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A Study On

Engineering Exports Of Gujarat

by:

Pramesh Nair & Bright Singh


Post Graduate Diploma in International Trade, Ahmedabad Management Association

Under the Guidance of:

Dr. R. Chandran

GoG-AMA Centre for International Trade

CHAPTER I Engineering industry in general


Market Overview Robust Growth Competitive Advantage Factor Conditions Profile of Heavy and Light Engineering segments Future Outlook

CHAPTER II
Progress and Prospects of Indian Engineering Goods Exports Introduction Distinctive contribution to the export effort Item wise distribution or composition Destination of Indian engineering exports Engineering Services The Eye of opportunity Problems of engineering exports Strategy for Export Promotion Conclusions and suggestions

CHAPTER III
Augmentation of Engineering Industries in Gujarat Introduction The Growth of Engineering Industry Factors responsible for the growth of Engineering Industry Doing business in Gujarat Areas of Concern

CHAPTER IV
Conclusion

BIBLIOGRAPHY

CHAPTER - I ENGINEERING INDUSTRY IN GENERAL


MARKET OVERVIEW The engineering sector is the largest segment of Indian Industry The engineering sector is the largest segment of the overall Indian industrial sector. India has a strong engineering and capital goods base. The important groups within the engineering industry include machinery & instruments, primary and semi finished iron & steel, steel bars & rods, non-ferrous metals, electronic goods and project exports. The engineering sector employs over 4 million skilled and semi-skilled workers (direct and indirect). The sector can be categorized into heavy engineering and light engineering segments. Heavy engineering segment forms the majority of the engineering sector in India. In the year 2003-04, out of the total engineering production of US$ 22 billion, the heavy engineering market contributed over 80 per cent with the light engineering segment accounting for the remaining. India has a well-developed and diversified industrial machinery/capital base capable of manufacturing the entire range of industrial machinery. The industry has also managed to successfully develop advanced manufacturing technology over the years. Among the developing countries, India is a major exporter of heavy and light engineering goods, producing a wide range of items. The bulk of capital goods required for power projects, fertilizer, cement, steel and petrochemical plants and mining equipment are made in India. The country also makes construction machinery, equipment for irrigation projects, diesel engines, tractors, transport vehicles, cotton textile and sugar mill machinery. The engineering industry has shown capacity to manufacture large-size plants and equipment for various sectors like power, fertilizer and cement. Lately, air pollution control equipment is also being made in the country. The heavy electrical industry in India meets the entire domestic demand. A large number of multinational companies like Cummins, Alfa Laval, Sandwik Asia, etc. have also entered the engineering industry in India.

The heavy and light engineering segments in this sector can be further classified as shown in the table. As the sector demands a high level of capability and investment, it is dominated by large organized players.

Heavy Engineering Industry


Industry segment No. of organized players Cement machinery 18 Sugar machinery 27 Rubber machinery 19 Metallurgical machinery 39 Machine tool 125 Material handling equipment 50 Mining machinery 32 Dairy machinery 16 Light Engineering industry Welded steel pipes & tubes 123 Process control instrument 26 Antifriction roller bearing 19 Plain paper copier 12 This industry comprises multinational companies, joint ventures, large domestic players, regional players in the organized sector and large number of small players in the unorganized sector. Some unorganized players also exist at lower levels where the technology required is very basic. Public sector enterprises play an important role in the heavy engineering sector in India. There are 34 public sector enterprises in this segment. THE ENGINEERING SECTOR IS EXPERIENCING ROBUST GROWTH Domestic performance The Indian engineering industry has emerged as a dynamic sector in the countrys industrial economy and has made the country self reliant in key areas. The total production of the Indian engineering industry was approximately US$ 22 billion in 2004. The performance of the engineering sector is linked to the performance of the end user industries for this sector. The user industries for engineering include power utilities, industrial majors (refining, automotive and textiles), government (public investment) and retail consumers (pumps and motors). The 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 production of industrial machinery increased from US$ 192 million in April September 2003-04 to US$ 256 million in April September in 2004-05. The production of machine tools increased from US$ 231.9 million 4

in April September 2003-04 to US$ 256 million in April September in 2004-05. Many factors contribute to growth of engineering sector in India. The key growth drivers are: The growth of the key end user sectors in India. For example, the domestic sales of automobiles have grown at the compounded annual growth rate of around 14 per cent over the past four year. Governments emphasis on power and construction sector has increased for the past few years and thus increasing the demand for capital goods. Further, India is being preferred by global manufacturing companies as an outsourcing destination due to its lower labour cost and better designing capabilities. Engineering companies thus have a huge potential for direct exports and outsourcing.

Indian engineering goods are gaining acceptance in overseas markets Engineering exports crossed the US$ 10 billion mark in 2003-04, up 28.33 per cent over the previous year. The engineering sector accounted for 14 per cent of the countrys total exports. The nature of Indian engineering exports is also changing with time. India is moving from low-value goods exported to developing countries to sophisticated goods targeted at developed countries. Capital goods now account for 26 per cent of total engineering exports. The engineering exports to the European Union countries accounted for 15 per cent and to North America accounted for 14 per cent in 2004. Engineering goods worth US$ 1.34 billion were exported to USA alone in 2003-04. Germany, known for its engineering capability, imported engineering goods worth US$ 400 million from India in 2004. Engineering exports to UK, Netherlands and France are also on the rise. A key driver for increased engineering exports is the trend towards shifting of global manufacturing bases to low cost countries like India. This trend is expected to boost exports of engineering goods from India over the next five years. According to Engineering Exports Promotion Council (EEPC), engineering exports could touch US$ 30 billion by 2008-09. In such a scenario, India, driven by the engineering sector, would emerge as a key global manufacturing hub. COMPETITIVE ADVANTAGE Indias competitiveness in engineering industry can be assessed through following chart:

FACTOR CONDITIONS Among developing countries, India offers the best combination of low costs, availability and skills and capabilities of manpower for the engineering sector. In terms of availability and skills, India produces over 500 PhDs, 200,000 engineers, 300,000 non-engineering postgraduates and 2,100,000 other graduates each year, thereby ensuring a steady supply of qualified manpower for the sector. India also has a significant labour cost advantage over other countries, as shown in the figure below:

Several companies in the engineering sector have leveraged Indias advantages in labour effectively. In order to leverage Indias intrinsic technology strengths and the vast pool of highly qualified software professionals, ABB has set up a global corporate R&D centre in Bangalore, which focuses on industrial IT development and deployment. It also helps maintain and support a range of software intensive products and partners with the ABB R&D centers as well as business areas within the group. This was the first such centre to be established outside the US and Europe. The combination of ABBs global know-how and Indias highly qualified people enables the Indian subsidiary to produce world-class products. The Indian subsidiary is a global factory for high voltage 72.5 KV circuit breakers, medium voltage outdoor circuit breakers and magnetic actuators. It also exports several other products including transformers. Cummins, taking advantage of Indias technical know-how has opened a new R&D centre in Pune, Cummins Research & Technology India Pvt. Ltd., which would offer engineering design and analysis capabilities for the companys technical centres worldwide.

Apart from skilled labour, India also has the raw material resources to meet the demands of the engineering industry. Key raw materials required by the engineering sector - ferrous and non-ferrous metals such as mild steel and aluminium are available in India. Ready availability of these materials gives India a major cost advantage, as materials account for nearly 50 per cent of the industrys operating costs. Competitive industry with well developed capabilities The Indian engineering industry is highly competitive with a number of players in each segment. A large number of multinational companies such as Cummins, ABB and Alfa Laval have also entered the industry. The intense competition has led to Indian players developing improved capabilities that have made them more competitive. Companies have become more quality conscious and upgraded their technology base, besides diversifying their manufacturing range in tune with global market requirements. For example, more than 2500 firms in the engineering sector in different areas such as casting and forging, automobile parts, machine tools, electrical machinery, pumps, textile machinery, etc. to name a few, have acquired ISO 9000 accreditation. Other areas where firms are becoming more competitive include R&D, Product Development and Service. This has resulted in MNCs increasingly leveraging their Indian arms to support their global operations. 7

Growing demand The user industries of engineering products and services include power utilities, industrial majors automotive and textiles), government (public investment) and retail consumers (pumps and motors). performance of the engineering sector is linked to the industry which in turns depends on the overall Capacity creation in sectors like infrastructure, power, mining, oil & gas, refinery, steel, automotive, durables drives the engineering industry. (refining, Thus, the economy. consumer

Industrial growth (measured in terms of the Index of Industrial Production) recorded a rate of 7.9 per cent during the April September 2004-05 compared with 6.2 per cent during the same period the previous year. Sectors such as automotive and textiles have benefited from the changing demographic profile of the Indian consumer. Key demographic changes include: Increasing income levels and greater propensity to spend. Lifestyle changes, driven by trends like increase in nuclear families, working women and exposure to global trends. These changes have been driving consumption in end-user sectors such as consumer durables. This, in turn, has facilitated growth in the engineering sector.

Related and supporting industries The presence of supporting industries provides a conducive environment for the engineering sector to grow and prosper. Indias engineering industry has significant support from Indias well-established IT sector, as well as institutions of higher education. India has a well-developed technical and tertiary education infrastructure of over 250 universities, 1500 research institutions and over 10,000 higher education centers, which support the engineering sector not only by supplying a steady stream of qualified manpower, but also in areas of research and development. India has a well-developed vendor base for supporting engineering industries. Industries such as machine tools, textile machinery, auto components, etc., provide ample support to the engineering sector. Some of these sectors have developed global capabilities and help the engineering sector achieve global competitiveness. PROFILE OF HEAVY AND LIGHT ENGINEERING SEGMENTS Heavy Engineering Industry Capabilities / capacities of Indian manufacturers Heavy Electrical Industry Large electrical equipment used in steel plants, petrochemical complexes and other such heavy industries are being manufactured in the country. Turbines & Generator Sets Capacity established for manufacture of various kinds of turbines such as steam & hydro turbines including industrial turbines is more than 7000 MW per annum. Boilers Indian industry is continuously upgrading their technology and is introducing better products. Switchgear and Control The entire range of circuit 8

Gear breakers from bulk oil, minimum oil, air blast, vacuum is manufactured in India to standard specifications. Textile Machinery Industry It has a capital investment of US$ 326 million (Rs.15000 million) and an installed capacity of US$ 653 million (Rs.30000 million) per annum. Approximately 120 companies manufacture a complete range of textile machinery in India. Cement Machinery Industry The industry is fully capable of meeting the domestic demand of cement machinery. The value of the existing installed capacity has been estimated at US$ 130.5 million (Rs 6000 million) per annum. Sugar Machinery Industry Installed capacity of US$ 43.5 million (INR 2000 million) to manufacture complete sugar plants and components Rubber Machinery Industry There are at present 19 units in the organised sector for the manufacture of rubber machinery mainly required for tyre / tube industry. Material Handling There are 50 units in the organized sector for Equipment the manufacture of material handling equipment. Metallurgical Machinery At present there are 39 units in the organized sector engaged in the manufacture of various types of metallurgical machinery. Mining Machinery At present there are 32 manufacturers in the organized sector both in public and private sector for underground and surface mining equipment of various types. Out of the 32, there are 17 units manufacturing underground mining equipment. Dairy Machinery Industry At present there are 16 units manufacturing dairy machinery and equipment in the organized sector, both in private and public sectors. Machine Tool Industry There are around 125 machine tool manufacturers in the organized sector as also around 300 units in the small ancillary sector. Light Engineering Industry Capabilities/capacities of Indian manufacturers Welded Steel Pipes & There are currently 123 units engaged in the Tubes manufacture of welded steel pipes & tubes in the organized sector. There is adequate capacity of the manufacture of these types of pipes & tubes. Process Control Instrument There are 26 units in the organized sector manufacturing process control instruments & systems, out of which seven units are capable of taking up complete turn key projects for the entire instrumentation system including software required by process industries. The industry is in a position to meet approximately two-thirds of the countrys demand. Medical & Surgical Indigenous manufacturers are currently Equipment in a position to manufacture a wide variety of electro-medical equipments such as electrocardiograph (ECG machine), X-rays scanner, CT scanner, short-wave physiotherapy unit, electro surgical units, 9

blood chemistry analyzer etc. The indigenous industry is capable of supplying about 40 per cent of the demand and the rest is met by imports. Industrial Fasteners Industrial fasteners cover high tensile and mild steel bolts, nuts, screws, studs and pins. All types of fasteners except high tensile and special type fasteners are reserved for SSI Sector. Industrial Gears The Industry is de-licensed as per the current Industrial Licensing Policy and is eligible for automatic approval for Foreign Direct Investment. Antifriction Roller Bearing The Indian bearing industry has grown rapidly during the last few years. Today the industry is meeting around 70 per cent of its demand for common varieties and sizes of bearings while rest is being imported. At present there are 19 units in the organized sector manufacturing both ball and roller bearings. The industry has established a highly diversified product range of around 500 types of bearings. Plain Paper Copier There are, presently, 12 units manufacturing plain paper copiers. The major manufacturers have technical collaboration with reputed foreign companies. Sewing Machine The major source of production of sewing machines in the country is from small scale sector as manufacture of conventional hand operated sewing machine is reserved for this sector. The demand for conventional domestic machines is being fully met indigenously. The industry has potential to undertake export to developing countries. Bicycle Industry The bicycle industry is mostly in the small scale sector. Large-scale units have been permitted to manufacture bicycle frames, chains and rims for captive consumption only. The bicycle manufacturing is an established industry in the country with well accepted quality standards in the international market. The export for the year 2001-02 was to the tune of US$ 33.9 million (Rs 1620 million) and import was negligible. Steel Forgings This industry is well established in the country having modern manufacturing facilities. Besides meeting the requirement of domestic market, it is well established in export market also. FUTURE OUTLOOK The engineering sectors future outlook is promising. Drivers like infrastructure development, industrial growth and favourable policy regulations will ensure growth in manufacturing. Emerging trends such as outsourcing of engineering services can provide new opportunities for quantum growth. Engineering and design services such as new product designing, product improvement, maintenance and designing manufacturing systems are increasingly getting outsourced to countries like India. It has been estimated that the present market potential for outsourced engineering services is between US$ 7 billion and US$ 12 billion, while the value of work currently undertaken by vendors in India is estimated between US$ 400 million and US$ 500 million. Indias engineering sector has a significant potential for future growth, both in manufacturing as well as services.

Some of the latest trends in the Engineering sector are as below :-

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CHAPTER II PROGRESS AND PROSPECTS OF INDIAN ENGINEERING GOODS EXPORTS


INTRODUCTION
The importance of exports to economic development has been well documented in empirical as well as theoretical literature. A number of studies have examined how exports are beneficial for economic development of an economy. A common point among them is that, exports may lead to greater capacity utilization, economies of scale, incentive for technological improvement and efficient management due to competitive pressure abroad. The interest in the relationship between exports and economic growth has led to emergence of two schools of thought, namely export led growth (higher export leads to higher economic growth). Although India has been following an import substitution strategy for long, exports promotion has always got the attention of the policy-makers and planners. Export promotion strategy became more pronounced in India particularly after the new economic policy (NEP) of 1991. It is a fact that although Indias share in world exports is less than 1 per cent today, its share in total GDP of the country is more than 11 per cent which is a substantial percentage that can play an important role in ushering faster economic development to the country. Exports from India constitute agricultural and allied commodities (10.10%), ores and minerals (5.29%), manufactured goods (73.40%) (Such as engineering goods, gems & jewellery, chemical products and so on), crude oil and petroleum products (8.5%) and others (2.64%). Engineering industry has significance to the economic development of the country. Engineering goods industry constitutes the prime mover of industrial growth in Indian economy as it has played a pivotal role in industrial resurgence of India since the advent of independence, especially after the adoption of the Mahalanobis capital goods oriented strategy from the second plan onwards. The following facts highlight the very significance of the Indian engineering industry in Indian economy. The engineering goods industry enjoys 30.5 per cent weight in the index of industrial production, 29.9 per cent share of total investment in all industry, 33.5 per cent share in the value of output of all industry, 37.1 per cent share in valued added by all industry. 30.6 per cent share in employment of all industry, and 62.8 per cent share in number of foreign collaborations (EEPC). Further more, recently it has emerged as a major exporting sector and also provides technical know-how and consultancy services to a number of African and Arabian states. As per the data available for the year 2004-05, engineering industry has emerged as the single largest item of total Indian exports pushing aside gems & jewellery export which had been dominating Indian export basket as the single largest item for some time now. Thus engineering industry is reckoned as an engine of economic development and one of the dynamic sectors of the Indian economy.

DISTINCTIVE CONTRIBUTION TO THE EXPORT EFFORT Indian engineering exports have shown phenomenal growth over many years and are making a distinctive contribution to the overall export effort. The up trend in the export of engineering goods during half a century of our independent existence is a reflection of the progress achieved by the engineering industry over the years. 12

Engineering industry is now exporting an increasingly wide variety of light, medium and heavy engineering goods. Engineering goods exports have grown by leaps and bounds from a mere Rs 5.16 crore in 1956-57 to an impressive and all time high of Rs. 73,800.39 crore in 2004-05. Thus they have grown over many hundred folds in Rupee terms. They have been among the most dynamic elements of Indias exports, and have accounted for the largest increment (in constant prices) of Indias exports during 1960-61 2004-05. Besides, there has been a marked shift in the commodity composition as well as direction of engineering exports over the years. Developed market of the west now accounts for about 40 per cent of the total engineering exports in 2004-05 as against the 9 per cent in 1960-61. The progress of export of engineering goods vis-a-vis total exports from the country for select years can be better judged from Table 1 Table 1 ENGINEERING EXPORTS VIS--VIS TOTAL EXPORTS Year 1956-57 1960-61 1970-71 1980-81 1990-91 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Total Exports 977 1,011.65 1,535.16 6,710.70 32,552.00 118,817.32 130,100.65 141,603.53 159,288.92 201,684.93 209,729.06 255,799.55 294,143.23 356,795.46 Engg Exports 5.16 10.31 115.76 874.17 4,245.00 17,481.75 19,580.14 18,444.47 22,154.23 30,887.95 33,193.99 43,625.94 56,802.83 73,800.39 Rs. Crore % share of Engg Exports to Total Exports 0.5 1.0 7.5 13.0 13.0 14.7 15.04 13.10 13.91 15.31 15.83 17.05 19.31 20.68

The figures in Table 1 indicate that engineering goods exports have shown commendable performance on the export front over the years and it is steadily increasing over time. The percentage share of engineering exports in total exports increased from a mere 0.5 per cent in 1956-57 to a respectable 15.3 per cent in 1992-93 and again to 20.68 per cent in 2004-05, emerging as an important and single largest item of export basket in India. All these are a reflection of increased acceptability of Indian engineering products in developed countries market, aggressive marketing strategy, entry into new markets and promotional role of engineering export promotion council and more liberal policies of the Government especially after 1991. Average Annual Growth Rate

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Engineering exports have been registering a much higher annual average growth rate than total exports during the decades of 1960s, 70s and 90s. The average annual growth rate of engineering as well as all Indias exports is depicted in Table 2. TABLE 2 AVERAGE ANNUAL GROWTH RATE Period 1956-57 to 1960-61 1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2004.05 Total Exports 1.15 4.64 16.36 17.10 20.083 17.00 Engg. Exports 19.3 29.71 23.99 16.8 29.35 25.59

From Table 2 it is clear that engineering exports had registered an impressive growth rate of 29.71 per cent during 1961-61 to 1971 to 72 which marginally declined during 1971-72 to 1981 to 82. However, engineering exports sharply declined to 16.8 per cent during 1981-82 to 1990-91. This slowdown in engineering exports is accounted for by stagnation of engineering exports during the early 1980s, especially the negative growth rate of 4.78% in the year 1985-86, which was an offshoot of industrial recession on developed countries and near completion of construction activities in Middle East. However, the position improved since 1985-86. Then onwards, engineering exports have grown at a faster rate. Economic liberalization of 1991 was a major boost to the engineering exports. It has opened new vistas, opportunities as well as challenges. A few factors that gave fillip to the development of Indian engineering exports under new regime are: adoption of export policy resolution, conferring priority to exports, recognition and concession to export houses and EPZ, liberalization of imports, relaxation of investment and licensing policies, priority to software and hardware technology parks and so on. It is to be remembered that although there has been a quantum jump in the all India exports after liberalization of 1991, there has been a large slowdown in all India exports since 1995-96. After reaching peak annual growth of 20 per cent in 1995-96, it had slipped to low growth rate in 1997-98 and 1998-99. This slowdown in total exports has in fact affected engineering exports also evident from the figures for 1996-97 and 1998-99. This slow down can be explained by slow growth rate of world export demand, South East Asian financial crisis and consequent overvaluation of Indian Rupee, reducing exports to these countries which account for nearly 15 per cent of the total Indian engineering exports and also reducing the competitive edge of Indian engineering exports in the world market, since some of these countries are major competitors of Indian engineering exports. However, total exports exhibited a sharp turn around since 1999-2000. Bulk of the rise was contributed by a volume increase in exports. This acceleration in exports reflected buoyant global demand coupled with improvement in world commodity prices in 2000 and the revival of world trade following the Asian crisis. Besides various export facilitating measures announced by the Government, significant gains in selected sectors like textiles, engineering goods, electronics goods, chemicals, leather & leather manufactures, ores & minerals and petroleum products also contributed to this strengthening of exports. The exchange rate of Rupee remained relatively stable in real effective terms during 2000-01 suggesting a broad retention of the competitiveness of Indias exports in global market. ITEMWISE DISTRUBITON OF COMPOSITION 14

Engineering exports now consist of a wide variety of items such as iron & steel, machine tools, machinery & instruments, manufacture of metals, project goods, Ferro alloys, aluminium products, transport equipment, residual engineering items, management & technical services. During the initial period, Indias engineering exports consisted mainly of steel, pig iron based items, consumer products like casting, buckets, drum, tubes, trunks, hand tools, builders hardware, lock, pad lock, steel furniture, aluminium, brass & copper utensils, electric fans and batteries. However, over the years there has been substantial diversification in the export of engineering products, especially after the mid seventies. A close look at the change in composition of engineering exports during 1960-61 to 1996-97 highlights the forward march of engineering industry exports. Table 3.a and Graph 1 depict the changing composition of Indian engineering exports during 1960-61 to 1996-97. TABLE 3.a
CHANGE IN COMPOSITION OF ENGINEERING EXPORTS (1960-61 TO 1996-97)
(US$ Million)

Items Capital Goods Primary Metals Non-ferrous Metals Consumer Durables Management & Consultancy Services Total

Year (1960-61) 2.70 6.69 2.89 9.40 0 21.68

% Share 12.46 30.85 13.33 43.35 0 100

Year (1960-61) 1,370.83 1,406.56 309.53 928.03 177.54 4,192.49

% Share 32.69 33.54 7.38 22.13 4.23 100

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GRAPH 1

COMPOSITION OF ENGINEERING EXPORTS (1960-61)


Management & Consultany Services 0% Consumer durables 44% Capital Goods 12% Primary Steel 31% Nonferrous metals 13%

COMPOSITION OF ENGINEERING EXPORTS (1996-97)


Consumer durables 22% Nonferrous metals 7% Primary Steel 34% Management & Consultany Services 4% Capital Goods 33%

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Table 3.b exhibits the percentage of share of major engineering goods, as per the latest data available for 2004-05 TABLE 3.b SHARE OF ENGINEERING GOODS Sr. No. 01 02 03 04 05 06 07 08 09 10 11 Engineering Goods Machinery and Instrument Manufacture of Metals Transport Equipments Iron & Steel bar and primary and semi finished iron & steel Electronics Non-ferrous metals Aluminium products Ferro Alloys Project Goods Machine tools Residual engineering goods % Share 21.30 20.00 17.2 22.14 10.7 4.6 1.10 1.11 0.29 0.98 0.42

From table 3 it is understood that there has been marked shift and significant changes in the composition of the engineering exports in last four decades. The most significant change has been in the export of capital goods whose share in total engineering exports increased from 12.46 per cent in 1960-61 to 32.69 per cent in 1996-97, which is a symptom of the marked progress by engineering industry. Thus, capital goods sector presently occupies a pride position. The primary steel which accounted for 30.85 per cent in 1960-61 has marginally increased to 33.54 per cent in 1996-97. On the other hand, the share of non ferrous metals has come down from 13.33 per cent to 7.38 per cent. More significantly, the share of consumer durables has declined from 43.35 per cent in 1960-61 to 22.13 per cent in 1996-97. Lastly, the management and consultancy services that account for zero percentage in 1960-61 has started making its presence felt by contributing around 4.23 per cent in the year 1996-97. All these show the increasing significance of capital goods exports as well as management and consultancy services, while the significance of non ferrous metals and consumer durables have been reduced. DESTINATION OF INDIAN ENGINEERING EXPORTS Indian engineering products are exported to a large number of developed and developing countries of the world. A close look at the destination of Indian engineering exports shows that there has been substantial diversification in the destination of exports. Up to 1980s, the major destinations of Indias emerging exports were Asia and Africa. However, in the early eighties, the trend has changed substantially with share of Europe, Australia and North America increasing substantially. During the eighties, East European countries emerged as a big market for Indian engineering products, whose share has declined after the disintegration of erstwhile Soviet Union. Fortunately, this shortfall has been compensated by larger exports to developed countries. Region wise / Country wise export of Indian engineering goods between 1956-57 and 2004-2005 is shown in Table 4 and Graph 2. TABLE 4 DESTINATION OF ENGINEERING EXPORTS : REGIONWISE (1956-57 TO 2004-2005) 17

(Rupees Crore)

Region 1956-57 1990-91 Asia 3.76 (73.9) 975 (27.9) Africa 1.2 (23.3) 351 (10.0) Europe Neg 1410 (40.3) N. America Neg. 40.00 Total (incl. 5.16 (100) 3500 (100) Others) Note:- Figures in the brackets show percentage shares

1998-99 5681 (30.8) 1410 (7.64) 4017.07 (21.7) 308.34 (1.67) 18444.14 (100)

2004-05 22041.68 (29.87) 3195.21 (4.33) 16680.99 (22.60) 834.82 (1.13) 73800.39 (100)

Table 4 reveals that there is a steady decline of Indian engineering exports to Asia and Africa from 96.2 per cent in 1956-57 to 34.20 per cent in 2004-05. At the same time, engineering exports to Europe and North America which were less than once per cent in the mid fifties now account for 39 per cent. This is a pointer to the diversification of market for Indian engineering products and growing acceptability of our products in he developed world.

DESTINATION OF ENGINEERING EXPORTS (1956-57)

N. America 0% Australia 0% Others 4%

Europe 0% Africa 23%

Asia 73%

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DESTINATION OF ENGINEERING EXPORT (2004-05)


Australia 1%

Others 26%

N. Am erica 16%

Europe 23% Asia 30% Africa 4%

The important countries that account for the major chunk of our engineering exports in 2004-05 are: USA (16.4%), UAE (6.60%), UK (5.23%), China (4.80%), Singapore (4.52%), Germany (4.2%), Italy (3.76%), Sri Lanka (2.67%) and Belgium (2.65%). These countries account form more than 50 per cent of Indian engineering exports.
Estimate of India's Exports of Thrust Products in Thrust Markets
(Unit: US$ Mn.)

2004-05 Thrust Markets Key Thrust Markets USA North Canada America Mexico Germany France Europe UK Italy China Japan Thailand Asia UAE Singapore Sub-total: Key Thrust Markets Other Thrust Markets Grand Total: Thrust Product Exports to Thrust Markets India's Exports of Thrust Products in other non-thrust markets India's Exports of Thrust Products to the World (Thrust + non-thrust markets) Est. Total Exports of Engg. Products from India Share of Thrust Product Country Imports 313.703 54.333 12.955 116.342 69.292 84.428 48.551 49.345 24.49 10.173 9.313 5.016 797.941 95.477 893.418 India Exports 990 25 30 261 71 418 134 446 93 133 321 114 3.037 326 3.362 1.460 India's Est. Share % 0.32% 0.05% 0.23% 0.22% 0.10% 0.5% 0.28% 0.90% 0.38% 1.30% 3.45% 2.27% 0.34% 0.38%

2009-10 India's India Est. Exports Share % 2.359 56 65 619 172 934 277 1.836 261 278 1.155 322 8.330 880 9.210 3.809 0.36% 0.07% 0.36% 0.27% 0.14% 0.61% 0.32% 0.80% 0.58% 1.45% 4.43% 2.71% 0.46% 0.49%

4.822 13.296 25.29

13.019 27.415 33.59

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Exports to Thrust Markets in India's Engg. Exports

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ENGINEERING SERVICES - THE EYE OF OPPORTUNITY Indian IT industry was evolving from a low-cost, back office, destination into a preferred supplier of high-end engineering services. And firing the imagination of the Indian IT industry is the huge market opportunity that makes a compelling business case for companies to seriously evaluate the engineering services domain. With the market potential for outsourced engineering services estimated at between $ 7 and 12 billion, Indian vendors have barely scratched the surface. The value of work currently undertaken by these players is estimated to be a mere $ 400-500 million, according to Nasscom. Demystifying engineering services In simple terms, engineering services augment or manage processes associated with the creation of a product or service, as well as those associated with a product or asset. This not only includes design elements of the product or services itself, but also infrastructure, equipment and processes engaged in manufacturing or delivering them. Engineering services outsourcing is the practice of sourcing some or all of a engineering services find applications in verticals such as automative, aerospace, minerals and metals, F&B, plastics and paper. Newer verticals are likely to emerge strongly in near future. These include utilities, chemicals, pharmaceuticals and medical equipment. Showing the way Four categories of stakeholders are seeking to exploit the opportunities thrown up by the engineering services market. Engineering services is not just design. Engineering services offers end-to-end services, including conversion, drafting, modelling for product definition, modelling for analysis, product design, analysis, prototyping, testing and validation, tooling and even limited manufacturing of prototypes. PLM refers to the entire product life cycle management after production to see if there are bugs or errors. The errors are then removed. Industry estimates peg the market potential for process engineering, asset management and industrial embedded systems at over $5 billion, taking the total outsourced / offshore market potential to a whopping $ 12 billion. Automative design accounts for a bulk 65-70 per cent of the market, followed by aerospace at 15 16 per cent, and electric/electronic machinery design at 10-12 per cent. Other key vertical segments considered good targets for outsourced engineering services include utilities and pharmaceutical companies. The biggest opportunity within engineering services is the automative segment where the potential offshore outsourceable components close to $ 4. 8 billion. This is followed by aerospace segment with a market potential of $1 billion, construction and heavy machinery space where the potential stands at $ 800 million. The opportunity in the medical segment is about $ 300 million. India leads the outsourcing market when it comes to auto-sourcing with 24 per cent of auto manufacturing giving it the thumbs up for outsourcing. Bigger automotive markets such as China and Mexico lag behind at 15 per cent and 13 per cent respectively, while other locations such as Brazil, Thailand and Philippines corner less than 10 per cent, of the actual outsourcing markets.

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Opportunities and challenges India is a significant player in the overall offshorable outsourcing market for engineering services in the AsiaPacific region today, China and Taiwan could emerge as formidable rivals in coming years. Indias advantage lies in its reputation and ability to deliver technology services to global customers at great value and high speed. India also has a tremendous pool of engineering and scientific talent, which can be tapped for the sector. Access to cutting edge technology through global alliances with product companies, availability of prototyping and testing facilities, and sourcing domain skills through collaboration with the domestic industry are some of the advantages Indian vendors will have. Engineering services involves significant investments in software and design tools, making more investment intensive than vanilla IT services

Some areas of application


Product Engineering The services offered extend from the early stages of idea generation, through engineering analysis and design, virtual simulation, documentation and conversion, prototyping and production, testing, knowledge based engineering and PLM solutions. Process engineering entails the use of computational tools and techniques at the plant design stage to optimise expenditures Capital or Operational and achieve efficient production of products and services. Plant automation broadly comprises engineering design and development of automation systems that facilitate the management and execution of day-to-day production activities and their associated information to be shared across the organisation in real-time for analysis and decision purposes.

Process Engineering

Plant automation

Specific services offered include Control System Integration; Process and Production Optimisation; Manufacturing Execution Systems. Enterprise Asset Management Traditionally asset management services have been (EAM) restricted to managing the life-cycle cost of assets. However, technology now enables integration of maintenance activities and functions with plant control systems, MES, CAD/CAM, ERP and SCM.

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Enterprise Asset Management Today, EAM services comprise product (EAM) implementation, monitoring and maintenance, process assessment and re-engineering, interface development and system integration. EAM helps companies manage physical assets production plants, capital equipment, vehicle fleets, and facilities complexes over the complete asset life cycle. In conjunction with powerful reporting and analysis, EAM capabilities enable you to reduce operating costs, better manage capital expenditure, and improve asset utilisation. PROBLEMS OF ENGINERING EXPORTS So far as the paper has dealt with a general scenario of the engineering goods exports that does not mean that engineering goods exports are free of problems. Like any other item of export, engineering goods are also facing a number of problems, prominent among them are discussed below. Stiff Competition Indian engineering exports have been facing stiff competition from other countries. China, Mexico, Hungary, Czechoslovakia and Korea which have emerged as the fastest growing engineering export countries provide formidable challenges and fierce competition to Indian engineering exports. And recently, the South East Asian financial crisis which was under way since mid 1997 had put our exports at receiving end due to overvaluation of Indian Rupees, curtailment of Indian import by these countries (this is because 15% of total engineering exports is accounted for by these countries). Therefore, it has reduced the competitive edge of Indian exports in the world market. However, recently there has been tremendous improvement in export performance. This may be attributed to the revival of South East Asian economies, increase in the world export demand, etc. Technological problems Technological competitiveness of Indian engineering goods sector is low. Some of the Indian exporters are still at disadvantage in International market vis-a-vis their counterparts in terms of product design, finish, specific features, performance and raw materials substitutes. India can be product of having the second larges scientific and technical manpower in the world. But his advantage due to high availability of quality engineers and scientists is lost partly due to brain drain and partly due to stagnation of skill sets of scientists and engineers within India. Although Indian firms are capable of achieving high levels of precision, they are unable to provide high quality products due to lack of supporting process, technologies such as precision measuring, material engineering and process control.

High cost of Industrial Inputs The engineering industry mainly uses raw materials of domestic origin. The raw materials price index has risen faster than the machinery price index. It is difficult of engineering manufacturers to pass on the rise in prices to 23

the consumers thereby impacting their profitability. Similarly the quality of raw materials is also not up to the international standards and it in turn affects the quality of final products. Barriers Another major problem is protectionism by developed countries. Developed countries have always tried to block the products from developing countries through barriers both tariff and non tariff. Recent hike in the tariff of Indian steel by the US is a case in point. This will definitely affect the steel exports from India. Infrastructural Bottlenecks A recent study by CII and World Bank has found that although India has the advantage of cheap labour, this advantage is nullified by infrastructural bottlenecks. Infrastructural bottlenecks are the major problem hindering both domestic and exports production. The quality of infrastructure (transport, communication, and power) is poor, thus affecting competitive delivery schedule and increasing operating costs. The delivery time of locally made engineering goods in many cases is 1.5 to 2 times longer than in industrialized countries. Companies tend to lose orders on delivery schedule. The inland transport is slow although the rail road density is the highest in the world. The cost of electric power is comparable to that in other nations, but reliability is poor. Overall infrastructure inadequacies are estimated to translate into 5 per cent cost disadvantage of Indian engineering manufacturers vis--vis foreign manufacturers. High Transaction Cost The export transaction costs for Indian engineering goods industry are among the highest in the world. Heavy transactions costs not only increase the prices of the final export products, but also result in inordinate delay in export fulfilment, thus affecting export competitiveness. According to available studies, total cost of transaction of engineering goods in India works out to be around 10 per cent of total export earnings. STRATEGY FOR EXPORT PROMOTION In the light of the discussion of numerous problems faced by engineering exports, it is necessary to evolve a scientific strategy, which should aim not only at consolidating the gains achieved so far but also in promoting higher exports of engineering products. Formulation of such strategy will enable engineering industry to sustain the extreme competition in international market. Various measures envisaged under this strategy are listed below: Engineering EPZs and SEZs There is strong need for establishing separate engineering exports processing zones and export oriented units. A few engineering items with highest potential have to be selected for development in these special processing zones. The locations of the export processing zones are to be identified where there is a large concentration of these items. We have already established general export processing zones as well as agricultural export processing zones. Establishment of separate zones for engineering products will enable them to overcome the problems of infrastructure and raw material shortage. In addition it can attract more foreign direct investment into the production and export of engineering products. Technological Upgradation 24

Up gradation of technology and modernisation of plant and equipment are prime requirement for export oriented units. New industrial policy (1991) and various announcements there after as well as export import policy provide a number of incentives such as automatic permission for foreign technology agreements in high priority industries, no permission needed for hiring of foreign technicians, foreign testing of indigenously developed technologies, liberal import of capital goods, raw materials and components, liberal import of second hand capital goods with a minimum life of 5 years without license etc. Further, a number of other steps like offering these units a deferred payment facility for purchase of capital goods and machinery (as this would reduce much of the burden of modernization), partnership with technical institutions like IITs for product adaptation and technological up gradation, accreditation of testing laboratories in India by overseas agencies to enable them to offer test inspection certificate / marking of products etc. can be thought of. Selectivity approach While most of our competitors export a few selected products, we have concentrated on too much products. For instance, China, Mexico, Korea, Hungary, Czechoslovakia which have emerged as fastest growing engineering export countries, it is observed that 85 per cent of engineering export were contributed by fewer product categories as compared to that of India. In 2002, the number of categories contributing to 85 per cent of engineering export for these countries was Mexico 10, Hungary 13, Korea 18 and China 20 while that of India was 26. Facing numerous problems due to lack of raw material and infrastructural deficiencies, most of engineering units can hardly match overseas requirement in terms of technology, quality and cost. In the light of the above, we must concentrate on selected or thrust products and give them a full policy package and incentives and other contemporary inputs required for exports production. The Engineering Export Promotion Council Strategy Paper for growth to engineering exports from 2005-06 to 2009-2010 prepared by A. F. Ferguson & Co. had identified 19 engineering products as thrust products for export development. These include : commercial vehicles (luxury buses and high horse power trucks), electric power equipment and parts (transformers and static converters), automobile parts (part of motor vehicles), instruments (medical. surgical instruments, optometry instrument and X-ray equipment), prime iron and steel (flat rolled products of stainless steel), other industrial machinery (printing and processing machines, transmission shafts, electric furnaces), IC engines and parts (compression ignition and electrical ignition type IC engines), electric manufactures (electric filament or discharged lamps), aluminium products (alloyed and unalloyed aluminium ingots, aluminium plates and sheets and strips including electrolytic grade aluminium ingots, aluminium foils, etc), other non-ferrous metal and products (primary copper, FRC cooper, oxygen free copper, high dimension CC rods [16 mm and above ]), other chemical plant (centrifuge including centrifugal dyers, machinery for working rubber or plastics), electric wires and cables (insulated wires, electric conductors and optical fibre cables, wires and cables of oxygen free copper), heating and cooling equipment (refrigeration and air conditioning including commercial and industrial), tractors and agricultural equipment (tractors, trailers and agricultural machinery), cranes, lifts and winches (parts suitable for pulley tackle, hoists and construction, excavating machinery), industrial casting (moulding boxes for metal foundry, transmission shafts), steel pipes and tubes (seamless pipes and tubes of iron and steel), cutting tools and tubes (seamless pipes and tubes of iron and steel), cutting tools (hand saws and blades for saws of all types, grinding stones and grinding wheels), bicycles and parts (high end bicycle and high end bicycle parts). Market Diversification Till early 1980s, the main destination of engineering exports (about 70%) was Asia and Africa and since then Europe and America emerged as a major destination. And there are a number of markets with high potential for engineering goods exports. EEPC strategy paper has identified 28 thrust markets for those selected thrust products. These are : China, Hong Kong, Indonesia, Iran, Japan, Malaysia, Oman, Philippines, Russia, Saudi 25

Arabia, Singapore, South Korea, Turkey, UAE (Asia), Austria, Belgium Czechoslovakia, France, Germany, Italy, Netherlands, Norway, Poland, Sweden, Switzerland, UK (Europe), Australia, South Africa (Africa), Canada, Mexico, USA (North America), Argentina, Brazil, Chile (Latin America). We must rigorously follow these markets so that a recession in one market would not affect overall export. This may not be an easy task, more so in sophisticated areas like engineering goods. In addition to the visits of delegations abroad for market studies, manufactures of engineering items should actively participate in international fairs aboard, introduce our manufactured and semi manufactured products to the customers, distributors, dealers, and importers of Indian engineering goods may be invited to visit our engineering factories at as frequent interval as possible. These visits can be arranged by the Engineering Promotion Council and various sub associations of engineering goods / products like Machine Tools Manufacturers Association etc. The Government should render helping hand by extending financial assistance for such visits. Sales Promotion Effort, Prompt Delivery and After Sales Services For furthering the export of engineering products, India must evolve an aggressive sales promotion effort. It can be done through advertisement, trade fairs, specialized trade fairs, brand promotion (Made in India brand), distribution of technical catalogues (giving comprehensive information about our products). Further, commercial intelligence should be made available to Indian exporter as frequently as possible so that they keep updated of the current trends and requirements. The activities of various agencies that provide market intelligence such as EEPC, CII, ITPO, etc. should be coordinated and centralized so that better results are possible. Along with the sales promotion effort, strict adherence to delivery schedules is crucial for the success of Indian engineering exports. As foreign buyers have option to procure their requirement from anywhere in the world, we must ensure that we are accurate more than 100 per cent in timely delivery of our products. The arguments of failure of delivery due to the disrupted sailing, power cuts, strikes or lockouts do not count or provide any leverage to the affected party in a competitive world. Warehousing and total logistic support in overseas market to be provided for timely delivery of our products. Further, after sales services and customer care effort is highly indispensable for the smooth growth of engineering exports. This has been one of the neglected areas in India due to our protected market. Of course, now the environment has changed under the forces of globalisation and liberalization and foreign companies are rigorously following after sales services and provide customer care support. Therefore, Indian engineering exporters have also to rigorously follow the after sales services and customer care support. This can be accomplished by customer care centre and providing incentives to overseas collaborations. Support to Small Scale Units Small scale engineering exports still constitute around 40 per cent of total engineering exports. For the continued contribution of these units to the exports sector, they must be provided with the production and exports incentives, support for adoption of latest technology, advisory services, and market support to sustain the competition in the international market. Increasing the investment ceiling and dereservation of major small scale units can go a long way in overcoming the hurdles in the way of modernization and faster growth of these units and hence higher contribution to total engineering exports. Further, adequate finance must be made available to these units. Due to the high risk involved in lending to these units, banks were reluctant to lend to them. Involvement of Large Scale Units 26

Just to reap the economies of scale in production, we must look beyond the domestic market. Although exports can be increased by providing incentives to small scale industrial units (SSI) units, there is limit to growth. There is a need for involving large units in exports activities. The exports intensity figure is still very low in India especially for large units. Hence, it is necessary to gradually increase the exports intensity ratio of Indian products by involving more and more large scale units and exporting more from the existing units. Free Trade Area / Preferential Trade Agreement (FTA / PTA) We must explore the possibility of setting up Free Trade Area / Preferential Trade Agreement with other countries where our exports have largest concentrations. For instance, FTA / PTA with Brazil and Mexico as Latin America represent a fairly large latent market for Indian auto components which will provide a fillip to our engineering exports. Out effort to establish free trade area with ASEAN countries will be a big boost to engineering exports. We have to identify some potential engineering products in these markets and vigorously export them. Joint Venture and Foreign Direct Investment Another area which needs special emphasis is establishment of joint ventures and foreign collaborations in engineering production. It is also imperative to attract more foreign direct investment into the engineering sector. This will enable attraction of more sophisticated technology (which is of utmost importance of high technology products like engineering products), better management technique, modern marketing strategy and exploration of more foreign markets. Penetration of engineering products in developed countries would require good dealer networks, availability of range of products, after sales services etc. This is possible only if MNCs and joint venture units have presence in India on their own or in collaboration with Indian companies. FDI is therefore essential to promote export of engineering products. Indias engineering export basket If we compare China, Mexico, Korea, Hungary, Czechoslovakia which have emerged as fastest growing engineering export countries, it is observed that 85% engineering exports were contributed by fewer product categories as compared to that of India in 2002. The number of categories contributing to 85% of the engineering exports for theses countries was: Mexico (10 categories, relatively medium technology/ value addition) Hungary (13 categories, relatively medium technology/ value addition) Korea (18 categories, relatively low to medium technology/ value addition) China (20 categories, relatively low technology/ value addition)

While in case of Indias engineering exports, top-26 categories accounted for about 85% of Indias exports in year 2002. This is primarily attributed to low value and some medium value and fragmented engineering export product base for our country. Value added products Engineering exports from India currently suffer from low value addition. Typically, exports of engineering products fall in low-value addition category. 27

As seen from the above, currently most of the engineering products exported from India fall in low and low to medium value addition, which leads to thin margins in export markets. As a fall out of this, it can be seen that most of the product categories have reported exports less than US $ 500 Mn. in 2003-04. Of all engineering export categories, Only 2 product categories have exports exceeding US $ 500 Mn. and they are; Prime Iron and Steel (incl. Pig Iron), and Commercial Vehicles

The key focus of Indias engineering exports should be to increase exports of higher value-added products instead of intermediate goods/ low-value items. For example, most of the aluminium exports from India are of Ingots and to some extent rolled products. However, exports of value added products like Aluminum Foils, Aluminium rolled sheets of low thickness, and Aluminium Alloy Wheels are insignificant. Degree of value addition is medium to high in certain Capital Goods categories like Commercial Vehicles (especially, in Passenger Cars), Tractor and Agriculture Equipment, Two/ Three Wheelers, Auto Parts, Engines, Compressors and Pumps. In most other categories value addition is low. Focusing on value added products would increase realization of exporters in export markets. Indias objective should be to move towards higher valueadded products with focus on increasing total value of exports of the product category in next 5 years viz. 200506 to 2009-10. Share of thrust products in Indias engineering products exports In year 2004-05, Indias engineering exports were about US $ 13.29 billion. Of this, share of thrust products (mostly existing thrust products) was about 36% (about 35% in 2003) while other products (i.e. non-thrust products and management/ technical services) accounted for the rest, viz. about 64% of Indias total engineering It is estimated that non-thrust products would account for about 64% of the engineering exports in 2004-05. More than 40 categories would contribute to these exports, which clearly indicates that exports in this segment are fragmented and average value of exports per product category is relatively small in comparison to thrust product categories which are relatively finite in nature (i.e. 19 product categories) that would account for about 28

Hence, in future to achieve significant position in engineering export domain and enhance Indias export performance in this sector, it is important to focus on exports and put significant effort on Thrust Products (about 19 product categories), which are finite in numbers. This would also help in channeling efforts of all stakeholders on various aspects like technology and quality improvement, enhancing scales of operations, creating adequate supply capacity, attracting private investment (including FDI), cluster development, etc. and would enable harnessing true potential of engineering sector in export markets. Thrust markets vis--vis current markets of India Having analyzed the need for increased focus on the Thrust Products vis--vis the current export products basket of India from the point of view of the growth in exports it is equally important to see whether there is inadequate focus on the identified focus markets vis--vis the current export markets of India. Indias share of thrust products imports by thrust markets (which, accounted for about 59% of the world engineering product imports in 2003) was low (typically, less than 1% in most of the thrust markets). Collectively Indias share in world imports of thrust products in existing major thrust markets was under 0.31% in the same year. On the other hand, the markets like Philippines, Chile, Saudi Arabia, etc. wherein India has high share of imports of thrust products, these markets have limited import potential and represented an insignificant percent of world imports of thrust products in 2003. Hence in order to achieve the growth at the target rate of doubling Indias engineering products exports (which amount to a growth rate of about 15% p.a.), there is a need to focus on identified thrust markets and increase in these thrust markets over the next 5 years. Snapshot of India's share of exports to identified thrust and current markets
Top Descriptions for India's exports of Thrust Products World's top importing countries of Thrust Products Countries where India has highest share of Thrust Products Imports Share of India's exports in Country share the in world Country's imports of Imports of Thrust thrust products Thrust Countries (%) Products

Thrust Countries

Share of India's exports of Thrust Products

Share in World Imports (%)

Thrust Countries

Share in World Imports (%)

India's Share (%) in imports of that country

USA China UK UAE Germany Thailand Italy Singapore Japan Netherland s France

29.19% 13.16% 12.20% 9.92% 7.68% 4.14% 3.96% 3.67% 2.76% 2.24% 2.09%

20.58 2.65 5.65 0.55 7.70 0.66 3.26 0.33 1.69 1.05 4.62

USA Germany UK France Canada Italy China Belgium Japan Spain Netherland

20.59 7.7 5.65 4.62 3.83 3.26 2.65 1.81 1.69 1.38 1.06

0.26 0.18 0.39 0.08 0.04 0.22 0.9 0.15 0.3 0.08 0.38

Philipinpine s Chile UAE Saudi Arabia Singapore Malayasia Thailand China Australia North Korea Turkey

0.00 0.01 0.55 0.04 0.33 0.19 0.66 2.65 0.07 0.00 0.07

6.03 4.2 3.23 2.25 2.03 1.46 1.13 0.9 0.69 0.67 0.66

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Malayasia Belgium Hungary Mexico Canada


Other Thrust Markets Total Thrust Markets

1.57% 1.54% 0.86% 0.85% 0.77% 0.00% 100.00%

0.19 1.81 0.49 0.92 3.83 0.00 55.98

s Mexico Thailand UAE Hungary Singapore


Other Thrust Markets Total Thrust Markets

0.92 0.66 0.65 0.49 0.33 0 57.29

0.17 1.13 3.23 0.32 2.03 0.5 0.31

Hong Kong Iran Indonesia UK Netherlands


Other Thrust Markets Total Thrust Markets

0.26 0.04 0.15 5.65 1.05 0 11.72

0.50 0.48 0.39 0.39 0.38 0.19 0.31

Thrust products and thrust markets matrix The analysis of thrust products and their corresponding thrust markets in the above sections has indicated that Indias engineering exports could grow at a higher rate, by focusing on the correct mix of products and markets. Thus, going ahead, the strategy should be built on the appropriate combination of products and markets. A thrust product and thrust market matrix, for the existing and new products and existing and new markets for the years 2004-05 and 2009-10.
Penetration of India's Thrust Product Exports in Thrust Markets 2004-05 to 2009-10
Thrust Products (All figures in US $'000) Existing New Total Existing Thrust Markets % to India's tot. TP Exp. 49.4 1 50.4 New Thrust Markets % to India's totl. TP Exp. 3.8 0.3 4.1 % to India's totl. TP Exp. 53.2 1.3 54.5 Existing Thrust Markets % to India's tot. TP Exp. 61.9 3.6 65.5 New Thrust Markets % to India's tot. TP Exp. 4.9 0.3 5.2 % to Indi a's tot. TP Exp. 66.8 3.9 70.7

Total

Total

3051820 61594 3113414

232156 16635 248791

3283976 78229 3362205

8061882 471174 8533056

637822 39142 676964

8699705 510315 9210020

Analysis of the above matrix shows that the share of the new products (although small) has started to increase in both the existing and new markets from 2004-05 to 2009-10. But larger volume of exports is seen coming from the existing Thrust Products exports to both the existing markets and new markets. Hence, it would be important to concentrate on Existing Thrust Products in existing and new Thrust Markets in the short term to long term while building competency in new Thrust Products and exporting to existing and new Thrust Markets in the medium term and long term. In existing thrust markets, the growth and increase in market share would come from the share of existing competitors. This is because, the existing thrust markets are developed and would experience lower growth compared to developing economies. There is potential for rapid growth in potential/ new thrust markets, where India has low market share currently. Hence complemented marketing efforts are needed in existing and especially the new markets.
Growth rate (CAGR) in Existing and New Thrust Product Exports (2005-10) Thrust Products CAGR% from 2004-05 to 2009-10 based on the largest growth rate of 15% p.a. Existing Thrust New Thrust Markets Markets Total

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Existing New Total

21.40% 50.20% 22.30%

22.40% 18.70% 22.20%

22% 46% 22%

The estimated growth in Existing and New Products growth rate in order to achieve the target growth rate of 15% p.a. in overall Engineering Products Exports from India. As can be seen from the exhibit the thrust products would be required to contribute a higher growth rate of about 20% p.a. over the Strategy term period from 200405 upto 2009-10 so that 15% p.a. overall target growth in exports can be achieved. The growth rate of new Thrust Products is expected to be much higher at 46% p.a.

International marketing strategy changing share of Indias thrust products exports in future The share of Thrust Products in Indias Engineering Products exports was at US$ 4.82 billion (36%) in 2004-05. With the targeted growth of 15% p.a. in Indias overall engineering products exports; the share of thrust products is estimated to increase to US$ 13.02 billion (47%) by 2009-10. Exhibit 2.12 shows the changing share of Thrust Products exports in future. Considering the optimistic potential for exports this share is expected to increase to 52% by year 2009-10.
Estimated Changing share of Thrust Products Exports as per Target Growth Rate
Products Estimated Thrust Products Exports from India (US$ Bn.) Estimated total Engineering Products Exports from India (US$ Bn.) % Share of thrust products Exports 2004-05 4.82 2005-06 6.18 2007-08 8.95 2009-10 13.02

13.3 36%

15.54 40%

20.49 44%

27.42 47%

CONCLUSIONS AND SUGGESTIONS Engineering industry thus is making substantial contribution to the national development by way of value addition, employment and export. Not only the share of engineering exports has jumped from 0.5 per cent in 1956 57 to 20.68 per cent in 2004-05 but also there has been a marked shift in commodity composition and direction in the engineering exports. It is observed the engineering exports have recorded a much higher growth rate than total exports in almost all decades. Another noteworthy feature is that importance of capital goods and technical and services has gone up while that of non-ferrous metals and consumer durables has come down. Analysis of destinations of export shows that shares of Asia and Africa have dwindled while that of Europe and North America has increased over the last four decades. Important problems that the engineering exports are facing are: Competition, poor technology, infrastructural bottlenecks, high transaction costs, etc. A few suggestions that may be in order are : Providing more incentive for exports by way of tax exemptions through both tariff and non-tariff measures, diversification of products as well as markets, instilling more 31

competition through liberal import of capital goods and raw materials, developing technological capabilities and adoption of more advanced technology, more active role by EEPC, greater attention to marketing brand building and customer services , improving the quality of the engineering products, timely delivery, setting up of more engineering joint ventures, reduction in transaction cost, strengthening and upgrading of the production potential and export orientation of engineering SSI sector by developing SSI export industry in a dereserved manner, more liberal and flexible labour laws, improved dissemination of information and extension of regional focus in boosting engineering exports to the desired extent. Last but not the least the spirit of understanding and cooperation between captains of industry and government officials is the need of the hour in the changed business environment under globalisation and liberalization. To compete internationally, there should be strict check over quality and prices and careful monitoring of changing requirement, cost control through constant R & D, prompt delivery of schedule and follow-up actions.

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CHAPTER III AUGMENTATION OF ENGINEERING INDUSTRIES IN GUJARAT

INTRODUCTION The industrial sector plays an important role in economic development. The Government of Gujarat has accorded high priority to industrial development, with the objective of achieving balanced growth and generating large scale employment for youth both in urban and rural areas and, thereby, improving the living standard of the people. Gujarat has witnessed impressive industrial development since its formation as a state in 1960. Share of the manufacturing sector has increased to 37.2% in the Gross State Domestic Product (GSDP) during 2002-03 at constant (1993-94) prices, as against 20% in 1980-81. The industrial sector at present comprises of over 2000 medium and large units and over 292000 small scale units. Gujarat accounts for 20.4% of fixed capital investment, 15.3% of value of industrial production and 11.4% of value added in industrial sector in the country. Gujarat has achieved the distinction of being the second largest industrially developed state in the country. 33

Over the years, Gujarat has diversified its industrial base. The state has become an important producer of various products in the country, such as Soda Ash (96%), Salt (68%), Polyester Filament Yarn (55%) and Refined Petroleum products (50%), Phosphate Fertilizers (45%), Textile Fabrics (34%), Sponge Iron (31%), Caustic Soda (28%), Cement (9%) and Sugar (8%). The state has also achieved industrial dispersal. In 1960s only four cities namely Ahmedabad, Baroda, Surat and Rajkot and some isolated locations such as Mithapur and Atul were the industrial centers. Today, almost all the districts have registered industrial development. This impressive development has been possible due to a judicious exploitation of natural resources, such as minerals, gas, marine, agriculture and animal wealth. The discovery of oil and gas in Gujarat has played an important role in setting up of petroleum refineries, fertilizer plants and petrochemical complexes. The state government has also established a good institutional network. Important amongst them is the Gujarat Industrial Development Corporation (GIDC), which has developed industrial estates providing developed plots and ready sheds for setting up industries throughout the state. Institutions were also set up to provide term finance assistance for purchase of raw materials, plant and equipment and marketing of products. Later, District Industries Centers (DICs) were set up in all the districts to provide assistance in setting up industrial units and for support services. The state also developed the infrastructure required by industries, such as power, roads, ports, water supply and technical education institutions. The state government has also introduced incentive schemes, from time to time, to promote industries. THE GROWTH Initially, the development of the textile industry led to the development / promotion of units manufacturing textile parts, castings & spares, and came to be known as textile stores. There development, therefore, was restricted within the small and medium scale industry, known as SMEs. With growing investments in other sectors like pharmaceuticals, chemicals and dairy, the engineering sector continued to witness growth in Gujarat. Since August 1991 upto April 2005, Engineering Industry including Metallurgical Products, Industrial Machinery, Transport Equipments and Electrical Equipments and Electronics accounts for an investment of Rs. 772 billion which is 20.70% of total investment of the state. Similarly 869 projects of the Engineering Industry involving an investment of Rs. 184 billion have been commissioned / concluded, accounting for about 17.15% share in investment of the total projects commissioned. Also 371 projects envisaging an investment of Rs. 212 billion are under implementation in Engineering and Allied Industry. The Small Scale and Factory Sector industry in Engineering and allied field has also shown an impressive contribution with more than 33000 functioning SSI Units which is about 20% of the total functioning small scale units and 5320 Factory Sector Units in this sector of Industry.

The engineering products where Gujarats share is greater than 10% in India:

Sponge Iron Electric Motors 34

Compressors Steel Pipes Ball and roller bearings Brass parts Construction machinery Castings Copper rods Textile machinery Transmission line towers TV picture tubes Submersible pumps Environment control equipment Gears

Share of Gujarats engineering goods in the National production:


Metallurgical industry -10% Fabrication of metal products -10.4% Machinery and equipment- 10.4% Electricals- 7.3% Automotive including transport equipment - 3.7%

The industrial clusters in Gujarat are very highly developed. Gujarats engineering industry has many achievements to its credit.

Largest producer of sponge iron in the country with 35% share Largest exporter of clocks in the world All requirements of brass parts in the country are met by Gujarat Largest manufacturer of glass shells for TV tubes production Important manufacturer of power generation plants, switch gears and transformers Important production centre for Textile & Chemical machinery, Pollution control equipment, printing machinery, air & gas compressors and bearings, oil engines & electric motors, submersible valves. Largest ship breaking yard, largest producer of SAW and ERW pipes.

Engineering is the backbone of all the sectors of industry and therefore is rightly reckoned as the Mother Industry, as it supplies plant and equipments to all the industries. Gujarat over the years, has witnessed an impressive development in engineering sector, especially in the manufacture of foundry products, electrical equipments, machine tools and precision engineering products. Industrial machinery is another important segment, which has also recorded a sizeable growth especially in the sectors like chemical machinery, textile machinery, dairy machinery, paper machinery, material handling equipments, plastic procession machinery, packaging machinery, Pharmaceutical machinery and so on. Another important sector that had emerged in Gujarat is ship-breaking yard at Alang, near Bhavnagar. Alang can boast of being the largest ship-breaking yard in Asia. Being a maritime state, the potential for shipbuilding and ship-repairing also exist in Gujarat. With the large investment in pipeline, the engineering industry has immense potential in industrial machinery, construction and 35

fabrication work. Bright potential also exists for setting up engineering ancillaries. With the development of chemical and petrochemical sector in the state, pollution control equipments also offer investment opportunities. Gujarat in fact has witnessed a remarkable growth in the engineering sector, especially in the areas of foundry products, industrial machinery, electrical equipment and precision engineering products. It also manufactures various products like industrial valves, diesel engines, submersible pumps, forged components, rolled products, ball and roller bearings. The areas which offer high growth potential include auto ancillaries, investment castings, sintered products and lightweight precision machine tools. There is therefore a vast potential in these sectors and Gujarat is better placed to cater to the needs and business viabilities of such projects. Major international engineering firms have shown interest in out-sourcing production requirements from India due to its huge, inexpensive pool of technical manpower. Also, there is a wide scope for setting up projects in areas with high growth potential - auto ancillaries; investment, castings, sintered products and light weight precision machine tools. Transnational companies should explore the option of setting up manufacturing units in Gujarat, as it is ideally situated and labour problems are virtually non-existent. Gujarat offers excellent base for heavy engineering industry, automobile industry including ancillaries, precision, electronically computer operated machine tools, farm and farm equipment industry etc. Again, the developed ports in the State offer an added advantage in the form of easy access to other ports of the world - an important factor for transportation of capital goods and heavy machinery. FACTORS RESPONSIBLE FOR THE GROWTH OF ENGINEERING INDUSTRY The credit for right kind of evaluation and subsequent execution of infrastructure projectsbenchmarked with the best in the world including roads, rail and ports goes not only to the successive bureaucrats but also to the people of this land who crystallized economic development with Pragmatic planning Even distribution of funds Apt fiscal policies Resurgence of technology-oriented agricultural growth

Discovery of the oil basins, the emergence of the golden corridor, the provision of equal opportunities to the tribal, the backward classes, education to the girl-child and n number of other visionary policies have led this state from achieving one success to the other. Although the population of Gujarat is only 4.93% of that of India, it accounts for 10% of Indias consumption, 16% of total exports and 30% of stock market capitalization. The people of Gujarat known for their entrepreneurial skill, keen business sense and professional attitude, provides a strong incentive to do business in the state. In addition, the pro-business approach of the state government has further facilitated Gujarats relentless drive towards industrialization by making it to emerge as the choicest location for entrepreneurs to set up their ventures. 1) THE STATE ECONOMY Gujarat accounts for 16 per cent of the countrys total investment and 10 per cent of expenditure. This is primarily due to the entrepreneurial spirit of its people. The states Gross Domestic Product (GSDP) grew at 36

an average rate of 12.4 per cent per annum in the period 1994-2002. Its GSDP was estimated at US$ 22 billion in 2003-2004 as against US$19 billion in 2003 04 as against US$ 19 billion in 2002-03, which is a growth of 15.4 per cent during the year.

The growth in industrial activity has brought about prosperity in the state. The number of people living below the poverty line has registered a decline. The purchasing power of people has increased immensely. The monthly per capita consumer expenditure of the state is well above the national average. A strong manufacturing sector is the bedrock of economic activity in Gujarat. In the last two decades, the state witnessed an accelerated pace of industrialization. The contribution of the manufacturing sector in the state economy has doubled in the past decade because of its strategic location, excellent infrastructure support, extensive natural resource base and a proactive government. As of October 2004, the state has received acknowledgments of 6,850 industrial entrepreneurs memorandum for an estimated investment of US$ 59.24 million. According to the Annual Survey of Industries (2002-2003), Gujarat ranks second in respect of state-wise percentage share in Net Value Added by manufacturing in the factory sector in the country. Gujarat is Indias most industralised state. It accounts for 20 per cent of India manufacturing output, 21 per cent of its exports and 30 per cent of its stock market capitalization. 37

Gujarats rate of growth of industrial output is 18 per cent (2003-04) Gujarat ranks third in number of factories in the country It is a leading state in terms of per capital gross output and per capita value added in industries. Projects worth US$ 7.3 billion are under implementation.

Gujarat is endowed with a rich and diverse mineral base. Principal minerals found in the state are limestone, lignite and low-grade bauxite. It is the second largest producer of lignite in the country producing 6.7 million tones (2003-2004) It is the second largest producer of oil and natural gas producing 6.13 million tones and 3.42 million cubic meters respectively in 2003-2004. The state produced 19.16 million tones of limestone in 2003-04 and is one of the largest producers of soda ash.

The recent success in natural gas explorations in the state has made an immense impact on the industry. Riding on the wave of the recent gas discoveries, Indias first LNG terminal has been commissioned at Dahej port and a gas pipeline grid is under construction. Both these initiatives would provide inexpensive and clean fuel to industry in Gujarat giving it a distinctive advantage. 2) INFRASTRUCTURE Gujarat was the first state in the country to enact the Gujarat infrastructure development act. The Gujarat infrastructure Development board set up in 1995 under this act facilitates the flow of funds from the private sector into the infrastructure sector and ensures coordination among various agencies. Gujarat was one of the first states to set up industrial parks in India and is now in the process of upgrading the infrastructure support for these parks. The state is now focused on setting up industry specific parks which can offer specialized services.

3) SOCIAL INFRASTRUCTURE The state leads in labour productivity in the country and the highest proportion of the states populace is engaged in running owned businesses. The states literacy rate stands at 69.1 per cent, which is higher than the national average of 65.38 per cent. Gujarat is home to Indias leading business school, the Indian Institute of Management and other important institutions such as National Institute of Design (NID), National Institute of Fashion Technology (NIFT), Entrepreneurship Development Institute of India (EDI) and Ahmedabad Management Association (AMA) among others. The state also has 25 engineering colleges, 26 management institutions and 300 technical institutes. The State Government plans to establish a shipbuilding university, a first of its kind in the country in the district of Kutch.

38

Further, the industrial development in the state provides vast potential for setting up of new educational institutes in areas of marine engineering, port management, gems and jewellery design, fishery and fish processing, urban planning, disaster management and biotechnology. The state has high life expectancy levels, low birth and death rates and a low infant mortality rate. 72.3 per cent of Gujarats population is below the age of 45. The state has 1,637 government hospitals and 1,070 primary health centers. 4) ACCESS INFRASTRUCTURE Gujarat has 1,600 km indented coastline with 11 intermediate, 1 major and 29 minor ports, which handle over 80 per cent of the port traffic in the country. Gujarat was the first state to announce a separate Port Policy, which integrates the development of ports with industrial development, power generation and infrastructure development. It was also the first state to privatize the construction of ports in the country. Gujarats ports handle 20 per cent of the total cargo of the country. Other ports in the state, the Gujarat Pipavav Port at Pipavav (Saurashtra) and the recently commissioned Gujarat Adani Port at Mundra (Kutch) were the countrys first Greenfield ports to be developed on a Build-Own-Operate-Transfer (BOOT) basis. Mundra is a state-of-the-art-port that facilitates berthing of large vessels while Dahej in Gujarat is the countrys only chemical handling port. It is estimated that by 2015, Gujarats port will handle 39 per cent of the countrys total cargo. Gujarat also has a road network spanning across 74,000 km. It is also well connected by rail with 5, 310 km of rail lines. Though Gujarat is self sufficient in its needs for domestic and commercial water consumption, it has initiated plans for the maximum development and utilization of water resources in the state. The Sardar Sarovar project is one of the largest hydel and irrigation project of the country. 5) POWER Power is key to industry and Gujarat has a good record of consistent power supply for commercial use. The state has planned several initiatives to build adequate capacity in generation, transmission and distribution of power supply. These include rationalizing the power tariff structure, encouraging power generation from nonconventional sources, focusing on energy conservation and improving the quality of services to consumers. As the largest producer of natural gas in India, Gujarat intends to set up an extensive state-wide gas grid to augment its exiting power capacity. The grid will use gas supplied by the recently commissioned LNG terminals at Dahej. In fact by 2010, 20 per cent of the countrys energy needs will be met by natural gas and Gujarat would play a crucial role in fulfilling these requirements. 6) INDUSTRIAL INFRASTRUCTURE The Gujarat Industrial Development Corporation (GIDC) has set up 168 industrial estates and another 106 are being developed in different parts of the state. The state government has Special Economic Zones at Kandla and Surat and a software technology part at Gandhinagar. GIDC plans to set up an apparel park in Surat. 39

Additionally, GIDC has developed an industrial part at Dahej, which includes a petrochemical complex and facilities like a private airstrip, effluent collection and disposal, liquid chemical port and railway lines. To encourage investment in the state, Gujarat also gives autonomy and funds to industrial estates to implement maintenance and modernization measures. It is also encouraging organizations to set up units in these zones by giving them tax holidays and subsidies like exemption from stamp duty and registration fees.
Leading Industrial Sectors

The Central Statistical Organization (CSO) undertakes an annual survey of industries (ASI) of industrial units covered under the Factories Act 1948. Information is collected every year to know the performance of the industrial sector. As per ASI results, the value of output in the industrial sector in Gujarat was Rs. 7160 crore in 1980-81, Rs. 25793 crore in 1990-91 and Rs.118551 crore in 1999-2000. It further improved to Rs.147638 crore in 2001-02. This can be observed from the following table:
Annual Survey of Industries (ASI) result:

Item

Unit

1980-81

1990-91

1999-2000

2001-02

% share in India

No.
Reporting Factories

10.8 11,208 10,904 6 9,314 25,386 3,813 14,710 8 68,724 1,18,551 19,276 13,950 9.2 7 7 20.4 2,685 88,758 15.3 7,161 1,47,638 16,591
11.4

lakh
Number of Employees

Rs. in crore
Fixed Capital

Rs. in crore
Value of Output

Rs. in crore
Value Addition

1,139

The share of important sectors in industry in Gujarat is as under:

40

Sr. No.

Sector

No. of factories

Employment

Fixed Capital Investment (Rs. in crore)

Value of Output (Rs. in crore) 89733 (60.8%) 15048 (10.2%) 14064 (9.5%) 12774 (8.6%) 5687 (3.9%) 3906 (2.6%) 147638 (100%)

Net Value Addition (Rs. in crore)

Chemicals & Petrochemicals

3068 (22%) 1863 (13.4%) 3624 (26%) 1330 (9.5%) 1025 (7.4%) 1411 (10%) 13950 (100%)

212210

61215

9561

Textile

149455

7420

1488

Engineering

141702

5070

2641

Food Processing

68502

2197

948

Metallurgy

29598

6208

446

Non-metallic Mineral based Industry All Industry

56795

4233

1018

714144

88758

16591

Small Scale Industries

Gujarat has witnessed impressive registration of SSIs. There were only 2169 SSIs in 1961 at the time of the formation of the state. The number of SSIs increased to 15849 in 1970, 43712 in 1980 and 115384 in 1990. The decade of 90s witnessed accelerated growth of small scale sector in the state. As a result, the number of units has increased to 251088 in 2000. The number of SSIs has further increased to 291000 units in June 2004. Small Scale Industries have played an important role in industrial dispersal. District Industries Centers in all the districts of the state, along with institutions such as Gujarat Industrial Development Corporation (GIDC) and Gujarat State Financial Corporation (GSFC) have provided boost to the development of SSIs. Ahmedabad district leads with the highest number of SSI units at 62909, constituting 22% of the total SSIs in the state. Surat follows with 43015 units (15%) and Rajkot 30564 units (11%). These three districts together account for 49% of the total number of SSI units in the State. The other districts having more than 10000 SSI units are Valsad (17545), Vadodara (16309). Mahesana (15257), Bharuch (13579), Jamnagar (12475), Bhavnagar (11422) and Anand (14168). Other districts have also witnessed the development of small scale industry. This can be seen in the following chart.

41

The SSI sector has developed in different industries. The trend is similar to the overall industrial scenario in the state. Textiles and textile machinery have played a major role. Chemicals, followed by plastic processing, are also placed high. Engineering, paper and mineral based industries have also developed in the SSI sector. The important industrial sectors within SSI are as under:

42

List of Industries Exempted from obtaining NOC of Gujarat Pollution Control Board
Sr. No. Type of Industries

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Motor rewinding Workshop for vehicle repairs Engineering workshop, machine shop, fabrication shop, press shop Pump and motor assembling units Cycle assembling units Units fabricating tractor trailer, agricultural equipment etc. Units fabricating stove, cooker, kitchen equipment without electroplating Units fabricating nails, pegs, nuts, bolts etc. Units manufacturing utensils of aluminum, steel, copper and brass Casting units using pit furnace Units fabricating iron doors and shutters Units fabricating steel furniture without electroplating Units manufacturing weighting machines Units fabricating drawing, surveying and scientific equipment Units making musical instruments Units making sports gear Units making toys Units making stationery items like paper pins, "U" pins, pencils etc. Units binding books, making file covers, card board boxes, envelopes, paper bags from paper or board Units making paper napkins, dishes, labels, tallow, paper rolls Units making wooden doors and windows Units making wooden furniture Units making wooden boxes Units assembling conditioners, air coolers, water coolers, heater, electric irons, etc. Units manufacturing electric fans, tube lights, bulbs, lamps, fuses, switches, etc. Units casting cement concrete spun pipes, mosaic tiles, cement concrete poles Units casting cement concrete grills Units making umbrellas and rain coats 43

29 30 31 32

Units making garments by stitching from ready cloth Units making hosiery items Weaving units with handlooms and power looms Yarn twisting, crimping and texturising units

44

Sr. No.

Type of Industries

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63

Fiber glass moulding units Units manufacturing plastics items like buckets, tumblers, footwear, brushes, ropes Units producing plastics items through fabrication, extraction, injection moulding methods Units manufacturing tubes, pipes, boxes, tanks, etc. from plastics HDPE, LDPE, PVC Units making leather items like bags, purses, wallets etc. from ready leather Units making tooth powders, tooth pastes, shampoos, nail polishes, hair oils through mixing only Units making candles Units making agarbattis Units making detergent powders, soaps etc. through mixing only Cold storages Domestic flour mills Units grinding corianders, Cummins, turmeric, salts, spices Tobacco drying sheds Saw mills Printing presses Pulse mills Oil expellers Ice factories Poultry farms Units manufacturing glass frames for spectacles Diamond industries Induction furnaces Units manufacturing tablets and capsules by mixing only Units manufacturing biscuits unto 100 kg per day only Units manufacturing pickles/pappads upto 500 kg per day only Assembling units for TV, VCR,VCP, radio sets, tape recorders etc. Units manufacturing rubber parts, rubber crocks, surgical gloves Units retreading tyres Units involved in cutting, polishing and finishing of stones, marbles and granites Units involved in finishing of printed cloth by felt finish or rolls process, sentering Cotton ginning and pressing units 45

64

Steel rerolling mills where M S bars, angles, CTD round bars, rectangle bars, section bars etc. are prepared without pickling process

46

Sr. No.

Type of Industries

65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

Tyre and rubber industries Oxygen gas units Jaggery (Gur) (from sugarcane) producing units Tobacco gutka manufacturing units Ceramic cup saucers making units Glazed tiles producing units (provided water is recycled) Units manufacturing ceramic sanitary ware Units producing white coal/biocoal from agriculture waste Units producing bio-fertilizers only from agriculture waste mix Units producing cattle fodder by mixing Units producing acetylene gas Salt pans by solar evaporation Ceramic units using LDO/HSD/RFO fuels at 1000 liters/day(but not using coal/ lignite/ hard coke /husk) with a condition to install a chimney of minimum 11 meters height Computer software units Perfumes (Attar) manufacturing units by mixing process Units producing Limestone masonry Units manufacturing domestic flour mill Units manufacturing Mamara Computer & Computer stationery Gems & Jewellery units Units manufacturing plastic bags Manually preparing silver & golden ornaments Units making printing blocks Units making furniture from bamboo Units assembling domestic electrical appliances Units fabricating aluminium doors, windows & furniture Tailor machine repair or its manufacturing units Ball pen refill Button & hooks manufacturing units Bicycle chain & locks manufacturing units 47

95 96 97 98 99

Embroidery Photo frame, Mirror frame Flower pot, Flower vase Units fabricating fork-knife, scissors Unit installing 50 KVA DG set

The SSIs in Gujarat have had impressive development in clusters. There are, in all, over 83 industrial clusters covering different types of industries and developed at different geographical locations. This kind of development has helped in creating common facilities, developing market centers and brand name, development of skill and, thereby, improving cost competitiveness. Some of the important clusters in Gujarat are Oil Engine in Rajkot, Brass Parts in Jamnagar, Ceramic in Morbi, Thangadh and Vankaner, Ship breaking in Alang, Re-rolling mills in Bhavnagar, Dyes in Ahmedabad, Baroda and Vapi, Pharmaceuticals in Ahmedabad and Baroda, Plastic processing in Ahmedabad and Baroda. The details of clusters in Gujarat are as under: Location Type of Cluster Common Salt Anjar, Gandhidham, Dasada Tobacco Processing Cotton Ginning Textiles Textiles-Printing Textiles-Khadi Textiles-Finishing Textiles-Synthetic Jari-Printing Readymade Garments Wood based Fabrication Anand Manavadar Ahmedabad, Dholka, Surat Jetpur Wadhvan Bhuj Surat , Mangrol Surat Ahmedabad Nadiad Ahmedabad, Baroda 48

Utensils Oil Engines Textile Stores Power driven Pumps Machine Tools Diamond Processing Books Publishing Data Processing Medium and Large Industries

Ahmedabad Rajkot Ahmedabad, Surat , Wadhvan Ahmedabad, Mehsana Rajkot Ahmedabad, Surat Ahmedabad Ahmedabad, Surat

All industrial units other than small scale are classified as Medium and Large Industry (MLI). An entrepreneur desirous of setting up a MLI project needs an approval from Government of India (GOI) under the Industries (Development and Regulations) Act. In July 1991, GOI liberalized the licensing procedure and exempted almost all industries from taking industrial license, except few which are of strategic importance. As per the present licensing procedure, only two industries are reserved for the public sector and four industries, which are of strategic importance, need an industrial license to start the project. The remaining industries are required to file Industrial Entrepreneur Memorandum (IEM) with GOI, after observing certain requirements with respect to location and environment. Thus, the procedure for starting a MLI are simple - filing of IEM, obtaining Letter of Indent (LOI) for licensed industries (which are very few) and obtaining License of Production (LOP) for starting 100% Export Oriented Unit (EOU). In order to assess the level of industrial development of a state, the number of IEMs filed with the Secretariat of Industrial Approvals (SIA) of GOI is considered an important parameter. The number of IEMs filed for Gujarat since the liberalization process began in 1991 is given below.

Sr. No.

State

No. of IEMs

Investment (Rs. in crore) 204810 (15.9%) 239378 (18.6%)

1 2

Gujarat Maharashtra

6671 (12.5%) 10606 (19.8%)

49

3 4 5 6 7 8

Uttar Pradesh Andhra Pradesh Tamil Nadu Karnataka Chhattisgarh All India

4581 (8.6%) 3564 (6.7%) 4422 (8.3%) 2110 (3.9%) 951 (1.8%) 53518 (100%)

73639 (5.7%) 132748 (10.3%) 112645 (8.7%) 66151 (5.1%) 62027 (4.8%) 1289116 (100%)

The state received 6671 IEMs from July 1991 to June 2004. In addition, Gujarat has also received a large number of LOIs and LOPs (for 100% EOUs). The state has put in place an effective system for monitoring industrial approvals, in order to know the status of these approvals and for providing assistance in the implementation of these projects. As on July 2004, 3917 projects with an investment of Rs. 99005 crore have been implemented. It may be noted that one project may have more than one IEM, depending upon the product range. The number of industrial units will be less in such cases. There are, in all, over 2000 MLI units working in the state. In addition, 1466 projects are at various stages of implementation, with investment of Rs. 60590 crore. Of the projects implemented in the state since July 1991, 937 projects are in the investment range of up to Rs. 5 crore, 464 projects are in the range of Rs.5 - 100 crore and 65 projects are in the range of above Rs.100 crore. Sector-wise analysis of the projects implemented and projects under implementation indicates that chemicals and petrochemical sector is dominant in investment in MLI. The other important sectors are engineering, mineral based industry, food processing, infrastructure projects and others. Survey of Medium and Large Units

Total units covered

Nos % Nos. % Nos. %

2059 (100) 1570 (76.25) 489 (23.75)

Functioning units

Closed units

50

District wise Medium and Large Units Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 District Ahmedabad Amreli Banaskantha Bharuch Bhavnagar Dang Gandhinagar Jamnagar Junagadh Kheda Kachchh Mehsana Panchmahal Rajkot Sanarkantha Surat Surendranagar Functioning Closed Units Units 186 -73.2 6 -85.7 11 -84.6 139 -78.1 46 -63 0 0 90 -66.2 24 -58.5 28 -84.9 15 -79 26 -63.4 66 -68 63 -60.6 60 -80 12 -80 388 -90.9 12 -52.2 68 -26.8 1 -14.3 2 -15.4 39 -21.9 27 -37 0 0 46 -33.8 17 -41.5 5 -15.2 4 -21.1 15 -36.6 31 -32 41 -39.4 15 -20 3 -20 39 -9.1 11 -47.8 Total Units 254 -100 7 -100 13 -100 178 -100 73 -100 0 0 136 -100 41 -100 33 -100 19 -100 41 -100 97 -100 104 -100 75 -100 15 -100 427 -100 23 -100 Percentage Share 12.3 0.3 0.6 8.6 3.6 0 6.6 2 1.6 0.9 2 4.7 5.1 3.6 0.7 20.7 1.1 51

Sr. No. 18 19 20 21 22 23 24 25

District Vadodara Valsad Anand Dahod Narmada Navsari Patan Porbandar Gujarat

Functioning Units 178 -73.9 153 -77.7 27 -75 1 -100 3 -100 22 -81.5 4 -57.1 10 -90.9 1570 -76.3

Closed Units 63 -26.1 44 -22.3 9 -25 0 0 0 0 5 -18.5 3 -42.9 1 -9.1 489 -23.8

Total Percentage Units Share 241 11.7 -100 197 9.6 -100 36 1.8 -100 1 0 -100 3 0.2 -100 27 1.3 -100 7 0.3 -100 11 0.5 -100 4.9 2059 100 -100

District wise Analysis of Functioning Units Sr. No. 1 District Ahmedabad Unit Total Per unit % Total Per unit % Total Per unit % Total Per unit % Nos. 186 11.9 6 0.4 11 0.7 139 8.9 Fixed Investment (Rs. In Lakh) 692966.1 3725.6 7.1 169320.7 28220.1 1.8 16252.7 1477.5 0.2 1444824.6 10394.4 14.9 Total Employmen t 62192 334.4 16.4 1432 238.7 0.4 2043 185.7 0.5 32554 234.2 8.6 Skilled 37487 201.5 19 731 121.8 0.4 1570 142.7 0.8 15929 114.6 8.1

Amreli

Banaskantha

Bharuch

52

Sr. No. 5

District Bhavnagar

Unit Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit %

Nos. 46 2.9 0 0 90 5.7 24 1.5 28 1.8 15 1 26 1.7 66 4.2 63 4 60 3.8 12 0.8 388 24.7

Fixed Investment (Rs. In Lakh) 132521.6 2880.9 1.4 0 0 0 288319.9 3203.6 3 2145678.4 89403.3 22.1 299511 10696.8 3.1 62776.3 4185.1 0.7 47093.6 1811.3 0.5 203126.3 3077.7 2.1 100738 1599 1 45871.9 764.5 0.5 26880.8 2240.1 0.3 2109486.7 5436.8 21.8

Dang

Gandhinagar

Jamnagar

Junagadh

10

Kheda

11

Kachchh

12

Mehsana

13

Panchmahal

14

Rajkot

15

Sabarkantha

16

Surat

Total Skilled Employme nt 4838 2359 105.2 51.3 1.3 1.2 0 0 0 0 0 0 15318 7177 170.2 79.7 4.1 3.6 11440 6921 476.7 288.4 3 3.5 12746 5669 455.2 202.5 3.4 2.9 6720 3347 448 223.1 1.8 1.7 5124 3328 197.1 128 1.4 1.7 14388 5993 218 90.8 3.8 3 9935 4737 157.7 75.2 2.6 2.4 12390 5412 206.5 90.2 3.3 2.8 3403 1228 283.6 102.3 0.9 0.6 54514 29038 140.5 74.8 14.4 14.7 53

Sr. No. 17

District Surendranagar

Unit Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit % Total Per unit %

Nos. 12 0.8 178 11.3 153 9.8 27 1.7 1 0.1 3 0.2 22 1.4 4 0.3 10 0.6 1570

18

Vadodaraa

19

Valsad

20

Anand

21

Dahod

22

Narmada

23

Navsari

24

Patan

25

Porbandar

Gujarat

Fixed Investment (Rs. In Lakh) 99484.4 8290.4 1 1255322.3 7052.4 12.9 358360.1 2342.2 3.7 64467.7 2387.7 0.7 361.4 361.4 0 22154.5 7384.8 0.2 40401.9 1836.5 0.4 1597.4 399.4 0 72372.5 7237.3 0.8 9699890.7 6178.3 100

Total Employment 3860 321.7 1 78084 438.7 20.7 22524 147.2 6 7891 292.3 2.1 191 191 0.1 2883 961 0.8 7803 354.7 2.1 818 204.5 0.2 5103 510.3 1.4 378194 240.9 100

Skilled 1817 151.4 0.9 39541 222.1 20.1 11850 77.5 6 4176 154.7 2.1 120 120 0.1 2034 678 1 4190 190.5 2.1 164 41 0.1 2291 229.1 1.2 197109 125.6 100

100

54

Industry GroupWise Functioning Units Industry Item Units Fixed Investment (Rs. in Lakh) Food Products Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % 125 8 8 0.5 112 7.1 345 22 25 1.6 3 0.2 77 4.9 2 0.1 101 6.4 317 20.2 69 4.4 213225.7 1705.8 2.2 25857.4 3232.2 0.3 565402.8 5048.2 5.8 662231.3 1919.5 6.8 28600.9 1144 0.3 1326.6 442.2 0 131553.8 1708.5 1.4 2036.2 1018.1 0 1859630.5 18412.2 19.2 4223434.3 13323.1 43.5 555210.7 8046.53 5.7 Employment Total 32212 305.7 10.1 1205 150.6 0.3 50003 446.5 13.2 57830 167.6 15.3 4953 198.1 1.3 169 56.3 0 12813 166.4 3.4 742 371 0.2 15282 151.3 4 99586 314.2 26.3 18022 261.2 4.8 Skilled 15745 126 8 782 97.8 0.4 33755 301.4 17.1 34923 101.2 17.7 3426 137 1.7 46 15.3 0 5288 68.7 2.7 29 14.5 0 7402 73.3 3.8 49081 154.8 24.9 8328 120.7 4.2 55

Beverages, Tobacco & Tobacco Products Cotton Textiles

Wool, Silk & Synhte Fibre Text Hosiery & Garments

Wood Products

Paper Products & Printing Leather & Leather Products Petroleum & Rubber Plastic Products Chemical & Chemical Products Non Metallic Mineral Products

Industry

Item

Units

Fixed Investment (Rs. in Lakh)

Employment Total 19332 182.4 5.1 5496 137.4 1.5 23574 228.9 6.2 13536 214.9 3.6 6579 329 1.7 7703 296.3 2 3157 112.8 0.8 378194 240.9 100 Skilled 8330 78.6 4.2 2729 68.2 1.4 11241 109.1 5.7 7751 123 3.9 3207 160.4 1.6 3391 130.4 1.7 1655 59.1 0.8 197109 125.6 100

Basic Metal Industries Metal Products

Machinery & Parts except Electronics Electronic Machinery & Apparatus Transport Equipment & Parts Miscellaneous Manufacture Industries Services Not Else Classified All Industry

Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit % Total Per Unit %

106 6.8 40 2.6 103 6.6 63 4 20 1.3 26 1.7 28 1.8 1570 100

962432 9079.6 9.9 23191.5 579.8 0.2 161222.8 1565.27 1.7 184202.2 2923.8 1.9 46095.5 2304.8 0.5 34403.8 1323.2 0.4 19832.6 708.3 0.2 9699890.7 6178.3 100

Employment Slab -Functioning units

Employment Slab

Item

Units

Fixed Investment (Rs. Lakh)

Employment Total 3531.0 11.9 Skilled 1703.0 5.7 56

Total 0 20 Per Unit 637.6 297.0 189379.6

% 18.9 Total 20 -100 Per Unit 597.0 % 36.9 Total 100- 500 Per Unit 4203.0 % 33.1 Total 500- 99999 Per Unit 40131.4 % 11.1 Total All Units Per Unit 6178.3 Key Industries other than Engineering Chemicals Drugs and Pharmaceuticals Gems and Jewellery Mines and Minerals Textiles Agro-based industries 240.9 125.6 1570.0 9699890.7 378194.0 197109.0 72.0 59.8 63.9 1299.6 724.3 174.0 6982864.8 226122.0 126028.0 22.5 30.9 27.0 224.9 102.4 519.0 2181366.4 116740.0 53163.0 3.6 8.4 8.2 54.8 28.0 580.0 346280.0 31801.0 16215.0 2.0 0.9 0.9

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Key Players in Gujarat Bayer ABB Essar Group E.I. Dupont Grasim Industries Gujarat Narmada Valley Fertilizers Matsushita Larsen & Toubro Siemens Royal Dutch Shell 7) e-GOVERNANCE The state Government has outlines a number of policy initiatives to encourage entrepreneurs. These include INDEXTb (Industrial Extension Bureau) and District Industries Development Centres, which will serve as single window facilities at the state and district levels respectively. Fast-track clearances for infrastructure projects from the Gujarat Infrastructure Development Board Implementation of IT in governance to make governance transparent and streamlined in the state. Tax reforms with a particular emphasis on rationalization, simplification, self-assessment, transparency and harmonization of the rate structure. Torrent Group Tata Chemicals Novartis Reliance Industries Gujarat Cooperative Milk Marketing Federation Huber Chemicals Gujarat Ambuja Cements Ltd., Ingersoll-Rand Gujarat State Fertilizers & Chemicals Ltd., Lalbhai Group Bosch Rexroth (India) Ltd. GE Plastics British Gas General Motors

8) BUSINESS OPPORTUNITIES Several factors contribute to making a state an attractive investment destination. evolution of industry in Gujarat are: Major factors impacting

Proactive policies: - The policy the State Government adopts towards a sector directly affects investment. For instance, the investment in infrastructure can be related to the government policy seeking private investment. This has given the state a head start in the sector.

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Availability of natural resources: Certain industries like petrochemicals have a high dependence on availability of natural resources. The recent discoveries of gas reserves have provided a fillip to the industries in the state.

Capability: The Engineering, gems and jewelry industry in Gujarat rallies on the skilled manpower available in the state. The state is a leader in terms of labour productivity. This has been a major factor enabling the success of Gujarat in sectors like petrochemicals, textiles etc.

9) EXPORTS In 2003, Gujarats exports stood at US$ 1.96 billion. Export earnings from chemicals accounted for 30 per cent of these revenues, buttressing the states leadership position in this sector. Earnings from export of metals and metal based products had the highest CAGR of 17.4 per cent between 1998-2003.

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10) INVESTMENT Gujarat has been at the forefront in attracting FDI between 1991 to 2004, Gujarat accounted for 6.44 per cent of Indias FDI approvals. The state offers investors a distinct advantage in terms of quality manpower and infrastructure facilities such as power and water supply, ports and now a gas grid. This is encouraging multinationals and leading Indian companies to turn their manufacturing plans in the state into global sourcing bases. For example, ABB plant proposes to invest US$ 500 million in its Vadodara Plant and use it as a global sourcing base for circuit breakers and other electrical equipment. Arvind Mills, the second largest denim manufacturer in the world has doubled its manufacturing capacity Glaxo Smithkline India, plans to use its manufacturing plant in Ankleshwar as a global sourcing hub for intermediary used in manufacturing Zantac. Aventis, an international pharma giant, will service its global requirements for glibenclamide from its plant in Ankleshwar, Gujarat. Future investment Investment works US$ 23.4 billion were planned for Gujarat. Of this infrastructure investment alone amounted to US$ 17.5 billion and a majority of this was for developing the ports infrastructure. A number of multinationals are also investing in gas grid and building LNG terminals in the state. The minerals giant Hindalco intends to invest US$ 44 million for increasing its copper smelting capacity to 500,000 tonnes per year.

DOING BUSINESS IN GUJARAT 60

1) Obtaining approvals An indicative list of approvals with timeframe for setting up business in Gujarat List of approvals and clearances required Incorporation of company Registration, IEM, Industrial licenses Departments to be consulted Registrar of Companies District Industry Centre for small, medium and large industries Allotment of land State Department of Industries / State Industrial Development Corporation / Infrastructure Corporation Permission for land use State Department of Industries, Department of Town and Country Planning Site environmental State Pollution Control approval Board and Ministry of Environment and Forests No objection certificate State Pollution Control and consent under Water Board and Pollution Control acts Approval of construction Town and Country activity and building plan Planning authority Sanction of power State Electricity Board Registration under states Sales Tax Department Sales Tax Act and Central Central and state excise and State Excise Act departments Estimated time taken (in days) SINGLE WINDOW CLEARANCE The states single window facility (iNDEXTb) on average clears investment approvals in 30 days. However, the time for obtaining approvals depends on the nature of the industry and the documentation provided by the investor. In cases where the investor meets all government requirements, clearances are expedited considerably

2) Cost of Setting up business An indicative table on cost of setting up business in Gujarat 61

Manufacturing Land (US$ / hectare) Labour cost (US$ / man year) Employee Cost (US$ / man year) Software developers Team lead Architects Project Managers Common Heads Cost of capital (Prime lending rate, per cent) Electricity (US cents / kWh) Industrial 3) Sales Tax Exemption

95,312 1592.4 6,383 147,893 21276 31915 1057

9.49 9.29

The Gujarat Government gives tax concessions for investment in backward areas. Units with investment exceeding US $ 4.4 million will have no ceiling on the quantum of excise exemption. These can avail a 100 per cent exemption / deferment for investment in eligible fixed assets for different time periods depending on the investment range. Investment range Up to US$ 2. 2 million US$ 2.2 11 million Above US$ 11.1 million AREAS OF CONCERN 1. The State has been able to attract substantial flow of investment to the industrial sector during last couple of decades. But, although a significant part of this investment has gone to backward talukas, quite a few of the backward areas have been left out from the process of industrial development. 2. As result of massive investments in the petrochemical, chemical and pharmaceutical industries, the State is facing problem of pollution in the major industrial growth centers. The problem is mainly confined to the older industrial estates, which were set up prior to the enactment of various pollution control and environmental protection legislations. 3. The State Governments effort at Human Resources Development, particularly in imparting vocational and technical education to its youth, are proving inadequate to meet the requirement of rapid 62 Period of Exemption / Deferment 5 years 7 years 10 years

industrialization of the state. Unless corrective action is taken in time, there may soon be shortages of skilled and professional manpower in the State. 4. Gujarat enjoys comparatively better infrastructural facilities but even these are proving to be inadequate to meet the requirement of new investments. Significant investment has to take place for improving infrastructure including social infrastructure. 5. One of the main objectives of the New Industrial Policy introduced by Government of India is to make Indian industry globally competitive. Existing industrial sectors will have to undergo substantial restructuring through technological up gradation and modernization in order to improve productivity, quality or products, designs, consumer satisfaction and cost-effectiveness in order to survive. 6. The State enjoys an enviable record of industrial peace and harmony in industrial relations. However, overall productivity and quality consciousness need significant improvement in order to ensure that the local industry not only survives international competition but also gets established in markets abroad. 7. In order to ensure competitiveness of the local industry, the gestation period of a project going into commercial production has to be kept to the minimum. To achieve these, statutory provisions, rules regulations and procedures relating to grant of approvals at the State level for setting up and running of industrial units will have to be comprehensively reviewed. Routine and irrelevant restrictions will have to be removed to ensure necessary clearances without any delay. 8. The organization set up by the State Government to promote and facilities the process of industrialization of the State has played a significant role in the rapid industrialization of the State. However, their objective and functioning need to be reoriented to conform to the requirements of era of liberalization.

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CHAPTER IV CONCLUSION
The State of Gujarat has a chance for a tremendous breakthrough in economic development during the current decade. In the post-reform period, Gujarat, in particular, has witnessed high growth in engineering along with other industries. Demographic trends in Gujarat, especially a slowing population growth rate and a rising share of the population of working age, contribute to rising per capita income. Gujarat, with a diversified industrial base, continuing improvements in the states investment climate, one of the most attractive states for domestic private investors, setting-up Special Economic Zones (SEZs), availability of large skilled managerial and technical manpower, exporting almost 20 percent of Indias total exports, and last, but not the least, being a coastal state, with almost 1600 Kms of coastline, the State of Gujarat can become a major platform for labor-intensive manufacturing exports in the country, similar to what the coastal Chinese provinces have achieved during the last two decades. Briefly put, following an export-led growth strategy, Gujarat can get set for take off into a period of sustained high growth. Gujarat too along with the other forward-looking Indian coastal states will help accelerate Indias overall economic growth and the process of economic liberalization and it has a chance for a tremendous breakthrough in economic development during the current decade. Since the Indian economy opened up to freer trade in 1991, Gujarat has sought to put in place a new policy regime to boost industrial production, improve the states infrastructure, attract higher levels of domestic and foreign investment and spur employment. Since the year 2000, in particular, there has been evidence of quite dynamic reform in the way in which the government has sought to harness the new economic openness to further improve the States attractiveness as an investment destination, achieve higher competitiveness through improved industrial infrastructure, and promoting manufacturing exports. Gujarat being a coastal state where a number of prerequisites for attaining and sustaining high growth are already in place is a very strong candidate for following an outward-oriented growth strategy. As far as FDI is concerned, Gujarat is not rated as one of the most attractive destinations for FDI in India, perhaps ranked around 5th or 6th out of the total States and Union Territories. Gujarat is next only to Maharashtra as far as attracting domestic private investment is concerned, it does not score as well when it comes to foreign direct investment. This issue needs to be looked at from several different angles, for instance is the State doing enough on the marketing front, by trying to reach other parts of the westerns world;
The availability of infrastructure services, such as power, telecom, and roads in rural Gujarat can significantly help develop the engineering industry both in urban and rural areas of Gujarat.

Lessons for Gujarat: 1) To attain and sustain high rates of economic growth, follow a two-pronged growth strategy, wherein the first prong is export-led growth, and the second prong is rural improvement. With regard to the second prong, Gujarat needs a specific strategy to bring modern economic

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growth to rural Gujarat, through a concerted campaign of infrastructure upgrading and appropriate re-design of state policy. 2) Establish SEZs all along the Gujarat coast on an expedited time table. This is critical in view of the fact that several Indian states are in the process of setting-up such SEZs and the sooner Gujarats SEZs are up and running, the better it will be for attracting both potential domestic and foreign investors. 3) Identify key sectors where Gujarat offers comparative advantage for investors relative to other Indian states; 4) An exit policy needs to be formulated such that firms can exit from the market freely. While it would be incorrect to ignore the need for, and potential merit of, certain safeguards while designing an exit policy, it is also important to recognize that safeguards, if wrongly designed and/or poorly enforced would turn into barriers which may adversely affect the health of the firms. Exit policy needs to be designed in a way that it removes exit barriers and at the same time protects the necessary internal order in the firms. 5) Reforming the land laws. Presently, the land ceiling law, the Urban Land (Ceiling and Regulation) Act 1976, limits the growth of private enterprises. This Urban Land Act requires urgent modification to accommodate industrial restructuring. 6) Make investments on a much higher level to upgrade existing major port facilities and to use minor ports more efficiently. 7) Make the necessary changes to align Gujarats incentives structures in line with other competitor Indian states. 8) Attract Gujarati Non-resident Indians to invest in Gujarat. As a follow-up of the Global Investors Summit, quick and timely follow-up action is critical

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BIBLIOGRAPHY Articles from :1) 2) 3) 4) 5) 6) 7) 8) 9) Strengthening Gujarats Growth Strategy by Nirupam Bajpai Economy of Gujarat, by IBEF Economic Times Financial Express Foreign Trade Update Website of : - Industries commissioner of Gujarat Website of :- Govt of Gujarat Website of :- CII, Gujarat Chapter Website of :- Engineering Export Promotion Council

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