Challenges faced by the Machine Tool Industry in Maharashtra

Challenges faced by the Machine Tool Industry in Maharashtra

DISCLAIMER This Knowledge Paper prepared by CNCTimes.com is based on analysis of information gathered via personal and telephonic interviews and knowledge available in the public domain. We interviewed top executives from around 20 manufacturing companies, operating in Maharashtra, to understand their experience of doing business in India. CNCTimes.com has made all the efforts to check the validity of the information presented, and it is not liable for errors in secondary information whose accuracy cannot be guaranteed. Also, the information gathered through interviews with senior ranking officials from the Indian Machine Tool industry is their opinion and CNCTimes.com has just gathered information for this paper. Information and suggestions herein should be used more as indicators and trends rather than exact representation. The Knowledge Paper is intended to set the mood of discussions at the conference in which it will be presented. The Knowledge Paper contains people s opinions and recommendations to resolve the challenges faced by the machine tool industry such as government policies, taxation, infrastructure, manpower issues etc. Since these are opinions of people which is influenced by many factors such as their job profile, the company they work for, their experience and educational background, it should not be construed to be facts. COPYRIGHT NOTICE The contents of these pages are copyright CNCTimes.com All rights reserved. Except with the prior written permission of CNCTimes.com, you may not (whether directly or indirectly) create a database in an electronic or any other form by downloading and storing all or any part of the content of this document. No part of this document may be copied or otherwise incorporated into, transmitted to, or stored on any other website, electronic retrieval system, publication, or other work in any form (whether hard copy, electronic or otherwise) without the prior written permission of CNCTimes.com.

FOREWORD The manufacturing sector plays a pivotal role in contributing to the GDP of any country, and the same holds true for India. India is standing on the brink of rapid industrialization, which will soon spread to the major regions of the country. Maharashtra has been at the heart of this industrial growth and has catapulted India on the world map of countries whose manufacturing sector is their strong point. The Gardner Machine Tool survey 2016 states that India imports 58% of the machine tools out of the total amount of machine tools it requires for domestic consumption. This means that we have a shortage of machine tool manufacturing companies that manufacture components and equipment, which have a ready market in our country. Maharashtra state has good infrastructure and has many industrially developed regions dispersed throughout. Though the industry is hopeful about government initiatives and the policies that are drafted to increase industrial output, the general outlook of industry leaders is cautiously optimistic with the wait and see attitude. The industry believes that Make in India movement will give a boost to this sector and will help to reduce the number of imports. This knowledge paper summarizes the challenges faced by the machine tool industry in Maharashtra and the views and recommendations of industry leaders when it comes to running a manufacturing unit and doing business in Maharashtra. It was a fascinating and informative journey for me while conducting surveys and interviews of industry leaders, of machine tool companies in Maharashtra. I take this opportunity to thank all the people who gave me their precious time and insight to bring this knowledge paper to fruition. I hope you find this paper educational and useful. I welcome any suggestions you may have. Vinita Apte Editor and Head Corporate events CNCTimes.com February 2017

Table of Contents Disclaimer Copyright Notice Foreword from the author Machine Tool Industry in Maharashtra An overview... 1 Skilled Manpower A significant gap between requirement and availability... 4 Infrastructure in Maharashtra Scope for improvement... 5 Technological advancements and Industrie 4.0 A prerequisite for sustainable growth and increased productivity... 6 Research and Development in the machine tool industry in Maharashtra the need of the hour... 7 Impact of economic and government policies on machine tool companies... 9 Make in India movement The challenges... 10 Recommendations... 11 INDEX... 13 Table of Figures Figure 1 overview of Indian Machine Tool industry... 1 Figure 2: Maharashtra's GDP growth v/s India Source: MIDC... 2 Figure 3 Maharashtra at a glance Source: MIDC... 2 Figure 4 Industrie 4.0 and its components Source: CNCTimes.com... 6 Figure 5 Import of Metal Working Machines into India (Value Rs. Cr) Source: IMTMA... 7 Figure 6 Import of Metal Cutting Machines into India (Value Rs. Cr) Source: IMTMA... 8 Figure 7 Import of Metal Forming Machines into India Imports (Value Rs. Cr) Source: IMTMA... 8

Machine Tool Industry in Maharashtra An overview Machine tool industry in India falls under the strategic segment and is at the heart of the manufacturing sector. A strong machine tool industry is the catalyst for industrial excellence. The machine tool industry in India, Maharashtra, and the world grew rapidly from 2006 till 2009, with a sudden decline in 2009, with the growth rate again picking up and was at an all-time high in 2011. The rate of increase dropped again for nearly three years, with a slowdown, which again picked up in 2015. The Gardner Research ranks India as 10 th largest machine tool consumer in the world, and as the 13 th largest machine tool manufacturer in the world, in 2015. Even though the global growth rate was at 2.9% and was projected to be below 3% in 2016, there has been a positive consensus from industry leaders on a steady growth of machine tool industry in India and especially Maharashtra, in the coming financial year. Indian Machine Tool industry (INR Crores) CONSUMPTION IMPORTS EXPORTS PRODUCTION 296 281 5945 5318 4727 4230 9267 10376 0 2000 4000 6000 8000 10000 12000 2015-2016 2014-2015 Figure 1 overview of the Indian Machine Tool industry Maharashtra is one of the most industrialized states in the country and boasts of being a pioneer in small and medium scaled industries. It has been effectively attracting industrial investments from both domestic and foreign companies for many years now. The manufacturing industry in Maharashtra covers a broad range of industrial products that includes industrial machinery and machine tools. Nearly 35% per cent of the country s output of automobiles value is manufactured in Maharashtra. 1

Undeniably, Maharashtra has been one of the biggest expediters in the growth of machine tool industry in India and will continue to be the hub of industrial advancement in the coming years. Industrial growth in Maharashtra vis a vis other states in India Figure 2: Maharashtra's GDP growth v/s India Source: MIDC Maharashtra is the most industrially advanced state in India and has been the biggest contributor to its GDP. It is an industrial powerhouse where the entrepreneurial attitude is quite strong and has always been at the forefront of industrial growth, with the right industrial ecosystem to support the development. Figure 3 Maharashtra at a glance Source: MIDC 2

Maharashtra and Karnataka have the major chunk of machine tool manufacturers in India. Though machine tool consumption has shifted to other states like Gujarat, Tamilnadu, and Karnataka in recent times, Maharashtra is an already established marketplace where the machine tool industry has deep roots. In the next 5 years, Maharashtra will see a surge of industrial growth with many new manufacturing and infrastructure projects coming up. The government policies and FDI will be supportive to this growth. The proximity of the port to the industrial hubs Mumbai and Pune also facilitates foreign investors to export and import goods into Maharashtra. This also makes Maharashtra a very lucrative place for investments, as it has all the available resources regarding infrastructure, skilled manpower, and ample industrial land. 3

Skilled Manpower A significant gap between requirement and availability Maharashtra ranks 3 rd in terms of engineering colleges in India and has several ITI institutes dispersed all over the state. Mechanical Engineering being the most sought after course in 2016, with 23% of students opting to study it. Even with an astounding number of students taking up Mechanical engineering as their core subject, the industry leaders have all pointed out to a significant gap in the requirement and the availability of skilled workforce in the state. There are several factors that have led to this deficiency, the foremost of which is the emergence of the IT sector in Maharashtra. The IT industry opened a new arena of employment for Mechanical Engineering graduates, and many moved away to it from their core field. IT industry is glamorous and provides generous pay and a work environment that is appealing for many aspirants. Whereas Mechanical engineering jobs involve working on the shop floor amongst noise, heat, and dust, and can be a deterrent for many job applicants. High ranking people in the industry believe there is a huge gap between the curriculum and the requirements of the industry. The course curriculum needs to be revised to make the students industry ready and proficient in using modern technology. There is a considerable gap between what is taught and the knowledge requirements of the industry, from freshers, who wish to join the manufacturing sector. This gap means companies recruit students who need to be given training and practical exposure to modern technology even after completing 4 years of technical education. Companies end up spending a considerable amount of their valuable resources in providing this additional training. The government led training programs that are designed in conjunction with the manufacturing industry would be highly beneficial to help students gain knowledge that is relevant to the industry. The educational institutes also need to equip themselves with the latest technology which will help their students the ground running and be ready to enter the industry armed with up-to-date skills. 4

Infrastructure in Maharashtra Scope for improvement Maharashtra is the most developed state in the country, and most areas in the state are well connected, by road and rail network. It has an excellent telecommunication network and has a stable power supply. The government of Maharashtra has taken up infrastructure projects, from time to time, to develop areas in the state, to make them viable and suitable for attracting significant investments. Despite massive infrastructure projects planned, some regions in the Maharashtra do not have proper infrastructure conducive for industrial growth. The Marathwada region in Maharashtra still faces a lot of challenges when it comes to infrastructure. There is a dearth of solid waste disposal arrangements and an adequate number of effluent treatment facilities in the industrial area. The region also requires a double track rail with electrification from Manmad City to Nanded so that the Marathwada region is well connected to the industrial hubs of Mumbai, Pune, Hyderabad, and Bangalore. Maharashtra Industrial Development Corporation has done an excellent job of creating Industrial pockets throughout the state that supports MSME s and their requirements. The challenge lies in rural areas where there is lack of infrastructure support, which deters OEM s from setting up industries in these regions. This has a direct impact on the growth of MSME s, as the growth of OEM s influences the success of secondary and tertiary allied industries in that region. All round industrial growth of every area in Maharashtra would be instrumental in the growth of the entire state. Skilled workers and their families would find it feasible to move to places that will have affordable housing, educational institutes, and other essential amenities. Not only would it help in increased output, but it would also facilitate economic growth, and give other cities in the state to develop rather than the whole focus being concentrated on Mumbai and Pune. 5

Technological advancements and Industrie 4.0 A prerequisite for sustainable growth and increased productivity Automation plays a crucial role in the manufacturing industry. With the advent of the new buzzword Industrie 4.0, which leads to combining the real and the virtual world in manufacturing. Industrie 4.0 involves the integration of internet of things with manufacturing processes. It is also known as the 4 th industrial revolution and includes connecting manufacturing machines to the internet, to create intelligent networks that allow machines to communicate with each other throughout the entire value chain, without extensive human intervention. Figure 4 Industrie 4.0 and its components Source: CNCTimes.com The machine tool industry in Maharashtra is optimistic of industrie 4.0 and the acceptance of this technology by the end user. Industry leaders believe though optimistic, it is still in its infancy in India and has a long way to go to be fully implemented and integrated with the existing systems. It will take another decade for Industrie 4.0 to be fully operational in India. Industrie 4.0 will capture a significant amount of data that needs to be analyzed and the safety of this proprietary information becomes the matter of utmost priority. The various challenges that include data security, environment, and people friendly systems, informed, and educated employees and affordability of these systems by MSME s, makes Industrie 4.0 still a technology that is at the nascent stage in Maharashtra and India. 6

Research and Development in the machine tool industry in Maharashtra the need of the hour The dependency of the Indian machine tool industry on the import of high precision and sophisticated machines will have a long-term crippling effect on the Indian economy. Each year, the number of machines being imported has been steadily rising. The demand for high technology machines is driving these imports, as few Indian manufacturers can provide such hi-tech machinery. The increased number of imported machines is directly affecting the market share of the Indian machine manufacturers. Indian manufacturers are not able to keep up with these technological advancements and thus are losing the competitive edge to foreign companies. It is necessary for the government of India to understand the strategic importance of the machine tool industry and encourage research and development in this sector just like any other. Following figures indicate the different types of machines being imported, and their value in INR for 2015 & 2016. Figure 5 Import of Metal Working Machines into India (Value Rs. Cr) Source: IMTMA 7

Figure 6 Import of Metal Cutting Machines into India (Value Rs. Cr) Source: IMTMA Figure 7 Import of Metal Forming Machines into India Imports (Value Rs. Cr) Source: IMTMA Industry leaders believe that not much has been done to drive funds towards research and development in the Indian machine tool industry, and that is having a considerable effect on revenue being driven away from our country. Government lead initiatives in research would help to boost the MSME sector in developing hi-tech machinery and reduce imports. 8

Impact of economic and government policies on machine tool companies The latest union budget has been a blessing in disguise for the Indian machine tool industry. Income tax reduction by 25% will bolster production capacities and is a significant step towards the growth of the MSME sector. The decrease in customs duty from 7.5% to 2.5% on three critical components has been extended to all CNC machine tools under HSS code 8456 to 8463. The machine tool industry will be directly impacted and will help to speed up the progress. There is a proposal of setting up of over 100 International skill centers across the country which will ensure availability of skilled workforce for the industry. Industry leaders in Maharashtra have welcomed demonetization as they believe it will help the genuine compliant companies compete with non-compliant companies and gain a footing in the market. The industry had faced a temporary setback in the initial month, but it did not have a direct bearing on the business. Most companies in this sector have clear payment terms set up and as such demonetization has had no influence on their revenue. 9

Make in India movement The challenges The machine tool industry leaders have endorsed the Make in India movement. They believe that this movement will help to direct FDI to this sector and contribute to channelize industrial growth that would support in creating new jobs. It would drive Indian companies to invest in better technology to manufacture machine tools that can compete in the entire world. Even though the make in India has seen positive reactions, many in the industry are waiting to see the practical application of these policies and the benefits. The challenge is in translating the policies. Setting up specific guidelines and taking measures to help in ease of setting up businesses in India, creating jobs for youth, doing away with outdated labor laws and removing bureaucracy and red tape are some of the important factors that the industry is looking forward to. Make in India policy is currently focused on ease of doing business for new investments of large corporates. There has been no action on the growth of existing business units and the MSME segment. Following the Make in India campaign, the Maharashtra government initiated the Make in Maharashtra campaign to attract foreign investments to the state. With this objective, the government has taken up a mission to increase the 'ease of doing business' in the state. It has taken steps to reduce the number of licenses and permissions needed to establish a business in the state. 10

Recommendations For India to be amongst the top countries in the machine tool industry, the government of India and the Maharashtra government together need to focus on the following: The Make in India movement needs to concentrate on the existing businesses in the machine tool industry. Subsidies and government initiatives that boost the business of existing companies will be more beneficial as these business units are already aware of market conditions, competition, and the work needed to establish a business. Rewarding import substitution efforts will boost industrial growth, and it will have a positive impact on new companies entering the market place. It will push the companies to innovate and move away from the made to order economy to product owner economy. The government of Maharashtra needs to simplify processes for starting up business. A simplified and transparent process will attract FDI and in turn, increase industrial output of the state. Along with providing incentives to companies for setting up companies in rural areas, it is vital to develop infrastructure and provide uninterrupted water, electricity, and internet support to these areas. With industrial land prices around Pune and Mumbai increasing exponentially, developing other areas as industrial hubs, and setting up institutes providing training in relevant subjects, setting up of good schools, hospitals and avenues for employment will stop the migration of workforce to urban areas. Application of GST will help industries in Maharashtra as the entire company will have a simplified and unified tax process. The GST will provide a level playing field to industries in Maharashtra to compete with industries in other states of India. Maharashtra government in accordance with industries in the state need to develop a finishing school for students. This finishing school will train students to understand the latest technology, the finer nuances of starting their own manufacturing unit, financial planning, and equip them with application oriented knowledge required to make them industry ready. 11

Investing in research and development for the manufacturing industry should be taken up on a war footing to deal with disruptive innovations. Indian machine tool industry is already a decade behind European machine tool companies when it comes to technological advancements. There needs to be a shift in the attitude of people where instead of cost as a factor that influences the purchase, technology should be the prerequisite for buying any machine tool. Precision and standardization of processes will help to make Indian products well known worldwide for their quality and efficiency. Exports will increase and will lead to rapid industrial growth. 12

INDEX demonetization, 9 economic and government policies, 9 Exports, 12 GST, 11 imported machines, 7 industrial growth, 11 Industrial growth in Maharashtra, 2 Industrie 4.0, 6 Infrastructure in Maharashtra, 5 D E G I M machine tool industry in Maharashtra, 6 Maharashtra, 3 Make in India, 10 MSME s, 5 research and development, 7, 12 Skilled Manpower, 4 R S T Technological Advancements and Industrie 4.0, 6 13