The
road ahead
With
the onset of reforms and globalisation, every sector of India’s industry
faces new challenges. The concept of globalisation has gained importance
in recent times along with liberalisation. It can be explained as a
two-way interactive process in which the internal mainsprings of the
growth process are reinforced, by interacting with the world, through
international trade. Thus, an economy has to be liberalised before it
can benefit from the globalisation process.
One
of the most affected sectors of this globalisation process is the capital
goods sector. With issues as diverse as technology and quality on one
side and increasing competition on the other, machine tool industry
is no exception, being the core of capital goods – machines that produce
machines. Machine tools is universally recognised as a ‘strategic industry’
for any industrialisation. Known as a ‘mother industry’, it makes machines
like lathes, cutting machines, tools for various applications, which
are critical capital equipment for a broad spectrum of industries, especially
the capital goods industry. In fact, the machine tool industry constitutes
the backbone of the industrial sector. Even though the Indian machine
tool industry is a small segment of the engineering industry, it plays
a very important role in the development and technology up-gradation.
Domestic
Industry
There
are an estimated 160 large and medium and about 3000 small units manufacturing
machine tools in India. Over 350 manufacturers in the organised sector
produce Rs 25 billion worth of machine tools, cutting tools and other
peripherals. The captive segment, which comprises units in the industries
producing their own requirements, is substantially large. In terms of
output, the top 21 units in the organised sector account for nearly
80 per cent of the total production.
The
industry is now exposed not only to global competition but also to global
customers. Considerable changes have occurred in the structure of India’s
machine tool industry with many of the hitherto strong players getting
weaker and several new players entering the fray.
International
Perspective
The
global machine tool production is estimated at $35.8 billion in 2001
with Japan, Germany, Italy and US together accounting for almost two-thirds
of the world output. These four countries are also amongst the top exporting
nations of the world with exports worth around $13 billion in 2001 (Source:
Gardner Publications, Inc). This is despite Japan’s long period of economic
trouble in its machine-tool industry. However, with the slowdown in
the global economy, the world machine tool production declined by more
than 3 per cent in 2001 from $37 billion in 2000.
Despite
having a large and diversified industrial sector and registering rapid
growth, India’s share in global machine tool production was less than
0.4 per cent in 2001. While Japan’s export orientation is as high as
70 per cent, India’s is a mere 8 per cent, less than China’s 11 per
cent export orientation. If we look at imports as a proportion of total
consumption, we find that India’s dependence on imports at about 45
per cent in 2001 is relatively low as compared with other major consumers
of machine tools such as China, which has an import dependence of 51
per cent.
The
domestic industry still relies heavily on the import of computerised
numerically controlled (CNC) components as the use of CNCs has grown.
Conventional machines are used widely for customised functions and mass-production.
Some Indian manufacturers are capable of producing good quality machines
indigenously. However, some can be up to 30 per cent more expensive
than the cheapest imported ones.
Notwithstanding
this scenario, imports of machine tools actually went down in 2001.
India’s imports of machine tools in fiscal year 2001-02 declined by
a significant 12
per cent, to $193 million. The main exporters of machine tools to India
were Germany, Japan, Italy and
US. Together, these countries accounted for almost 62 per cent of India’s
total imports. The figures for the first four months of the current
fiscal year also indicate a fall in
imports, albeit a little less pronounced at
about 5.6 per cent over the corresponding period last year. This is
notwithstanding the
fact that imports from US have increased by almost 50 per cent in the
period between April-July 2002.
The
general approach now amongst the domestic machine tool players is to
buy technology as and when required. As a result, majority of the companies
in this sector entered into technological and trading collaborations
with foreign firms for some products through technology transfers or
joint ventures. However, some joint ventures have failed because of
insufficient volumes in the domestic market. Some foreign investors
have, therefore, included a buyback arrangement or used India as a regional
base from which to export their products.
The
potential competitors –
China and Taiwan
China
is the fifth largest producer with a share of about 7 per cent and third
largest consumer of machine tools in the world. After declining till
1996, production has risen continuously thereafter – growing by an almost
20 per cent in 2001, making it probably the only country to record such
formidable growth. China’s production in 2001 amounted to $2.6 billion,
which is far greater than Indian machine tool industry. This gigantic
size enables it to leverage volumes and low process to enter hitherto
closed markets. Thus, the size in itself, driven by volumes and types
of machines, demonstrates its competitive potential. Chinese machine
tool industry is heavily concentrated in conventional non-NC machine
tools that it produces in large volumes. Even 5 per cent of Chinese
volumes, if priced aggressively, could drive Indian manufacturers out
of the market...(contd.)
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