A BRIEF OVERVIEW ON INDIAN MANUFACTURING INDUSTRY

A BRIEF OVERVIEW ON INDIAN MANUFACTURING INDUSTRY Prepared by: BDB India Private Limited Current state of the economy : Moderate recovery in FY 201...
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A BRIEF OVERVIEW ON INDIAN MANUFACTURING INDUSTRY

Prepared by: BDB India Private Limited

Current state of the economy : Moderate recovery in FY 2015 and beyond After achieving strong growth of over 9 per cent for three successive years between 2005-06 and 2007-08 and recovering swiftly from the global financial crisis of 2008-09, the Indian economy went through lacklustre times that culminated in lower than 5 per cent growth of GDP for two consecutive years, i.e. 2012-13 and 2013-14. Sub-5 per cent GDP growth for two years in succession was last witnessed a quarter of a century ago in 1986-87 and 198788! Happily, in 2014-15, the Indian economy has started showing signs of gradual improvement with business expectations, exports and industrial production recuperating. This more favourable outlook reflects stronger sentiment resulting from the new government’s promise to prioritize economic reforms and enhance the country’s business environment. Several decisive steps taken by the government like the industrial corridor development, 8,500 km road construction, 16 new ports, and broadened financing base, among others, aim to not only accelerate the pace of infrastructure growth, but also restore investors’ confidence. Industrial corridors are likely to be the primary drivers of India’s growth in manufacturing and urbanisation. This, coupled with allowing 49 per cent foreign direct investment (FDI) in the defence sector and other such incentives provided in the budget, shall definitely provide a fillip to the manufacturing sector. Infrastructure development, which is a key to bring back the strong growth momentum in the economy, received a boost when the Japanese government committed to invest 35 billion dollars over the next five years in India to build smart cities and finance infrastructure projects. Japan will also supply financial, technical and operational support to introduce bullet trains in India.

GDP related Indicators Data categories GDP (factor cost 2004-05 prices) Growth Rate GDP (current market prices) Growth Rate Per Capita Net National Income (factor cost at current prices)

Unit

2009-10

2010-11

2011-12

2012-13

2013-14

Billion INR

45160

49185

524753

548211

57417

%

8.6

8.9

6.7

4.5

4.7

Billion INR

64778

77841

900972

1011328

113550

%

15.1

20.2

15.7

12.2

12.3

INR

46249

54021

61855

67839

74380

Economic growth is likely to accelerate in the next fiscal as the reform process continues and begins to bear fruit. The GDP forecast for the next fiscal is driven by a partial unclogging of domestic policy logjam as well as improved global growth prospects. This, together with improved private consumption demand is likely to trigger a revival in industrial growth in 2014-15. Sectors such as consumer durables, automobiles and textiles will especially gain from this revival. The mining sector, which has been plagued by policy issues since July 2011, is also forecast to expand for the first time in three years. The mining ban on iron ore in Karnataka and Goa has already been lifted and mining growth will pick up, as firms obtain relevant clearances and resume operations. We believe that the recent momentum on resolving mining issues will continue into 2014-15 and will help address supply-side constraints for industries, particularly in the steel and power sectors. The integration of south India into the national power grid will help improve power availability for industries in the region. The government has already taken many steps (making funding easier for infrastructure sector, expediting approval process, de-bottlenecking the system, simplifying bureaucratic complexities, restoring confidence of the investors, etc) which can produce visible improvements over the next few quarters.

The external sector reportedly witnessed a remarkable turnaround after the first quarter of 2013-14, and the year ended with a CAD of 1.7 per cent of GDP as against 4.7 per cent in 2012-13. After plummeting to 68.36 to a US dollar on 28 August 2013, perhaps triggered by the expected taper of quantitative easing in the United States, the Indian Rupee gradually strengthened and the year ended with the exchange rate averaging 61 per US dollar in March 2014, owing to measures taken by the government and the Reserve Bank of India (RBI). Foreign exchange reserves increased by nearly US$ 40 billion from US$ 275 billion in early September 2013 to US$ 314.9 billion on 20 June 2014. These developments on external account have generated some optimism that the Indian economy is better prepared to confront the challenges of global policy reversals, including tapering of quantitative easing in the US. Improvement is also observed on the fiscal front, with the fiscal deficit declining from 5.7 per cent of GDP in 2011-12 to 4.9 per cent in 2012-13 and 4.5 per cent in 2013-14. Much of this improvement has been achieved by reduction in expenditure rather than from increased revenue. Nevertheless, the corrections in fiscal and current account deficits augur well for macroeconomic stabilization. The improvements in the twin deficits would, no doubt, feed into a higher growth in 2014-15, but the pace of recovery may be gradual. After reaching a low of 4.4 per cent during the last two quarters (Q3 and Q4) of 2012-13, growth inched up to 4.7 per cent in Q1 of 2013-14 and further to 5.2 per cent in Q2 of 2013-14, only to decline to 4.6 per cent in the next two quarters. The fact that this happened despite a gradual recovery in the global economy indicates the importance of addressing the domestic structural constraints that have engendered an undulating and gradual recovery.

Key structural bottlenecks to be addressed for growth •

Difficulties in taking quick decisions on project proposals have affected the ease of doing business. This has resulted in considerable project delays and insufficient complementary investments.



Ill-targeted subsidies cramp the fiscal space for public investment and distort allocation of resources.



Low manufacturing base, especially of capital goods, and low value addition in manufacturing. Manufacturing growth and exports could be facilitated with simplified procedures, easy credit, and reduced transaction cost.



Presence of a large informal sector and inadequate labour absorption in the formal sector. Absence of required skills is considered an important reason.



Sustaining high economic growth is difficult without robust agricultural growth. Low agricultural productivity is hampering this.



Structural factors engendering continued high food inflation need to be tackled. Issues related to significant presence of intermediaries in the different tiers of marketing, shortage of storage and processing infrastructure, inter-state movement of agricultural produce, etc. need to be addressed.

2014 - 2015 (FY 2015) : The year of recovery

Overall inflation to moderate as food and fuel inflation decline

Higher GDP growth will lift tax revenues supporting lower fiscal deficit as a % of GDP for FY 2015

Inflation (WPI) (average)

Higher import growth due to removal of restrictions on Gold imports and increased consumption, will widen CAB Current account balance (%)

Gross Fiscal Deficit 5.7

9.6

4.8

8.9 7.4

6.2

4.9

4.9

4.5

2011-12

2012-13

2013-14

2014-15

6 -2.0 -3.0

2010-11 2011-12 2012-13 2013-14 2014-15

2010-11 2011-12 2012-13 2013-14 2014-15

-4.2

-4.7

Steps taken by the new government to revive Infrastructure growth Government has cleared 100% FDI in railways except for operations and 49 per cent foreign direct investment (FDI) in the defence sector. Banks permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and PSL. Long term funding will be readily available as banks are in a much better position to mobilize resources. Proposal to create Infrastructure Investment Trusts with pass through benefits, which will make easier monetization of investments in existing projects and raising resources for new projects. Sixteen new port projects proposed with a focus on port connectivity. An amount of Rs 116 Bn will be allocated for the development of Outer Harbour Project in Tuticorin. Effective steps will be taken to operationalize the SEZ s. Development of new airports in Tier I and Tier II cities through Airports Authority of India or through PPPs. Development of inland waterways. ‘Jal Marg Vikas’ (National Waterways-I) will be developed between Allahabad and Haldia to cover a distance of 1620 kms at cost of Rs 42 Bn in 6 years. REITs would attract long term finance from foreign and domestic sources and reduce the pressure on the banking system while also making available fresh equity. To encourage development of Smart Cities, requirement of the built up area and capital conditions for FDI is being reduced from 50,000 Sqm to 20,000 Sqm and from $10 mn to $5 mn respectively with a three year post completion lock in. Measures for enhancing domestic coal production are being put in place including supply of crushed coal and setting up of washeries. Exercise to rationalize coal linkages which will optimize transport of coal and reduce cost of power is underway.

Government will work also towards encouraging investments in mining and resolving issues in iron ore mining. The government will allow online submission of applications for environmental clearances and forest clearances.

Sectoral growth rates Aided by favourable monsoons, the agriculture and allied sectors achieved a growth of 4.7 per cent in 2013-14, compared to its long-run average of around 3 per cent (between 1999-2000 and 2012-13). After registering an average growth of 7.1 per cent in coal production during the four-year period 2006-07 to 2009-10 the, the coal production growth declined to an average of 1.6 per cent during the 2007-08 and 2013-14, partly owing to regulatory issues. The compounded annual growth rate (CAGR) of crude petroleum was 1.2 per cent during 2004-05 to 2013-14. As coal & petroleum are universal intermediates, the slack in their production impacted the economy adversely. Contraction of 12.2 per cent in the consumer durables segment was observed in 2013-14. Only intermediate and non-durable consumer goods registered higher growth rate in 2013-14 vis-à-vis 2012-13. Following close to double-digit growth between 2004-05 and 2011-12, construction sector lost momentum in the last two years. In the case of manufacturing, most of the gain in share occurred during 200405 to 2007-08, when the sector was growing at an annual average rate exceeding 10 per cent, along with robust growth in corporate profits, savings, and investment. Activity was buoyant in registered manufacturing, while the share of unregistered manufacturing remained unchanged during the four years ending 2007-08. During 2008-09 to 2012-13, the share of manufacturing remained roughly constant despite an increase in share of the registered segment, as unregistered manufacturing recorded an average annual growth of only 3.4 per cent.

In the absence of sufficiently high growth in agriculture and industry, services would be seriously constrained to sustain growth acceleration on auto-pilot mode since many of the services are dependent on buoyancy in the commodity-producing sectors, especially industry. Growth in GDP at Factor Cost at Constant (2004-05) Prices (per cent) Sector

2007-2008

2008-2009

2009-2010

2010-2011

2011-12

2012-13

2013-14

Agriculture, forestry,& fishing

5.8

0.1

0.8

8.6

5

1.4

4.7

Mining & quarrying

3.7

2.1

5.9

6.5

0.1

-2.2

-1.4

Manufacturing

10.3

4.3

11.3

8.9

7.4

1.1

-0.7

Electricity, gas, water supply

8.3

4.6

6.2

5.3

8.4

2.3

5.9

Construction

10.8

5.3

6.7

5.7

10.8

1.1

1.6

10.9

7.5

10.4

12.2

4.3

5.1

3

12

12

9.7

10

11.3

10.9

12.9

Community, social & personal services

6.9

12.5

11.7

4.2

4.9

5.3

5.6

GDP at factor cost

9.3

6.7

8.6

8.9

6.7

4.5

4.7

Trade, hotels, transport, storage, communication Financing, insurance, real estate & business services

Industrial performance Post 2008-09, the industrial sector, consisting of manufacturing, mining, electricity and construction, showed remarkable recovery and steady growth for three years. But, industrial performance in 2013-14 remained lacklustre for the second successive year. There is no denying that industrial revival needs new initiatives to emulate the peak growth achieved in the recent past. It will be interesting to meet the projected Twelfth Plan targets of 10 per cent for the manufacturing sector and 5.7 per cent for the mining sector in the remaining three years!

Promote Structural Changes in Manufacturing in the Medium Term Indian industry has the potential for further strengthening the agro-processing, textiles and garments, leather and footwear sectors with good prospects for sustained employment generation. But the medium-term challenge for Indian manufacturing is to move from lower to higher-tech sectors, from lower to higher value added sectors, and from lower to higher productivity sectors. Medium-tech industries are primarily capital intensive and resource processing and high-tech industries are mainly capital and technology intensive. In order to push the share of manufacturing in overall GDP to the projected 25 per cent, Indian manufacturing need to capture the global market in sectors showing a rising trend in demand. These sectors are largely high technology and capital intensive. Such hightech industries may perform a less important role in sustaining employment but are critical for capital accumulation and skills development and for improving the knowledge base. To gain a firm footing in these sectors, the policy thrust should be on pushing up the level of public and private expenditure on technology up gradation, research and development, innovation, and skill development. Comparative Picture of Global Manufacturing Peers (2011)

Note: MHT: Medium and high technology manufacturing

Outlook for the industrial sector The near-term industrial upturn sentiment is surely upbeat due to the continued improvements in the policy environment and hopefully a quick return to peak investment rates. With the improvement in overall macroeconomic environment, industry is expected to revive and growth can accelerate gradually over the next two years. Indicators for the first three months of the current financial year for power generation and production of cement, steel, fertilizers, and coal reveal definite improvement. Railways freight earnings and exports have also picked up raising hopes of increased industrial activity in the coming months. The index of eight core infrastructural supporting industries registered a growth of 4.2 per cent in April 2014 as compared to 3.7 per cent growth recorded in April 2013. Further IIP-based overall industrial growth was 3.4 per cent in April 2014 as compared to the 1.5 per cent growth recorded in April 2013. The GDP forecast for FY 2015 at 5.8% and industry GDP growth of 4.0% is driven by a partial unclogging of domestic policy logjam as well as improved global growth prospects. This, together with improved private consumption demand, will trigger a mild revival in industrial growth to 4% in 2014-15. Progress in Implementation of the National Manufacturing Policy and Industrial Corridors The Government of India had notified a National Manufacturing Policy (NMP) vide Press Note dated 4 November 2011 with the objective of enhancing the share of manufacturing in GDP to 25 per cent and creating 100 million jobs over a decade. The Policy specially focuses on industries that are employment intensive, produce capital goods, have strategic significance, and where India enjoys a competitive advantage besides small and medium enterprises and publicsector enterprises. The NMP provides for promotion of clusters and aggregation, especially through the creation of national investment and manufacturing zones (NIMZ). Till 2013-14, 16 NIMZs had been announced.

Of these, eight are along the Delhi-Mumbai Industrial Corridor (DMIC). Eight other NIMZs have been given in-principle approval: (i)Nagpur in Maharashtra, (ii) Chittoor in Andhra Pradesh, (iii) Medak in Andhra Pradesh (now Telengana), (iv) Prakasam in Andhra Pradesh, (v) Tumkur in Karnataka, (vi) Kolar in Karnataka, (vii) Bidar in Karnataka, and (viii) Gulbarga in Karnataka. Delhi-Mumbai Industrial Corridor (DMIC) DMIC project was launched in pursuance of a memorandum of understanding (MOU) signed between the Government of India and the Government of Japan in December 2006. The project, spanning the states of Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh, Gujarat, and Maharashtra along the Western Dedicated Freight Corridor (DFC) of the Railways, seeks to leverage the connectivity backbone provided by the DFC to create a strong economic base with a globally competitive environment and state-of-the-art infrastructure to activate local commerce, enhance investment, and attain sustainable development. The DMIC Development Corporation (DMICDC), incorporated in 2008, is the implementing agency for the project. The Japanese government had also reportedly announced financial support of US $ 4.5 billion for the project in the first phase with Japanese participation involving cutting-edge technology. The Master plans for all the nodes except the Dadri-Noida-Ghaziabad Investment Region in Uttar Pradesh have been completed and approved by the state governments. Land acquisition for the new industrial regions/ areas as well as for the early bird projects identified for development as model initiatives is in different stages of progress in different states. The DMIC Trust has taken investment decisions on nine projects and action to implement them has already been initiated by the DMICDC. (ii) Chennai - Bangalore Industrial Corridor (CBIC)the Chennai-Bengaluru Chitradurga industrial corridor (around 560 km) will benefit the states of Karnataka, Andhra Pradesh and Tamil Nadu.

The Japan International Cooperation Agency (JICA) Study Team undertook the Preliminary Study for Comprehensive Integrated Master Plan for ChennaiBengaluru Industrial Corridor (CBIC) and identified a total of 25 priority projects across various sectors aimed at removing infrastructural bottlenecks. Progress on these projects is being regularly monitored. (iii) Bengaluru - Mumbai Economic Corridor (BMEC) India and the United Kingdom have signed an MOU for the development of a new Bengaluru Mumbai Economic Corridor (BMEC). A feasibility study has evidently been undertaken by the consultants and is scheduled to be completed during 2014. A joint steering group will be set up for the project after the feasibility study. (iv) East Coast Economic Corridor (ECEC) including Vizag - Chennai Industrial Corridor (VCIC). A concept note is understood to have been prepared by the Asian Development Bank (ADB) on an East Coast Economic Corridor linking Kolkata - Chennai -Tuticorin and it has been decided to initiate a feasibility study with the help of the ADB. In view of the commitment made by the central government under the Andhra Pradesh Reorganisation Act 2014, in the first phase of the study, the ADB will focus on the Vizag - Chennai Section so that a final view on the Chennai - Vizag Industrial Corridor may be taken within the timeline prescribed in the Act and further action taken accordingly. (v) Amritsar-Kolkata Industrial Corridor (AKIC) : The government has, in January 2014, accorded in principle approval for setting up of an Amritsar - Kolkata Industrial Corridor (AKIC) along a 150-200 km band on either side of the Eastern Dedicated Freight Corridor (EDFC) in a phased manner. The proposed Corridor comprises seven states : Punjab, Haryana, Uttarakhand, Uttar Pradesh, Bihar, Jharkhand and West Bengal. The government has also believed to have approved in principle formation of an Amritsar- Kolkata Industrial Corridor Development Corporation (AKICDC). It is proposed to set up the AKICDC during 2014-15 to kick-start work on the AKIC.

Highlights of Automobile, Construction equipment & Heavy engineering sectors Automobile sector : The total automobile production during the year stood at 20,649,811 units, which marked a 4% increase in comparison with the production during 201213. Exports went up by 7% at 3,107,893 units during 2013-14 against 2,898,907 units exported during 2012-13.

Two Wheeler production increased by 7% during FY 2013-14 as against FY 201213 while passenger vehicle production decreased by 4.9%. The financial year 2013-14 also witnessed considerable reduction in Commercial Vehicle Production by 16%. The total domestic sales for 2013-14 recorded 4% growth at 18,421,538 units against 17,793,701 units sold during 2012-13. Two Wheeler Domestic Sales recorded positive growth of 7% in FY 13-14 against FY 12-13 while Passenger Vehicle sales fell by 6%. Commercial Vehicle sales registered 20% de-growth while three wheeler sales fell by 11%. The total exports for the FY 2013-14 registered 3,107,893 units against 2,898,907 units sold during FY 2012-13, marking 7% growth. Three wheeler exports recorded a healthy growth of 17% in FY 2013-14 while two wheeler segment registered 7% growth. Passenger Vehicle exports stood 6% higher as Commercial Vehicle sales declined by 4%.

Passenger Vehicles: Surge in mini car segment volumes and volume contribution of new models support volume growth in June 2014 In June 2014, the domestic passenger vehicle (PV) industry sales volumes at 218,828 units recorded a growth of 11.2% YoY, a reasonably strong performance considering the persistent weakness in demand that has weighed on industry growth in the last three years. The last time the industry had experienced double-digit volume growth was in the month of October 2012. Two Wheelers: Scooter sales volumes maintain strong growth in June 2014; motorcycles volumes too show healthy traction across sub-segments In 2013-14, the domestic two-wheeler (2W) industry had recorded sales volumes of 14.8 million units, a growth of 7.3% over the previous year. With growth of 13.0% YoY, the month of June 2014 marked eleven consecutive months of positive volume growth for the industry, unlike various other automobile segments. The industry’s growth in June 2014 was supported by continued robust demand for scooters. Accounting for 25.6% of 2W industry volumes (in June 2014), scooter volumes expanded by a robust 25.2% YoY in June 2014. Commercial Vehicles : Green shoots emerging as M&HCVs sales grow 2.5%; overall market growth however remains in the negative zone on weak LCV demand After witnessing over two successive years of contraction in unit sales, the Commercial Vehicle (CV) industry is now showing some signs of recovery, especially in the medium & heavy duty truck segment, which has borne the brunt of economic slowdown. Although the industry volumes as a whole continue to be in the negative territory, the M&HCV segment (7.5- 49T) has started showing a recovery with growth of 2.5% YoY in June 2014. Within the segment, HCV (16.2t+) sales have been growing steadily for past three months and registered an overall growth of 9.3% in Q1 2014-15. The recent trend in improvement in freight rates across key routes, expectations of pick-up in investments in infrastructure as well as manufacturing space along with renewal of mining activities in some parts of the country suggest that the down cycle in M&HCVs has bottomed out.

Tractors : After weak April and May, growth rate recovers somewhat in Jun 2014 Volumes in domestic tractor market expanded by a moderate 5.5% YoY in June 2014; a significant improvement on the 10% decline witnessed in April 2014, and the flat sales growth in May 2014. Apart from high base of last year, sentiments in the farming community have been tempered by unseasonal hail and rainfall during February 14/ March 14 and significantly weak rainfall during June 2014. Non-agri pull has also remained subdued with no significant pickup in pace of infrastructure and construction activity. There has however been an improvement in tractor exports from India in June 2014 (29.1% YoY growth) as well as Q1 2014-15 (21.7% YoY growth), which comes on the heels of a volume contraction of, 10.8% In 2012-13 and 0.7% in 2013-14. Three-Wheelers : Domestic three wheeler segment registers a growth 11.7% in Q1 2014-15 compared to a decline of 10.9% in 2013-14 In 2013-14, the domestic three-wheeler industry volumes had contracted by 10.9% over the prior year largely due to drop in passenger segment volumes, which accounts for majority (80%) of the three-wheeler sales in India. The drop in volumes was caused by lower demand from key metros owing to lower permits on offer during the year. This trend has reversed in the current year with growth coming back in the segment. During Q1 2014-15, domestic threewheeler volumes have grown by 11.7% YoY on the back of fresh permits being issued by various states and improving demand for goods carriers. Construction and material handling equipment sector The fiscal year, 2013-14 experienced a host of uncertainties and challenges. The slowdown in economic growth coupled with high inflationary pressure has been taking its toll on the macroeconomic environment. Major projects have reportedly remained stuck in policy paralysis over green clearances and land acquisition. The roads and highways sector found little interest among private players and large sections were cancelled on account of policy confusion and stressed financials of developers.

Owing to the perceived policy deadlock, the mining sector seemed on contraction mode for most of the year and construction activities had come to a near standstill. With the new government according top priority to the infrastructure sector, we believe the infrastructure sector is on the cusp of a turn-around. The government has already taken many steps which are likely to show visible improvement over the next few quarters. Developing infrastructure is high on the Government’s agenda and there is hope that decision making will be hastened and rules simplified to create an enabling environment for big projects. Considering the extent of development required, India will have to fast track efforts to effectively translate today’s potential into tomorrow’s reality. The benefits of an increased demand for construction, mining, power, material handling equipment and equipment and project solutions will naturally reflect in the better performance of the sector in 2015.

India's construction equipment market has outpaced global growth trends with the market estimated at INR 208.4 bn for 2012. Revenue is expected to reach INR 461.5 bn by 2016, at a CAGR of 20.5 per cent. India is becoming important on the global stage as key players shift their production bases to our part of the world, to drive revenue by benefitting from the region's growing infrastructure investment, favorable government policies and mass-scale domestic markets. The Indian construction equipment sector is made up of five main segments : earthmoving equipment, road construction equipment, concrete equipment, material handling equipment and material processing equipment.

Concrete equipment is the second largest segment with a market share of approximately 14 per cent. It comprises asphalt finishers, transit mixers, concrete pumps and batching plants. Material handling equipment and material processing equipment probably account for 10 per cent and 6 per cent of the market respectively. Cranes must be the largest category within the material handling equipment. Heavy engineering sector India has been one of the fastest growing economies in the world over the last decade. During this period manufacturing sector has exhibited a growth rate of ~7%, and has been a strong contributor to overall GDP growth. However GDP contribution of manufacturing at ~15% is still low when compared to other developing countries. This promises a significant upside for manufacturing in the coming decades, provided the fundamental enablers to create a vibrant manufacturing ecosystem are in place. Capital goods can be divided into nine broad sub-sectors viz. heavy electrical equipment, engineering goods, process plant equipment, earth moving equipment, dies, moulds and tools, textile machinery, machine tools, metallurgical machinery and plastic processing machinery. It is a large and diverse sector in India with a market size of INR 3, 500 Bn in FY 2014 and a domestic production of INR 2, 680 Bn. It contributes ~12% to total manufacturing activity which translates to about 1.8% of GDP. Among these sub-sectors, heavy electrical equipment and engineering goods are the largest and fastest growing sub-sectors with a market size of INR 1250 Bn and INR 1200 Bn respectively; together they constitute ~ 75% of capital goods market in India. Labour intensity varies across the sub sectors with plastic machinery and textile machinery being the most labour intensive. Imports today address ~30% of domestic demand for capital goods with the proportion being significantly higher in "critical components" segment for each sub-sector. Earth moving equipment, machine tools and metallurgical

machinery are sub-sectors that are particularly weak in self-reliance with more than half of the demand being met by imports. Imports grew their share in meeting the domestic demand over time. On an average imports grew faster than the market for every capital goods subsector, barring metallurgical machinery and dies, moulds & tools, for the period 2005-11. Overall, Indian exports grew at a health rate of ~13%. Among the sub-sectors, heavy electrical equipment and engineering goods drove exports, recording export revenues of INR ~200 Bn and export growth rates of ~18% per annum and ~13% per annum respectively over the last plan period.

However, Indian share in global exports is still low, ranging between 0.1% and 0.6%, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7% and 16.3% depending on sub sector. India is fast moving from exporting low-value goods to developing countries to exporting high-value goods to developed countries. With development in associated sectors such as automotive, industrial goods and infrastructure, coupled with a well-developed technical human resources pool, engineering exports are expected to touch grow by 12-15% by 2017.