Industry Overview: Forging industry

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Industry Overview: Forging industry
Global Economy: The multi-speed recovery in the global economy that was observed in the first half of 2010 became more entrenched in the second half, as the advanced economies faced greater uncertainty while the emerging market economies (EMEs) experienced consolidation of growth around trend.

The advanced economies which faced the prospect of double dip recession have in fact outperformed GDP growth forecasts made a year ago.

Growth in world industrial production exhibited signs of deceleration after attaining a peak in May 2010, partly reflecting the base effect.

Trade activities, however, have sustained the momentum of a strong recovery, prompting the WTO in December 2010 to retain its September 2010 estimates for growth in merchandise trade volume at 13.5 per cent for 2010.

This high growth, however, needs to be seen against the low base that resulted from the sharp 12.2 per cent contraction experienced in 2009. In value terms, even after expanding by 23 per cent during the first three quarters of 2010, world merchandise trade remained below the peak level attained before the financial crisis.

At 30 per cent, Asian exports increased at a significantly faster rate during the third quarter of 2010 on a year-onyear basis than the 18 per cent growth for world merchandise trade. With deficient domestic demand and high unemployment rate in advanced economies, protectionism remains a possible response, which could hinder overall global recovery.

In December 2010, the ADB revised upward its assessment of growth of developing Asia to 8.5 per cent for 2010 from 8.2 per cent made in September, to reflect the robust expansion of the third quarter, mainly in Eastern and Central Asian countries.

Recent data, however, point to some deceleration in economic activity and accordingly, real GDP growth for the region is projected at 7.3 per cent for 2011. IMF projections made in January 2011 also suggest real GDP growth of 7 per cent for 2011 for Asia, down from 8 per cent in 2010.

Going forward, emerging inflationary pressures reflecting the shrinking output gap and firming global commodity prices could prompt monetary tightening.

Sensitivity of capital inflows to such actions and policy options to deal with larger inflows that, at times, could be distortive, will complicate policy decisions. (Source: RBI publication on External Economy dated January 24, 2011 from a RBI website publication from extracted as on April 13, 2011)

Global growth prospects have improved in recent weeks. The recovery in major advanced economies, which had weakened during Q2 of 2010, regained strength in Q3 of 2010.

Real GDP growth in the US, which had moderated from 3.7 per cent in Q1 of 2010 to 1.7 per cent in Q2 of 2010, improved to 2.6 per cent in Q3. Corporate capital spending and retail sales in the US have improved. While uncertainty persists in the Euro area and Japan, the baseline outlook for both is improving. Growth in EMEs has remained strong, supported largely by domestic demand.

The 10-year benchmark US government securities yield increased from 2.4 per cent in early October 2010 to 3.4 per cent in mid-January 2011, indicating, among other things, rising inflationary expectations. (Source: Third Quarter Review of Monetary Policy2010-11: Reserve Bank of India from extracted as on April 08, 2011)

Indian Economy

India is the world's largest democracy by the population size, and one of the fastest growing economies in the world.

For the fiscal 2009-10 India's economy grew by 7.4 percent which is an upward revision from earlier estimates of 7.2 percent due to higher-than-anticipated growth in agriculture, mining and manufacturing sectors. Despite global downturn, it has grown at an average rate of 7.10% per annum during the last three years.

According to CIA World Factbook, India's estimated population was 1.16 billion people in July 2009. India had an estimated GDP of approximately US$ 3,548.0 billion in 2009, which makes it the fourth largest economy in the world after the United States of America, China and Japan, in purchasing power parity terms.

Real GDP in India increased by 8.9 per cent during the first half of 2010-11, reflecting strong domestic demand, especially private consumption and investment, and improving external demand.

Although on a cumulative basis, the IIP grew by 9.5 per cent during April-November 2010, it has been volatile in the current financial year with growth rates ranging between 2.7 per cent and 16.6 per cent. Overall, robust corporate sales, large indirect tax collections, advance tax payments and leading indicators of service sector activity suggest persistence of the growth momentum.

On the other hand, the latest quarterly Industrial Outlook Survey conducted by the Reserve Bank during October-December 2010 indicates a marginal moderation in overall business expectations during January- March 2011 from their high level in the previous quarter.

The Reserve Bank's order book, inventories and capacity utilisation survey for July-September 2010 showed a marginal improvement in capacity utilisation in Q2 of 2010-11, while the HSBC Purchasing Managers' Index (PMI) showed some moderation in the pace of manufacturing sector expansion in December 2010.
(Source: Third Quarter Review of Monetary Policy 2010-11: Reserve Bank of India from extracted as on April 08, 2011)

The Government of India's Eleventh Five Year Plan, which covers the period from 2007 to 2012, aims to achieve a sustainable growth rate of 9.0% with emphasis on a broad-based and inclusive approach that would improve the quality of life and reduce disparities across regions and communities.
(Source: Government of India, Eleventh Five Year Plan 2007-2012, Volume I , extracted as on September 29, 2010)

Indian Forging Industry

The Indian Forging industry has now emerged as a major contributor to the manufacturing sector of the Indian economy. Forging industry is a basic industry and such industries tend to grow in a country in relation to the rate of growth of its GDP.

As far as India is concerned, we expect our GDP to continue to grow at a higher pace and therefore, the basic industries will grow and so will the forging industry. Along with automotive sector, non-automotive sectors also have shown positive growth rate during past 2 years. Opportunities for exports are huge in forging industry.

An increasing number of companies from all over the world are coming to India to procure components and products. Hence the optimism that the forging industry will continue to grow and do well in the immediate future.

The composition of the Indian forging industry can be categorized into four sectors- large, medium, small and tiny. By and large, the Indian forging industry ( an important segment of the Indian auto component industry) still remains highly fragmented, with around 400 units (out of which only 9 -10 are large units scattered all over India).

These SMEs form the backbone of the industry. The organized sector accounts for about 65-70% of the total forging production in the country, while unorganized players (who are mainly small and tiny units) cater mainly to job work and the replacement market or tier 3 or tier 4 component manufacturers.

The trend has been to cater to or set up base in global markets. Indian forging companies like Amtek Auto, Bharat Forge, Sundram Fasteners and some others have setup bases through M&A s in other emerging economies to establish themselves as low cost suppliers.

The industry was previously more labour intensive. It is closely estimated that the industry provides employment (direct and indirect) to about 200,000 people. More than around 65% of the companies in the forging employ less than 200 people.

Now with increasing globalization, the industry is becoming more capital intensive. However, the high cost of capital (technology) still remains a major constraint facing the forging industry (especially the SMEs). The total investment in the large and medium sectors is estimated to be around US $ 700 million.

The small scale units too are increasing their capital investment to keep pace with increasing demand in the global markets as also to broaden the areas of demand for forgings. (Sources: The Indian Forging Industry-A Profile, AIFI, website extracted as on September 29, 2010)

Performance of Forging Industry

The Indian Forging industry has been growing at a CAGR of 29% from 2003 onwards, and on an average exports contribute around 10-15% of the industry's production. The capacity of the industry is estimated to be around 1.5 million tones and the industry currently operates around 70% capacity utilization producing around 1.0 -1.2 million tones of forgings.

During the year 2007-2008, the overall production of forgings increased to about 1.2 million tones, the capacity utilization did not improve as much as in the previous year. In the previous year the industry could utilize about 65 per cent of the additional capacity created. In the year 2007- 08, the average capacity utilization in the industry stood at about 70%.

India exported forgings whose value is estimated at around US$ 472 million in 2007-08. Technological developments have also contributed to export growth. The industry's major markets are USA, Europe and China.

However, only about 30-35 manufacturing units are currently contributing to exports directly. On the domestic front many Indian forging companies have posted moderately good results in 2007-08. Forging industry tends to grow in a country in relation to the growth rate of its GDP and its automotive industry.

The Indian forging industry showed a robust growth in the period between the year ended March 31, 2001 and the year ended March 31, 2008, with a CAGR of 15.6%. During the same period, export sales grew at a CAGR of 25.1%. Details of the forging production and export in India in the stated period are shown in the table below:

Key challenges/Issues
Major challenges on domestic and export fronts that the forging industry is facing are as follows:


 Volatile international and domestic prices of forging quality steel
 Compliance with stringent environment norms. 
 Inadequate backward/forward linkages. 
 Difficulties associated with consolidation of capacities.
 High attrition rate, especially at the senior management level.
 High interest rates.


 Impact of the volatile foreign exchange rates.
 Reluctance of the overseas buyers to compensate for the increased input cost in India
 Inadequate investment in technology upgradation.
 Cost competitiveness adversely affected due to constant cost escalation.
(Sources: The Indian Forging Industry-A Profile, AIFI, website extracted as on September 29, 2010)

Forging Industry for Non-Automotive Sectors

Our company has made a conscious decision to focus on non-automotive sector as our major business strategy. We are manufacturing products for non-automotive sectors and we believe that, positive outlook of different user sectors, will drive the growth of forging industry for non-automotive sectors and also the growth of our company.

Our new project will have the capacity to manufacture products for various sectors which includes, Oil & Gas, Power sector - thermal, hydro and nuclear power, wind power, chemical & petro-chemical, heavy fabrication (OEMs), ship building, defence, general engineering and aerospace.

The major opportunities for non-automotive forgings are in the following Industries

 Oil and Gas
 Power - Thermal, Hydro and Nuclear
 Ship Building
 Aerospace & Defence

Oil and Gas

Efficient, reliable and competitively priced energy supplies are prerequisites for accelerating economic growth. For any developing country, the strategy for energy development is an integral part of the overall economic strategy. Realisation of high economic growth aspirations by the country in the coming decades, calls for rapid development of the energy market.

India meets nearly 30 percent of its total energy requirements through imports. With the increase in share of hydrocarbons in the energy supply/use, this share of imported energy is expected to increase. Projected global oil consumption is expected to register a substantial growth over the present levels.

High oil and gas prices have prompted increased investments in the exploration and production (E&P) sector posing new challenges for the sector in the form of increased cost of operations due to high service costs, exposure to logistically difficult terrain and shortage of technical manpower. World oil use is expected to grow from about 80 million barrels per day (mbpd) in 2003 to 98 mbpd in 2015 and 118 mbpd in 2030 as per Energy Information Administration (EIA), International Energy Outlook (IEO) 2006.

Global refinery scenario particularly that of Asia is turning attractive. In Europe, there has been no substantive addition in the refining capacities. At a number of places refineries are being closed down because of environmental concerns and uneconomic size.

In the US, refining capacity has increased marginally. In Central Asia, the refineries are old and require a huge dose of investment. The only area, which has seen a spurt in refining capacity, is the Middle East, India and China.

The average annual growth rate of refining capacity in the last one decade in the world is 1.2 percent. Most of this capacity addition has been in Asia- Pacific region, which contributed about 56 percent of the capacity addition.

Natural gas, accounting for 24 percent of the total global primary energy supply, is the third largest contributor to the global energy basket. Natural gas consumption is expected to increase at an average of 2.4 percent per year from 2003 to 2030 as per EIA, IEO 2006.

Integration of Global Gas Markets has by far been the most significant development during the period 2002- 07. LNG has been one of the key drivers of this integration. With an almost 75 percent increase in liquefaction capacities from 87 MMTPA to more than 150 MMTPA over the past 10 years, the share of LNG in global gas trade has grown from 14 percent to 26 percent.

Asia today accounts for 70 percent of the total LNG trade; Japan and Korea are meeting their entire gas requirement through imports. Natural gas accounts for 3 percent of China's primary energy consumption and 9 percent of that of India. These two countries today account for less than 3 percent of the global gas consumption.

But, with greater integration of the natural gas markets at a global level, the share of natural gas consumption in China and India together is expected to account for more than 17 percent of the total global natural gas consumption by the year 2020 as has been reported in the Energy Intelligence Agency Global Energy Forecast 2004.

The structure of primary energy consumption in India shows that coal (51 percent) dominates as the major energy source. Hydrocarbons (45 percent) is the next available energy provider of the nation. Natural gas is fast emerging as an alternative; it meets around 9 percent of the primary energy needs Considering the global trend of shift in energy mix from oil to gas, the share of gas in consumption pattern, in the Indian context, is also likely to increase gradually in the days to come.

Cross-country pipeline networks, preferred as a cost-effective, energy-efficient, safe and environment friendly mode for transportation of crude oil and petroleum products, have been playing a vital role in meeting India's energy demand. They are now a key constituent of the country's infrastructure, transporting crude oil from import terminals as well as domestic sources to inland refineries, and finished products from refineries to major consumption centres.

Creating sustainable transportation system through cross-country pipeline in the next few decades with the objective of preserving environment and protecting human health and safety would be the great challenge for the petroleum industry. As on 1.4.2006 India has around 7,696 kM of product pipeline in the country with total capacity of around 55.58 MMTPA.

In addition there are 1850 kM of LPG pipelines with a capacity of 3.83 MMTPA. During 2005-06, capacity utilization of product pipeline in the country was around 60 percent only. The share of product movement through pipeline was only 32 percent of total POL (Petroleum Oil and Lubricants) consumption as compared to more than 62 percent in developed countries.

Projected high domestic demand for petroleum products is expected to push investments into the refining sector. India, with 18 refineries, currently has a surplus refining capacity which has placed India amongst net petroleum product exporter countries.

The Government is seriously considering promoting India as a competitive refining destination to service export market for petroleum products as also integrating it with the petrochemical and chemicals businesses to produce and export higher revenue generating value added products.

Major Thrust Areas for the Petroleum and Natural Gas Sector

Exploration & Production
- Increasing domestic production by attracting investments, both private and public, in the upstream sector. This needs to be attempted by involving industry participants in formulating an investor friendly E&P investment regime.
- Taking all steps to increase the production from ONGC's (Oil and Natural Gas Corporation) assets including their maturing field.

- Equipping domestic refining industry both existing and planned to successfully meet the challenge of producing fuels complying with prescribed environment friendly specifications which are increasingly becoming stringent.
- Promoting India as a competitive and economically viable refining destination to service both the domestic as well as the export market.

- Increasing the coverage of pipelines throughout the country.
- Leveraging the inherent advantages of using pipelines to transport products and enhancing the pipeline infrastructure in product pipelines.
- Building a sound gas transportation infrastructure to support the projected growth of the gas market. Setting up of a regulator under the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act 2006) to regulate the downstream oil and gas sector, including gas infrastructure, is expected to provide clarity and comfort to investors interested in India's gas transportation sector.
(Source: Report of Gol's Working Group on Petroleum & Natural Gas Sector for the XI Plan-2007-2012 extracted as on September 29, 2010)

The global scenario and planned and proposed actions of Government is expected to attract large scale investment in exploration, refining and distribution of Oil and Gas (through pipe lines).

This would lead to increase in demand for various engineering and capital goods requirements for setting up the necessary infrastructure. The demand capital goods production will entail demand for its components including various forging products.

Forging components for Oil & Gas Industry includes the followings:

1. Flanges
2. Forged Shells
3. Nozzles
4. Tube Sheets/Discs
5. Valve Bodies
6. Wellhead forging
7. Customised OEM components.


The 10th Five Year Plan had a total capacity addition target of 41,110 MW comprising 14,393 MW hydro, 25,417 MW thermal and 1,300 MW. However, capacity addition of 17,995 MW has been achieved during 10th Plan till 31/12/06.

As per the Integrated Energy Policy (IEP), issued by the Planning Commission, GDP growth rates of 8%-9% have been projected during the 11th Plan. During eleventh plan of planning commission, assuming a higher growth rate of 9% and assuming the higher elasticity projected by the IEP of around 1.0, electrical energy generation would be required to grow at 9% p.a. during the 11th plan period.

Also generation has to be collectively met by utilities, captive plants and Non-conventional energy sources. The following points should be noted about power sector:

1. For hydro projects, a capacity addition of 15, 585 MW is envisaged for 11th Plan.
2. Capacity addition of 3,160 MW nuclear plants has been programmed during the 11th Plan by the Nuclear Power Corporation of India Limited. In view of the recent developments in the Nuclear Sector, capacity addition in nuclear plants during 12th Plan is expected to be much higher.
3. The working group of planning commission for Power sector has recommended generation planning based on growth of energy generation requirement of 9.5%.
4. Based on the preparedness of the projects, it was envisaged that a capacity of about 68,869 MW is feasible for addition during 11th plan period.
5. Out of feasible capacity addition of 68,869 MW, projects totaling to 31,345 MW are already under construction and the balance projects totaling to 37,524 MW have been committed for implementation by the concerned generating companies during the 11th Plan.

The sector wise break-up of feasible capacity addition during 11th plan is given in Table below:

CENTRAL 9685 23810 22060 1000 750 3160 36655 (53.2%)
STATE 2637 20352 19365 375 612 - 22989 (33.4%)
PRIVATE 3263 5962 5210 0 752 - 9225 (13.4%)
ALL-INDIA 15585 50124 46635 1375 2114 3160 68869 (100%)

During the 12th Plan period, assuming a GDP growth rate of 9% per annum and elasticity 0.8 as compared to 1.0 during 11th plan mainly due to adoption of energy efficient technologies & other Energy conservation and Demand Side Management measures being taken up during 11th Plan, electricity demand is likely to grow @ 7.2% p.a. Keeping this in view, the energy generation should increase to a level of 1470 BU by 2016-17 from a level of 1038 BU in 2011-12.

Sectoral Features


India is duly concerned about climate change and efforts are on to promote benign sources of energy. Hydro Power is one such source and is to be accorded priority also from the consideration of energy security. Irrespective of size and nature of hydro projects, whether ROR or Storage projects, these are all renewable technologies.

However, execution of hydro projects requires thorough Survey and Investigation, preparation of DPR, development of infrastructure, EIA and other preparatory works, which are time consuming and require two to three years for their preparation. It would take about 5 years to execute a hydro project after the work is awarded for construction.

Thus in order to achieve completion of a hydro project during 11th plan, the project should either be already under construction or execution should start at the beginning of the plan. Keeping in view the preparedness of various hydro projects, a capacity addition of 15, 585 MW is envisaged for 11th Plan.


Nuclear is environmentally benign source of energy and over a period of time, its proportion in total capacity should increase. Keeping in view the availability of fuel, a moderate capacity addition of 3,160 MW nuclear plants has been programmed during the 11th Plan by the Nuclear Power Corporation. All projects are presently under construction.

However, in view of the recent developments in the Nuclear Sector, capacity addition in nuclear plants during 12th Plan is expected to be much higher. Recently, agreement has been signed with USA in respect of nuclear co-operation which is expected to improve the supply of nuclear fuel for nuclear power plants.

It is also expected that execution of nuclear projects will also be opened up to enable participation by other PSUs and private sector.

The effect of this is likely to be visible in 12th Plan period. Nuclear Power Corporation of India has indicated a capacity addition of about 11,000 MW during 12th plan. In addition, NTPC have also expressed their intention to enter into the nuclear power arena and have proposed an addition of 2,000 MW during 12th plan period.

Status of NPCIL's Droiects under construction
Project Capacity (MWe) Expected Commercial Operation
KUDANKULAM ATOMIC POWER Unit 1 - Mar-2011 2 x 1000 PROJECT Unit 2 -Dec-2011
 Unit 7 - Jun-2016 RAJASHAN AOMIC POWER PROJECT 2 x 700 Unit 8 -Dec-2016
KAIGA ATOMIC POWER PROJECT 1 x 220 Unit 4-Dec-2010
 Unit 3 - Jun-2015 KAKRAPAR AOMIC POWER PROJECT 2 x 700 Unit 4 -Dec-2015


Although gas is relatively a clean fuel, at present there is uncertainty about the availability, period of availability and price of gas. Only 2,114 MW gas based capacity has been planned for 11th Plan where gas supply has already been tied up.

This does not include NTPC's gas based projects at Kawas and Gandhar, totalling to 2,600 MW, for which NTPC says that it has the gas supply contract but the matter is sub-judice. However more gas based projects could be taken up for construction as and when there is more clarity about availability and price of gas.

Coal & Lignite based Thermal plants

Coal is expected to be main stay of power generation in the years to come. The following criteria have been adopted for identifying the coal and lignite based projects for inclusion in the 11th plan.

(Source: Report of Gol's Working Group on Power Sector for the XI Plan-2007-2012 and extracted as on September 29, 2010)

It is expected that the market for components involving a long manufacturing cycle, such as heavy forgings and those using special raw materials, is likely to open up first, followed by that for construction and engineering services, and lastly by that for turbine plant equipment, electrical plant, and other balance of plant equipment.

Forged component for power sector includes the followings:

1. Wind Mill Shafts.
2. Rotor Discs
3. Shafts for Electrical Motors
4. Rotors for Generators
5. Steam turbines shells
6. End fittings for Nuclear Reactor

Ship building

Shipping plays an important role in the transport sector of India's economy. Approximately, 95% of the country's Exim merchandise trade by volume (70% in terms of value) is moved by sea. India has one of the largest merchant shipping fleet among the developing countries and is ranked 20 in the world.

Indian maritime sector facilitates not only transportation of national and international cargoes but also provides a variety of other services such as cargo handling services, shipbuilding and ship repairing, freight forwarding, light house facilities, training of marine personnel, etc

The draft policy for the Maritime Sector specifies increase in tonnage as the main objective in Shipping. Increase in tonnage for the growing economy is important for the following reasons:

a) Freight Revenue remains within the Country
b) National tonnage gives the negotiating power to control freight costs
c) National tonnage spawns shore based services
d) National Security Concerns


The Shipping Industry have presented three scenarios of 5-year tonnage growth targets as hereunder:

Ist Target (10 million GT)

To achieve a target of 10 million GT (approx. 830 vessels based on existing tonnage per ship) at the end of next 5 years would involve further addition of 279 ships of 4.16 million GT to the Indian fleet over and above the new acquisitions/replacements of 560 ships of 4.67 million GT.

2nd Target ( 12 million GT)

To achieve a target of 12 million GT (approx. 955 vessels) at the end of next 5 years would involve further addition of 404 ships of 6.16 million GT to the Indian fleet over and above the new acquisitions/ replacements of 560 ships of 4.67 million GT

3rd Target (15 million GT)

To achieve a target of 15 million GT (approx. 1160 vessels) at the end of next 5 years would involve further addition of 609 ships of 9.16 million GT to the Indian fleet over and above the new acquisitions/ replacements of 560 ships of 4.67 million GT

The investment required for this under the three scenarios referred to above is estimated to be as under:
Target - 1: Rs. 35000 crores target - 2: Rs.55000 crores target - 3: Rs.80000 crores

The Shipping Corporation of India Ltd. has proposed to acquire 62 vessels of various categories during 11 Plan period. The SCI has proposed an outlay of Rs.13,135 crores (Rs.3705 from IR and Rs.9430 crore from EBR/ECB) for the ongoing and new schemes including the requirement for joint ventures. (Source: Report of Gol's Working Group on Shipping Sector for the XI Plan-2007-2012)

The Indian Shipbuilders Association (ISBA) has carried out an assessment of the present and future growth trend of the industry and are of the view that this industry can grow at a rate of more than 30% and this momentum can be maintained for the next 10 years to reach a level of XI Plan of 5 million DWT order book as against 1.3 million the X Plan. With this shipbuilding industry would also be able to achieve a world share of 2.2% and an annual turnover ofRs. 18,000 crores (2.5 Billion $) in the last year of 11 Plan.

It is expected that by the time the shipbuilding industry matures by 2017 it would have attained more than 7.5% of global order book and will have a turnover of Rs 40,500 crs (9 billion $).

Projected order book turnover

2006-07 2007-12 2012-17
Order Book (Mn DWT) 1.3 5.00 18.00
Global Order Book (Mn DWT) 231.2 231.2* 231.2*
India's Share of Global Order book 0.4% 2.2% 7.8%
Delivery (Mn DWT) 0.65 2.50 9.00
Turnover (US$ Billion) 0.65 2.50 9.00
Shipbuilding Industry % of GDP 0.04% 0.16% 0.27%
Total Employment 12,000 78,000 2,52,000
* The global order book is likely to decline after about 2010 onwards and in that event the global share will increase.

With the thrust of the government for increasing the indigenous tonnage capacity we believe that the market size of the forging components required in this sector will grow which will be beneficial for the non- automotive forging manufacturers. The Following is the list of forging components used in shipping products:

1. Crank Shaft
2. Motor Shaft
3. Connecting Rod
4. Propeller Shaft
5. Pintle
6. Rudder Stock
7. Piston Crown

Aerospace and Defence

The Civil Aviation sector has undergone dramatic expansion during the Tenth Five Year Plan period. The rapid growth of the economy especially during the last four years has been accompanied by a sharp increase in the volume of air traffic. The Ministry of Civil Aviation has given "in-principle" approval for import of 496 aircraft and, in the next five years, more than 250 aircraft are likely to be acquired by the scheduled operators.

With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts.

Today, private airlines account for around 75 per cent share of the domestic aviation market. India has jumped to 9th position in world's aviation market from 12th in 2006. The scheduled domestic air services are now available from 82 airports as against 75 in 2006.

The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 5 years. The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to handle 280 million passengers by 2020. Investment opportunities of US$ 110 billion envisaged up to 2020.

With a combined fleet strength of more than 110 aircraft, NACIL is the largest airline in India and compares favourably with other airlines in the Asian region such as Emirates (93), Singapore (118), and Malaysia (110). The company is in the process of a major fleet expansion and is acquiring 111 state-of-the-art aircraft for its fleet.

Out of these, 3 Boeing 777-200LRs, 3 Boeing 777-300ER, 10 Boeing 737-800, 6 A319 and 5 A321 aircrafts have already been received. The remaining aircraft from Boeing and Airbus would be received between 2008 and 2011.

The main objectives of the aviation sector as set out in the Eleventh Five Year Plan would be to provide world class infrastructure facilities, safe, reliable and affordable air services so as to encourage growth in passenger and cargo traffic, and air connectivity to remote and inaccessible parts of the country. Apart from developing major and green field airports, the modernization of Air Traffic Management is also envisaged.
(Source : Website on budget of Ministry of Finance, Government of India - and website of Confederation of Indian Industries website- extracted as on September 29, 2010)

India is poised to become a large commercial and defence aircraft market. With rising passenger traffic and increasing military and defence expenditures, the demand for aircrafts is expected to increase. Boeing expects a demand of between 900 to 1,000 commercial aircraft worth USD100 billion approximately in the next 20 years.

This also suggests that a significant portion of business opportunity could accrue to India, due to the associated offsets. The defence offset policy has been under implementation and a formal civil offset policy is also expected to follow shortly.

The total spending in the next 5 years is expected to be between USD25 billion (assuming uniform demand) for commercial aircrafts and USD100 billion as defence expenditure. Out of the defence expenditure, approximately 15-20 percent (USD15-20 billion) is expected to be spent on military aircrafts.

Assuming an offset of 30 percent for the civil sector too, the total offset opportunity for the aerospace sector is valued to be at least USD10-15 billion. As Indian manufacturing capabilities mature over the years, it is expected to capture a large share of this opportunity.

The Indian aerospace industry is one of the fastest- growing aerospace markets in the world with an expanding consumer base comprising airlines, businesses and High Net Worth Individuals. The rapid growth of this industry has attracted major global aerospace companies to India.

All segments in the aerospace industry, including civil and military aviation and space, are showing a significant level of growth.

There are several factors driving growth in manufacturing in India's aerospace industry. These include both macro and micro factors - strong economic growth that has resulted in rapidly growing domestic aircraft demand, the liberalization of civil aviation policies, offset requirements, a strong domestic manufacturing base, cost advantages, a well-educated talent pool, the ability to leverage IT competitiveness and a liberal Special Economic Zones law that provides attractive fiscal benefits for developers and manufacturers.

The challenges include access to technology, funding, poor availability and high cost of raw material and certification processes. As a support service to the aviation industry, the sector will grow with the industry.

Additionally, the globalization of MRO services, manpower cost competitiveness, the availability of talent, locational advantages and the presence of specialist capabilities combine to make India a potential global/regional MRO hub. India's MRO segment is estimated to grow at 10 percent and reach USD1.17 billion by 2010 and USD2.6 billion by 2020.
(Source: website of Confederation of Indian Industries website- extracted as on September 29, 2010)


With a view to achieving self-reliance in the vital sector of Defence, the Department of Defence Production has been endeavouring to indigenise defence equipment wherever technologically feasible and economically viable.

It has been a part of indigenisation effort to locate and develop broad-based indigenous supply sources both in the public sector as well as in the civil trade for many sophisticated and complex equipment.

There has been a significant change in the role of private sector/civil trade in the field of indigenisation i.e., from the role of supplier of raw-materials, components, sub-systems, they have now become partners in the manufacture of complete defence equipment/ systems.

The defence industry sector, which was so far reserved for the public sector, has now been opened up for participation by the Indian Private sector.

The Indian companies are now eligible to apply for license to set up defence industry for manufacture of all types of defence equipment. Such companies can also have foreign direct investment, upto 26percnt; of their equity. This is a watershed in the history of Defence Production.

Detailed guidelines have already been issued by the Department of Industrial Policy & Promotion (DIPP) in consultation with the Ministry of Defence setting out the modalities for consideration of applications for grant of license.

(Source: Website of Ministry of Defence Government of India - extracted as on September 29, 2010)

Defence Offset Clause:

-- Procedure for implementing the Offset provisions was promulgated vide MoD ID No. 81/Director (Acq)/06 dated 10 May 06 and has been duly included as Appendix D to Defence Procurement Procedure (DPP) 2006. The offset clause would be applicable for all procurement proposals where indicative cost is above Rs 300 Crores and the schemes are categorized as 'Buy (Global)' involving outright purchase from foreign/Indian vendors and 'Buy and Make with Transfer of Technology' i.e. Purchase from foreign vendor followed by Licensed Production.

-- For the purpose of defence purchases made under the DPP 2006, offset obligations shall be discharged directly by any combination of the following methods:
a) Direct purchase of, or executing export orders for, defence products and components manufactured by, or services provided by, Indian defence industries, i.e., Defence Public Sector Undertakings, the Ordnance Factory Board, and any private defence industry manufacturing these products or components under an industrial licence granted for such manufacture. For the purpose of defence offset, "services" will mean maintenance, overhaul, upgradation, life extension, engineering, design, testing, defence related software or quality assurance services.
b) Direct foreign investment in Indian defence industries for industrial infrastructure for services, co-development, joint ventures and co-production of defence products.
c) Direct foreign investment in Indian organisations engaged in research in defence R & D as certified by Defence Offset Facilitation Agency (DOFA).

-- The offset obligations are to be fulfilled coterminous within the period of the main contract.

-- All offset offers which satisfy the minimum eligibility conditions will be placed on par and no preference will be given for any extra amount offered.
(Source: Ministry of Defence- extracted as on September 29, 2010)

It is expected that with growing GDP the aerospace and defence sector will provide huge investment opportunities over coming years which include fleet augmentation, replacement in aerospace sector and promoting indigenous procurement in defense supplies and befits due to defense offset clause.

The Following is the list of forging components used in Aerospace and Defence products:
1. Gun Barrels
2. Valve Bodies
3. Missile and Torpedo components
4. Impeller Hubs

Source:Sanghvi Forging & Engineering Ltd. - 04/05/2011

The information in this section has been extracted from various government publications and industry sources. Neither we nor any other person connected with the Issue have verified this information. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured and, accordingly, investment decisions should not be based on such information.The source of information in this section is mentioned at relevant places.

Story first published: Wednesday, May 4, 2011, 12:30 [IST]
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