers are setting up their own stamping facilities to reduce their costs. For instance,
Honda has started a new plant in India where it plans to manufacture stampings
and thereby reduce its costs. Large companies like Caparo Plc of the United Kingdom have also setup manufacturing facilities in India. Caparo Plc also plans to
use its facilities in India for exports. Mr. Angad Paul, CEO Caparo Plc, said that
the company’s Indian operations will contribute 20 per cent to global revenues by
2010.14
Some of the large companies in the stampings industry in India are:
• Radhika Exim which is one of the largest manufacturers of stampings producing
sheet metal, steel punching, galvanized steel and heavy stampings, stamped bars
and rods, threaded bars and rods etc. The company exports to the United Kingdom, France, United Arab Emirates and South Africa.
• Rajvin Electrical Stampings which manufactures and exports electrical stampings,
laminations, sheet metal press components and dies. The company supplies stampings to reputed companies like Crompton Greaves, Mark Electric and Anchor
Electrical etc.
• Precision Press Tools is a manufacturer and supplier of sheet metal pressed components, press tools and precision machined parts for different industrial uses like
automobile industry, electrical and electronic industries.
Pressings
Manufacture of pressings has developed as an ancillary industry supplying parts to
large industries manufacturing automobiles, industrial machinery and consumer
durables. As a result, manufacturing facilities for pressings are located around the
industries that consume their products. They have developed their product range to
closely match the needs of the industries or the clients they serve.
14) Reference has been made to The Hindu Business Line (26th September 2006)
13
16. In India, pressings are manufactured mainly by SMEs, some of which have outgrown their initial ambitions and have become larger in scale. While many have
been limited to local markets, which are able to absorb their production capacities,
some of them are national in their market reach, and many export their products as
well.15
Some of the large companies in the industry are:
• Rasandik Engineering Industries Limited that supplies pressings to the major
automotive companies like Tata Motors, Honda, General Motors, and Renault
among others
• Fairfield Pressings Limited that is a renowned name in manufacturing sheet metal
pressings and sub-assemblies. It is a major supplier to Tata Motors, John Deere,
Larsen & Toubro, LG Electronics, Whirlpool Corporation etc.
• Rajhans Pressings Private Limited that manufactures components for the automotive industry and precision sheet metal parts among others
• Metal and Pressings (MNP) that manufactures safety belts, power windows,
power looms etc
Railway containers
The railway containers market has been booming especially since 2006. This is
because the Indian Railways started allowing private participation in container
transportation in the year 2006 that led to the emergence of a large number of private train operators, and hence increased transport through railway containers. The
industry has been growing on the back of an increase in demand for custom built
containers for oil exploration, defence and space research etc.
New innovations leading to development of the industry
Containerised cargo transport is set to get cheaper bringing a whole new population
of small craftspeople and manufacturers into India’s export basket. Some innovations have also been made to further the growth of container transport through rail.
The Indian Railways is introducing double stack container trains for the first time
in the country and this will make India the second country in the world to run these
trains after North America. According to the Ministry of Railways in India, in the
15) Reference has been made to The Hindu Business Line (8th August 2007)
14
17. first phase, double stack containers will be introduced between the mainland and
the port. This has been seen as a welcome development. Hence, it is believed that
there will be a structural and developmental change in the container manufacturing
industry with the manufacture of double stack containers for railway traffic also.16
Joint ventures are being formed for container manufacturing
Due to more open trade regimes, there has been an increase in foreign participation
in this industry segment. The industry has witnessed several joint ventures of late.
For instance, Transafe Services Limited, a joint venture between Balmer Lawrie
and ICICI Venture, is setting up three container manufacturing plants in Kharag
pur in East India, Dharuhera in North India and Coimbatore, in South India. The
company, formerly known as Indian Container Leasing Company Ltd, has a total
production capacity of 300 containers per month, which will increase to 1 000
containers per month by 2010. The container manufacturing industry has potential
to grow and this can be seen from the growth rate of some of the companies in this
segment. Transafe Services Limited, for instance, registered a growth of 100 per cent
in the year 2006–2007.17
Euro-Asian land bridge can increase container traffic and hence production
The concept of Eurasian Land-Bridge, also known as the New Silk Road, received a
big boost recently when a freight train loaded with containers left Beijing for Hamburg on a 10 000 km long journey. The route is through China, Mongolia, along
the Trans-Siberia Rail route and then through Belarus and Poland finally reaching
Hamburg and in all, six national Railways are involved. This train will be twice as
fast as ocean going vessels. At the same time, the rail transportation will be cheaper
than airfreight for various types of cargos. It is believed that increased rail traffic of
this nature, may take place in India also, and thus this would increase the demand
for railway containers.18
16) Reference has also been made to The Times of India (24th October 2005)
17) Reference has been made to The Hindu Business Line (17th October 2007)
18) Reference has been made to The Hindu Business Line (21st January 2008)
15
18. Ship containers
The Government of India (GOI) is promoting ‘box trade’ in a big way. However
there are a number of challenges surrounding the same. The Light House Act which
was framed way back in 1927 has clauses that threaten to slow down the growth of
container trade on ships, thus also posing as a threat to thedemand for ship container manufacturing in India.19
DCM Hyundai Limited is one of the few large companies in India that manufactures marine freight containers on a large scale. The company is promoted by DCM
Shriram Industries Limited and Hyundai Mobis, Korea.
Low penetration and awareness in the industry
According to Mr. Anil Devli, Chairman, Container Shipping Lines Association
(CSLA), traditional Indian cargo has moved in general cargo vessels and in breakbulk forms, and containers began coming in India only in the 1980s. He adds that
there is a very low density of containerization and less awareness about containerized movement.20 Thus, since potential and awareness of ship containers is developing, the industry segment will witness an expansion of facilities for manufacturing
ship containers in India.
Demand for reefer containers is on the rise
Till a few months ago, there was large demand for containers due to the increase
in exports of Indian manufactured goods to the western countries. More recently,
there has been a drop in trade through containers due to the downturn of the American and European economies. However, according to Mr. G.K. Mukerjea, Managing Director and CEO, Transafe Services Limited, there is an increasing demand
for reefer containers in the industry. This is confirmed by the fact that there are a
large number of cold chains being launched in India.21
19) Reference has been made to The Economic Times (7th July 2007)
20) Reference has been made to The Economic Times (13th July 2008)
21) Reference has been made to Kharagpur News (25th October 2007)
16
19. Metal containers
The principal types of metal (tin) containers are food containers generally known
as OTS (Open Top Sanitary) cans and general line containers for packaging nonfood commodities such as paints, lubricants, pesticides, etc., ranging in size and
shape for packaging fruit pulps for institutional consumption etc. The production
of metal containers during 2006–2007 was 55 987 tonnes.
According to the Ministry of Commerce and Industry, there are 40 units manufacturing general line containers and OTS cans with an installed capacity of about
127 000 tonnes and 37 000 tonnes respectively. Besides, there are a large number of
units in the small scale sector mainly manufacturing oil containers. The metal (tin)
container industry has made significant technological advancements during the last
few years. Foreign technical collaborations in some cases have enabled the industry
to adopt newer technology, especially for manufacture of OTS cans.22
Safes and vaults
There are only a few large players in this market segment having all India presence,
the majority belonging to the small scale industry sector serving local markets.
Two large manufacturers are Gunnebo India Limited, a subsidiary of Gunnebo of
Sweden, and Godrej Industries, a large Indian business group having interests in
consumer durables, industrial equipment and security systems.
Godrej group is more than a hundred years old, having started way back in 1897
with launching of the first ever branded lock made by an Indian manufacturer. The
Godrej lock is still the market leader in India. Today, the Godrej group covers a wide
range of industry sectors. The group has a strong presence in the engineering sector
and is a premier manufacturer of products related to vaults, security doors and
safes, and security systems.
Gunnebo India Ltd, formerly known as Steelage Industries Ltd., was established in
1932 with the set up of its first manufacturing plant for physical security products
at Mazagaon in Mumbai, India. In 1999, the majority stake in the company was
acquired by Williams Plc, a leading international security group based in the UK.
Steelage Industries Ltd. then became an integral part of the Chubb Safes Group. In
March 2000, the Sweden based Gunnebo Group acquired the ChubbSafes business.
Gunnebo Group made a public offer for the remaining shares in Steelage Industries
22) Reference has been made to Ministry of Commerce and Industry (2008b)
17
20. Ltd. and at the end of 2005 the name of the company was changed to Gunnebo
India Ltd. The employee strength today stands at over 806 people spread across 14
branch offices located in all major towns and cities across India. It has three plants –
the oldest at Mazagaon in Mumbai, one at Ambattur near Chennai in the southern
state of Tamilnadu, and the new plant at Halol in Gujarat.
Railway coaches and wagons
Manufacture of railway coaches
Manufacture of passenger coaches in India began in 1955 with the establishment
of the Integral Coach Factory (ICF) in Perambur located in the state of Tamilnadu
in South India. ICF was set up with the collaboration of the Swiss Car and Elevator
Manufacturing Company of Schlieren, Switzerland. ICF, over the decades became
very successful in producing the signature integral design (under-frames, sidewalls,
and roof integrated to form a single tube structure) anti-telescopic coaches of
Indian Railways, in many different configurations. It now has a capacity of 1 000
coaches a year, maintains production capability for 170 different kinds of coaches,
and has thus far manufactured over 35 000 coaches for the Indian Railways.
In addition to coaches, ICF also produces diesel railcars, EMUs (Electrical Multiple
Units), DMUs (Diesel Multiple Units) and special purpose rail vehicles such as track
recording vehicles and overhead equipment monitoring vehicles. It has also exported
coaches to many countries including Myanmar, South Africa, Taiwan, Thailand,
Tanzania, Philippines and Vietnam.
Manufacture of railway wagons
Railway wagons are being manufactured in India for several decades both by public
and private sector companies. Indian Railways purchase wagons from four public
companies and six private sector companies. Indian Railways runs about 11 000
trains everyday including 7 000 passenger trains over a route length of over 63 000
km. Owning over 222 000 freight wagons, the Indian Railways buys a large number
of wagons every year, both for capacity expansion and replacing old assets. In 2007,
Indian Railways procured 10 200 wagons of various kinds.23
23) Reference has been made to Business Knowledge Resource Online (22nd July 2008). Also refer Viswanath
(13th March 2008)
18
21. Most of the wagon manufacturers were established by the British. Some of these
companies are Burn Standard Company, Braithwaite, Texmaco, Jessop & Company.
Hindustan Engineering and Industries Limited (HEIL) is one of the largest manufacturers of freight cars and wagons for transport of containers. Titagarh Wagon
Limited is a large manufacturer of wagons, bridges, prefabricated shelters and
other such fabricated metal products for railways and defence sectors. With private
players allowed entry into freight movement using Railways, and with the cost of
road transport increasing with the rising price of oil, there is a shift in favour of
rail transport and hence the railway wagon manufacturing industry is expected to
witness strong growth
Ship-building
India has a very large ship building industry. There are approximately 28 established
shipyards in the country. However, 10 shipyards dominate the industry, seven of
which are PSEs and the remaining 3 are privately owned. In the previous century
the industry has witnessed a decline, and at present, India builds very few vessels
for export and fulfils only 10 per cent of the needs of the shipping industry. A brief
profile of some of the ship building activities is given below.
Largest shipyards
Shipyard under the Ministry of Surface Transport – Cochin in South India has one
of the largest shipyards in India and also has some of the most advanced technologies for fabrication of metal products. The shipyard has a technical collaboration
with Mitsubishi Heavy Industries of Japan. The Cochin shipyard manufactures
ships and tankers for internationally renowned companies in Europe and Middle
East Asia. The shipyard has the distinction of having the largest hull fabrication
shop in India.
Shipyard under the Ministry of Defence – Mazagon Dock Limited (MDL), Mumbai,
is one of the leading shipbuilding and offshore fabrication yards in India, employing over 10 000 workers. After its takeover by the GOI in 1960, Mazagon Dock grew
rapidly to become the premier war-shipbuilding yard in India, producing sophisticated warships and offshore structures. It has grown from a single unit, small ship
repairing company into a multi-unit and multi-product company, with significant
rise in production, use of modern technology and sophistication of products. The
company’s current portfolio of designs spans a wide range of products for both domestic and overseas clients. The yard has designed and constructed surface comba-
19
22. tants, submarines, cargo vessels, tankers, tugs, dredges, and offshore structures. Steel
fabrication facilities include 600-ton rolls, latest technology welding systems, and
bending and shaping machines.
Privately owned shipyard – Larsen & Toubro Limited, India’s leading engineering,
technology and construction company, has created its shipbuilding facility at Hazira
in West India, to cater to the needs of growing global demand for construction of
specialized ocean-going-vessels.24
The shipbuilding facility recently set up for construction of high tech vessels and
the facilities at the shipyard include pre-fabrication facilities such as shot blasting
and priming , CNC cutting machine, semi panel line fabrication, unit assembly bay,
block assembly and a slipway to launch the vessels along with a jetty for outfitting
jobs for the ships under construction. The shipyard is geared up to take up construction of niche vessels such as specialized Heavy lift Cargo Vessels, CNG carriers,
chemical tankers, defence and paramilitary vessels and other role specific vessels.
Research and development
Not much is known publicly about the Research & Development (R&D) initiatives
being undertaken in the industry. Since the fabricated metal products industry is
characterized by a large number of small scale manufacturing units, it is expected
that the level of R&D in the industry is not sufficiently high. This is because the
SMEs in the industry have a poor technological base in many cases and do not have
the scale of production to be able to increase spend on R&D. From the perspective
of the SMEs, spending on R&D is risky because of the fast changing and dynamic
technological environment, and they find it difficult to continue spending on R&D
to cope up with world standards.
We believe that to overcome this challenge the Japanese model can be followed.
Japan relied on adoption of borrowed or imported technology rather than spending
on innovations. This strategy was coupled with reverse engineering, adaptation and
improvement of that technology. Having achieved a certain level of technological
development, Japan’s strategy was to allocate more resources to develop technologically advanced products, and thus close the gap with the large American companies
that had huge spends on R&D. India can also adopt this model in a cost effective
way, after further consolidation takes place to be able to develop more advanced
24)
Reference has been made to The Hindu Business Line (20th March 2007)
20
23. products rather than remain a largely low skill industry. For this an increasing number of foreign collaborations is required. A start has been made in this regard but it
is far from enough.
Future outlook
There are clear indications that India is beginning to get noticed and recognized as
a global strategic necessity. The global Original Equipment Manufacturers (OEMs)
and Tier I companies are increasingly appreciating the advantages of India’s open
market economy, its engineering and manufacturing skills as well as its ability to
handle global business. In view of the above, the market potential continues to grow
for the fabricated metal products industry. The future is undoubtedly contingent on
the growth of the automotive industry, machinery and equipment industry, electronic equipment industry and electrical machinery industry.
There is an increasing trend of consolidation. Several acquisitions, joint ventures
and tie-ups are taking place across industry segments. Expectedly, the route for consolidation will be through M&As where the smaller units that are unable to stand
the process of competition will ultimately sell up to the larger players in the market.
The entry of global majors in the industry to set up their manufacturing facilities is
only going to lead to an increase in the scale of consolidation of companies in the
industry. Technology, enhanced quality and competitiveness across segments have
been improving but there is a long way to go in this regard. Increasing threats from
other Asian countries such as China, Taiwan and Korea have led to an increase in
the levels of competency in the industry.
Very few Indian companies in the industry have a global view either due to their
small scale or due to the fact they want to tap the burgeoning domestic market. The
focus is largely on the domestic market. While the Indian companies will certainly
base their business decisions on the basis of expectation of demand in the Indian
market, the industry’s perspective on the export market is required to undergo a
transformation. Indian companies till now have lacked a thrust on exports. However, the emergence of a global market has led to a blurring of margins between
export and domestic markets.
A number of initiatives are being taken to enable the industry to grow and mature
at a fast rate. These include measures such as building technology leadership, increase in emphasis on diversified products, customer bases and markets, enhanced
21
24. cost competitiveness, provision of fiscal incentives and export promotion measures.
Against this background, India is also preparing to become a global hub for subcontracting in the industry. To sum up, a two pronged approach needs to be followed for growth of the industry. An increase in exports of fabricated metal products
is required along with an increase in production to satisfy domestic demand.
22
25. References
Association of Indian Forging Industry (3th August 2008), http://www.indianforging.org, Association
of Indian Forging Industry
Business Knowledge Resource Online (22nd July 2008), National level infrastructure –Railways,
www.business.gov.in, Business Knowledge Resource Online
Kharagpur News (25th October 2007), “Container manufacturing plant at Kharagpur”,
Kharagpur News
Luthra S, R Mangaleswaran and A Padhi (2008), When To Make India A Manufacturing Base,
McKinsey & Company
Ministry of Commerce and Industry (2008a), Review of Industrial Performance, Chapter 3,
Industrial Production, Ministry of Commerce and Industry
Ministry of Commerce and Industry (2008b), Annual Report (2007–2008), Department of Industrial
Policy and Promotion, New Delhi
The Economic Times (7th July 2007), “Container ship operators find light dues too taxing”,
The Economic Times
The Economic Times (13th July 2008), “There is no option to containerisation”, The Economic Times
The Hindu Business Line (1st May 2002), “World manufacturing employment: The continuing
paradox”, The Hindu Group of Publications
The Hindu Business Line (16th June 2008), “$200 billion export target difficult to meet: FICCI”,
The Hindu Group of Publications
The Hindu Business Line (7th March 2005), “FICCI moots cluster approach to improve labour
productivity”, The Hindu Group of Publications
The Hindu Business Line (12th May 2004), “Bharat Forge benefits from robust auto sales”,
The Hindu Group of Publications
The Hindu Business Line (26th September 2006), “Caparo opens fasteners plant”, The Hindu Group of
Publications
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26. The Hindu Business Line (22nd September 2005), “Bharat Forge buys Swedish co Imatra”,
The Hindu Group of Publications
The Hindu Business Line (21st January 2008), “Eurasian land bridge”, The Hindu Group of
Publications
The Hindu Business Line (17th October 2007), “Domestic container market poised to grow”,
The Hindu Group of Publications
The Hindu Business Line (8th August 2007), “Ranvik set to open 12 Cr unit in Pune”,
The Hindu Group of Publications
The Hindu Business Line (20th March 2007), “Shipbuilding sector order books full”,
The Hindu Group of Publications
The Times of India (24th October 2005), “Railway container rates to get cheaper”, Times News Network
Viswanath (13th March 2008), Indian Railways to invest INR 2.5 trillion for upgrading over the next 5
years, Machinist
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