Exim Bank releases study on capital goods industry

Mumbai, Aug 26 (UNI) The capital goods industry in India continued to be the growth driver of the country's industrial production, witnessing a buoyant production trend since 2002-03, an Exim Bank study today revealed.

Though the growth momentum witnessed a marginal slowdown last fiscal, the sector continued to trigger industrial production with cumulative foreign direct investments in the capital goods industry during the period between January 2000 to December 2007, amounting to USD 1.6 billion.

The study released here said players in the Indian capital goods industry need to increasingly reorient their approach and transform themselves into service-oriented organisations.

The study emphasised further that sale of capital goods is not a one-time transaction; it should be associated with technical support in transportation, erection, training, continuous service maintenance and periodical upgradation of technology.

Globally, the market size of capital goods industry is worth USD 4.5 trillion. Traditionally, Japan, USA and Germany are large suppliers of capital goods. Of late, Asian countries such as China, Taiwan and South Korea have become major players in production and export of capital goods. Consumption of capital goods has also increased substantially in developing Asian countries due to thrust given to the value added manufacturing.

The study said an analysis of India's trade in select capital goods reveal that in most of the products India was a net importer, indicating the need for capacity expansion, including technology upgradation, to cater to the rising demand, both from domestic and export markets. India's export destinations of capital goods is a mixed bag with both developed and developing countries.

However, India's share in these markets is insignificant indicating ample scope for expansion of market share. In this regard, the study suggests effective use of Exim Bank's Lines of Credit (LoC) mechanism for market expansion in the existing markets and penetration in new markets.

The study said economies of scale would position India further as a cost-effective manufacturing base for capital goods. Strategies such as transformation of the shop-floors to be flexible to produce different types of machinery, redesigning the machining process to accommodate usage of common components / parts in various types of machinery, and leveraging of India's IT strengths in developing new generation machines, would contribute to scale the economies significantly.

In addition, the study emphasizes the need for encouraging technology sourcing from countries such as Germany, Switzerland, Italy and Spain, especially in the context of shift in manufacturing base from developed to developing countries. Indian players should also effectively adapt the strengths of machining technologies in other developing countries such as China and Taiwan.

Changing trends in product quality and safety standards should be monitored and addressed, to sustain market presence in developed countries it said, adding that developing countries of Asia, Africa, Latin America and central and east Europe should be targeted for market expansion with effective supply chain management, thereby optimizing the product delivery schedules. With such strategies, Indian capital goods industry would be well positioned to compete internationally.

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