The industry can expect a demand of Rs 60,000 crore to Rs 70,000 crore over the next five years

By Ravichandran K

The Machine tools industry forms the fulcrum for competitiveness of the entire manufacturing sector. This is because of the fact that machine tools produce capital goods, which in turn produce the manufactured products. Hence being an integral sector, the growth of the machine tools industry has an immense bearing on the entire manufacturing industry in general, and albeit indirectly, on strategic sectors like defence, railways, aviation and space, and atomic energy in particular.

Indian manufacturing is at the crossroads today. In the last decade (1998-2008), the sector was one of the best performing manufacturing economies across the globe. Yet, its contribution to overall GDP was one of the lowest across major rapidly developing economies (RDEs), signalling strong potential for faster growth.

According to the Indian Machine Tool Manufacturers' Association (IMTMA), the Indian machine tool industry now ranks 19th in world production and can manufacture the whole range of machine tools, especially the computer numerically controlled (CNC) machines.

The industry has good design strength and all its current products are the result of its own design and development efforts over the last two decades. Nevertheless, the industry suffers from the lack of a strong R&D programme, which is required to propel it to develop machine tools of the latest technology to compete with the best in the world. The absence of strong R&D has resulted in the industry losing nearly 70 per cent of the domestic market for machine tools to foreign manufacturers.

What should be the roadmap for India's machine tools sector? Coming after a long period of stagnation in the 1990s, the next decade's performance will be crucial to achieving India's overall growth aspirations and employment generation. The outlook for the industry is optimistic and it can expect a continued growth in demand.

China and Taiwan have been the best performers in recent times. India should aspire to reach that level and target a growth of about 11 per cent per annum (versus 6.8 per cent for FY1999-2009), which will make the country the fourth largest manufacturing economy in the world by 2025 from its current ranking of 13th, according to IMTMA and UNIDO.

Despite good design and manufacturing competence, the product range and technology levels in India have a substantial gap in comparision with the developed world. Measures to bridge these gaps need to be taken urgently to remedy this situation urgently.

Industry Trends

Chart 1 gives a graphical representation of the industry's performance over the last 20 years. It can be seen that the industry has passed through a recessionary period around the year 2000, but recorded high growth in its output after 2003.

This is due to the rapid growth of the automobile sector in India and the emergence of a strong auto components industry, which has been the mainstay of the sector in recent years.

The downturn of 2008 and 2009 affected the industry badly but the industry is on a recovery path in 2010-11 thanks to the upswing in the global auto industry.

The graph also brings out the steep increase in imports to meet the large demand from users in recent years, resulting in a fall in market share for the Indian machine tool industry.

It is this trend that needs to be addressed by the industry by developing new technologies and products to meet the anticipated requirements of the user industries in the future.

Imports

Perhaps the most important development in the last decade is the rapid increase in the import of machine tools. This is the result of the rapid expansion of the automobile industry and the investments that have taken place in components manufacture.

The Indian machine tools industry has lost domestic market share in the last decade, from around 70 per cent in the year 2000 to around 30 per cent in 2010. Imports have been strong in certain product lines such as grinding, gear cutting, metal forming and large machines where the Indian machine tools industry is weak, according to IMTMA. There has also been import in product lines like CNC turning centres and machining centres where the domestic manufacturers have limited capacity to meet the sudden surge in demand.

Exports

As can be seen from the data presented, exports of machine tools from India are not significant. This is due to the large domestic market, which absorbs almost the entire production.

Of late, some Indian machine tool manufacturers with niche technology/ products (EDMs, grinding machines, CNC turning centres, automats, etc), have entered the export markets by setting up subsidiaries and marketing offices in Europe, China, etc.

Another encouraging trend is that Indian machine tool manufacturers have even acquired machine tool companies in France, Canada and other countries. The strategy is to complement their products and extend market reach both in India and abroad. These efforts appear to be successful, but need to be seen whether they are sustainable over the long term. Achieving these aspirations will not be easy.

It will require coordinated efforts to develop necessary enabling infrastructure, capture new avenues for growth and higher labour and capital productivity and shift India's manufacturing competitiveness to the next level. Of late there has been a perceptible change in the image of the "Made in India" brand in overseas markets, which is particularly true for Indian-built machine tools.

Enhanced features, competitive pricing and marketing focus has increased demand for India-made machine tools in overseas markets, particularly in Europe, United States, and the East-Asian region.

This is what Indian machine tools manufacturers are hoping to leverage upon, and are optimistic of posting a much larger export turnover in the next few years. India-made machine tools are currently exported to over 50 countries; the major importers being the United States, Italy, Germany, and countries from the SAARC region and the Middle East.

Lathes and automats, electric-discharge machines, drilling machines and machining centres formed the bulk of export orders for Indian manufacturers. These machines from India are generally favoured in overseas markets primarily due to their cost competitiveness, as compared to those available elsewhere.

The Indian machine tools industry manufactures almost the complete range of metal-cutting and metal-forming machine tools. Customised in nature, the products from the Indian basket comprise conventional machine tools as well as CNC machines.

In keeping with the current trends, and emerging demand, the CNC segment could be the driver of growth for the machine tools industry in India.

Impact on SMEs

The introduction of WTO regime has necessitated extensive changes in the approach of the Indian machine tools industry to further its development. As a result, the Indian machine tools industry has been affected in some of its operations.

SMEs now have to develop their own products and cannot depend on 'Reverse Engineering.' Also it is essential that they conform to international standards, especially environment protection measures.

A permanent monitoring mechanism is to be created, may be within the Secretariat of IMTMA, to analyse the impact of the above-mentioned provisions of WTO on a regular basis and results circulated among all member companies. The government has also come up with a policy for the development of the machine tools industry.

Quantitative Restrictions (QRs) were removed from the machine tools business well ahead of any other product group. By 1992, all remaining physical barriers to import machine tools were eliminated.

The duty on machine tools has been consistently reduced from 110 per cent to 20 per cent and is expected to be reduced further. The industrial policy for investment and technology upgrading has been generally liberalised since 1991. The major components of the industrial policy include a de-licensed environment, so that the industry is completely free from any controls. Anyone (even a foreign company) can set up a plant anywhere (outside urban limits) with 100 per cent equity and managerial control without having to obtain permission for it.

Other aspects include:
??/strong> Export related incentives
??/strong> Institutional backup
??/strong> Introduction of VAT, and
??/strong> Patent Regulations - A comprehensive bill 'The Indian Patents Act' has been promulgated fully conforming with requirements under TRIPS of WTO.