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Dun & Bradstreet – Oriental Bank of Commerce SME Cluster Series 2016: VadodaraPublished in India by Dun & Bradstreet Information Services India Pvt Ltd. Registered OfficeICC Chambers, Saki Vihar Road,Powai, Mumbai - 400072.CIN: U74140MH1997PTC107813Tel: +91 22 6676 5555, 2857 4190 / 92 / 94Fax: +91 22 2857 2060Email: [email protected]: www.dnb.co.in

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Director Pawan Bindal

Research and Analysis Naina Acharya, Mihir Shah, Rohit Singh, Yogesh Jambhale, Christopher Dsouza, Aakanksha Sawant, Rohit Pawar, Amol Lad

Sales Head Jayesh Bahadur

Sales Team Suhail Aboli, Asha Nair, Tanya Bedi, Apoorwa Tyagi, Nittin Maheshwari, Sunena Jain, Sapna Mishra, Nehal Khosla, Aloka Chatterjea, Sindhu Ravi, Ajith Alex George, Girish Menon, Sandeep Parakkal

Operations Team Nadeem Kazi, Prem Kumar, Ankur Singh, Sumit Sakhrani, Rajesh Gupta, Parth Desai, Parmeshwar More

Design Team Mohan Chilvery, Tushar Awate, Aditya Salvi, Sonal Gangnaik, Shilpa Chandolikar

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Dun & Bradstreet – Oriental Bank of Commerce SME Cluster Series 2016: VadodaraISBN 978-93-82060-94-9

ContentsExecutive Summary ...........................................................................1

Research Methodology ......................................................................3

Overview of MSMEs in India .............................................................5

Vadodara Cluster Overview .............................................................13

Industry Overview

Chemicals .................................................................................. 23

Engineering ................................................................................29

Pharmaceuticals ..........................................................................35

Textiles .......................................................................................41

Vadodara Cluster Insights ................................................................45

1

Executive SummaryDun & Bradstreet India, in association with Oriental Bank of Commerce, reinforces its commitment towards the development of small & medium enterprises (SMEs). As a sign of this commitment, we feel immense pride in launching the cluster based report, ‘Dun & Bradstreet – Oriental Bank of Commerce SME Cluster Series 2016: Vadodara’.

To gain deeper insights about Vadodara cluster, Dun & Bradstreet conducted a study of the small and medium enterprises (SMEs) from Vadodara. SMEs from varied sectors such as engineering, textiles, chemicals, pharmaceutical and information technology among others were a part of this study. The study was aimed at finding the perspective of SMEs about the business environment in Vadodara cluster including their growth prospects, guidelines for new entrepreneurs and future challenges among others.

Key findings from our study are as under:-

• More than 60% of respondents find it easy in terms of doing business in Vadodara

• More than 50% of respondents were very optimistic about the growth of their business in the next 3 year

• Some of the strategies to succeed for new entrepreneurs keeping in mind today’s business environment include -

o Focus on good and sound sales & marketing

o Maintain good quality products

o Timely supply of goods & services

• Some of the major challenges for entrepreneurs doing business in Vadodara in the next 2-3 years include -

o Availability of skilled labour with around 57% respondents indicating this as a major challenge

o Around 53% cited competition from multinational companies as another challenge

o Around 43% of the respondents found lack of infrastructure development in the city

• More than 80% Vadodara-based SMEs agreed that ‘Make in India’ campaign is beneficial for them

Naina R AcharyaDeputy Leader - OperationsEconomic Analysis GroupDun & Bradstreet India

3

Research MethodologyObjective of the ReportThe objective of “SME Cluster Series 2016: Vadodara” is to develop a one-point reference document, which will bring to the fore the business perspective, financing requirements and preferences, outlook on growth prospects and various other parameters for businesses operating in the Vadodara cluster. The report aims to provide insights that will help enterprises take informed decisions.

Methodology

1. Desk Research A detailed review of relevant literature for the Vadodara cluster was conducted at this stage.

2. Questionnaire Development An in-depth desk research was conducted to develop a comprehensive questionnaire for the purpose

of primary survey with the objective to capture and analyze the trends and challenges of businesses in the Vadodara cluster.

3. Survey For the purpose of the survey, enterprises were selected from internal Dun & Bradstreet database

and other authentic sources such as cluster and/or sectoral associations.

4. Eligibility criteria Companies with a total income of less than ` 1,000 mn were selected for the purpose of survey.

Companies involved exclusively in trading activities were excluded from this study.

5. Collation of Information The data and information was collated from both, primary and secondary sources such as through

survey and authentic information as available in the public domain.

6. Analysis of data The information collected was scrutinized and analyzed to explore the cluster dynamics.

7. Report Writing The outcome of the project including the key analysis and results were written in the form of the

current report.

Think of MSME,Think of Us

60 years in the serviceof MSMEs

Tender Documents Free of Cost

AdvanceIntimations

Exemption of Earnest Money

MSME’s

Com

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Cer

tific

ate

Single Point Registration for Government Purchase

Scheme under the Government Purchase Programme, wherein the MSEs are enlisted

small enterprises registered under this Scheme (SPRS)-

at a Glance

National Small Industries Corporation(A Mini Ratna Company)

(A Govt. of India Enterprise)Okhla Industrial Estate, New Delhi

Tel: +91-11-26926275 Toll Free: 1800 -11-1955email: [email protected]

visit : www.nsic.co.in www.msmeshopping .com www.msmemart.comwww.facebook.com/nsicltd

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OVERVIEW Of MSMEs IN INDIA

6 Overview of MSMEs in India

Micro, Small and Medium Enterprises (MSMEs) epitomise the growth engine of any economy, and play a pivotal role in the overall industrial and economic development of a nation. They are the prime drivers for employment generation and GDP growth, besides contributing to balanced regional development. Further, MSMEs play an important role in economic diversification, social stability and in the development of the private sector. Therefore, it is important to nurture the seeds of entrepreneurship to sustain overall economic development.

As per World Bank estimates, MSMEs account for more than 80% of the total industrial enterprises in India. The entrepreneurial spirit and innovative nature of MSMEs have been crucial in driving competitiveness in the Indian economy. MSMEs and entrepreneurs play an important role for developing new paths to enable an economy achieve more sustainable and inclusive growth.

Definition and Economic Contribution of SMEs to the Indian EconomyOver the past two decades, the MSME sector has emerged as the most vibrant and dynamic sector of the Indian economy, with operations spanning across the manufacturing and services sectors. Apart from creating large scale employment opportunities at comparatively lower capital cost than large enterprises, MSMEs play a crucial role in reducing regional imbalances through industrialization of rural and backward areas.

The Indian government passed the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, to address the policy issues affecting the SMEs and to extend the coverage and investment ceiling of the sector. The Act also aims to facilitate development of the sector along with enhancing its competitiveness. The MSMED Act, 2006, classifies enterprises broadly into: (i) Manufacturing enterprises and (ii) Services enterprises. The Act further classifies these enterprises into micro, small and medium enterprises based on their investment in plant and machinery (for manufacturing enterprises) or investment in equipment (for services enterprises). The following is the present ceiling on investment for enterprises to be classified as micro, small and medium enterprises:

India’s Definition of MSMEs

Classification Manufacturing Enterprises Investment in Plant & Machinery

Services EnterprisesInvestment in Equipment

MicroUp to ` 2.5 mn Up to ` 1 mn

(Up to $ 50,000) (Up to $20,000)

SmallAbove ` 2.5 mn & up to ` 50 Mn Above ` 1 mn & up to ` 20 mn

(Above $50,000 & up to $1 mn) (Above $20,000 & up to $400,000)

MediumAbove ` 50 mn & up to ` 100 mn Above ` 20 mn & up to ` 50 mn

(Above $1 mn & up to $2 mn (Above $400,000 & up to $1 mn)Source: Ministry of Micro, Small and Medium Enterprises(Note: 1 US$ – ` 50)

Overview of MSMEs in India

7Overview of MSMEs in India

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015, introduced in the Lok Sabha on April 20, 2015, seeks to review the definition of MSMEs, as follows:-

Proposed Amendment to Definition of MSMEs

Classification Manufacturing Enterprises Investment in Plant & Machinery

Services EnterprisesInvestment in Equipment

Micro Up to ` 5 mn Up to ` 2 mn

Small Above ` 5 mn & up to ` 100 mn Above ` 2 mn & up to ` 50 mn

Medium Above ` 50 mn & up to ` 300 mn Above ` 50 mn & up to ` 150 mnSource: Ministry of Micro, Small and Medium Enterprises

Significance of MSME Sector in Indian EconomyMSMEs contributed around 37.5% of India’s overall GDP (manufacturing + services) in FY13. Of this, around 7% was contributed by the manufacturing sector. The chart below highlights the seven year trend in share in GDP:-

Share of Manufacturing & Services GDP (%)

Source: Ministry of Micro, Small and Medium Enterprises

MSMEs accounted for around 37% of the overall manufacturing output in FY13, and contributed to more than 7% of the total manufacturing GDP of the country. In terms of value, the gross output of MSMEs stood at ` 18,099.8 bn (at 2004-05 prices) in FY13, registering a CAGR of 7.1% since FY07. Although the gross value of output of manufacturing MSME units reflects consistent growth, their share in GDP has shrunk from 7.73% in FY07 to 7.04% in FY13.


Contribution of Manufacturing Output of MSME in GDP (%)

Year

Gross Value of Output of MSME

Manufacturing Sector (` mn)

Share of MSME sector in total GDP (%) Share of MSME Manufacturing output in total Manufacturing

Output (%)

Manufacturing Sector MSME

Services Sector MSME Total

FY07 11,988.2 7.7 27.4 35.1 42.0

FY08 13,227.8 7.8 27.6 35.4 41.9

FY09 13,755.9 7.5 28.6 36.1 40.8

FY10 14,883.5 7.5 28.6 36.1 39.6

FY11 16,536.2 7.4 29.3 36.7 38.5

FY12 17,885.8 7.3 30.7 37.9 37.5

FY13 18,099.8 7.0 30.5 37.5 37.2Source: MSME Annual Report 2014-15

As per provisional numbers from the Ministry of MSME, there were nearly 49 mn working MSME enterprises as at the end of FY14. During FY14, the number of MSMEs rose by about 9% y-o-y, which is the fastest increase in the last seven years. This proves that the MSME sector is emerging as one the most dynamic and pervasive sectors of the economy.

Total No. of Working Enterprises


The growth in MSME units in the country clearly outlines the growing interest in this sector. Over the years, MSME has shown consistent growth in terms of number of Entrepreneur Memorandum Part-II (EM-II) filed. In 2007-08, the District Industries Centers (DIC) across the country registered 172,703 new MSMEs; this number more than doubled to 362,991 MSMEs during 2013-14. This translates into a CAGR of 13.2% during the period.


Number of EM-II filed by the MSME


Employment and fixed InvestmentsHistorically, MSMEs have been a significant source of employment in India. MSMEs offered employment to 111.4 mn people in 2013-14, as compared to 80.5 mn in 2006-07. In 2013-14, employment in the MSME sector grew by 5% as compared to a year ago. Likewise, the fixed investments in the sector jumped from ` 8,685.4 bn in 2006-07 to ` 13,637 bn by 2013-14, which translates into a CAGR of nearly 7% over a seven year period.

Productivity in MSMEs



Access to CreditAccording to RBI, the total outstanding credit to the Micro & Small Enterprises (MSE) sector rose to ` 8,003.4 bn in 2014-15 from ` 3,735.3 bn in 2009-10. This translates into a handsome CAGR of 16.5% over the six year period.

Outstanding bank credit to MSE

Source: RBI

Additionally, the share of MSE lending in the overall priority sector lending of scheduled commercial banks (SCBs) has increased from 34.2% in March 2010 to around 40% in March 2015.

Y-o-Y Share of MSE lending in total priority lending

Source: RBI


In spite of banking regulators and banks constantly striving to make the financial system more and more MSME-friendly, lack of adequate working capital continues to hinder the growth of MSMEs. In the MSME context, finance includes equity capital, loans for fixed asset investment and working capital for meeting cash flow requirements. The weak credit profile of MSMEs restricts large-scale lending to the sector by banks and other financial institutions. Several regulatory & institutional initiatives have been taken to promote availability of finance to MSMEs thereby breaking the viscous circle of MSME financing.

Easing access to finance for the MSME sector is crucial for increasing employment, growth in exports and development of a manufacturing base, as envisaged in the Government’s ‘Make in India’ initiative. The Ministry of MSME is also implementing a host of schemes to address MSME issues related to credit, infrastructure development and technology upgradation, among others. Some of these schemes are the Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme, Performance and Credit Rating Scheme, Cluster Development Programme, National Manufacturing Competitiveness Programme and Prime Minister’s Employment Generation Programme.

The Way AheadMSMEs across all major developed and developing economies have thrived on government support and an efficient MSME framework. MSMEs undoubtedly play a crucial role in any country’s economic growth. Hence it is imperative to support MSME growth by developing institutional infrastructure for advocacy, technical research, refinancing platforms and easy access to services. India too has a well-established MSME framework with institutions like the SIDBI, ECGC and Exim Bank offering direct and indirect support to MSMEs. It is, however, crucial to further enhance the scope of these vital institutions in order to strengthen MSMEs and multiply their impact on the economy.

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Raw MaterialDistribution Scheme

NSIC has signed agreements / MoUs with the major

Coal and Polymer products etc.). These arrangements

National Small Industries Corporation(A Mini Ratna Company)

(A Govt. of India Enterprise)Okhla Industrial Estate, New Delhi

Tel: +91-11-26926275 Toll Free: 1800 -11-1955email: [email protected]

visit : www.nsic.co.in www.msmeshopping .com www.msmemart.comwww.facebook.com/nsicltd

Or Contact nearest NSIC field office

VADODARA CLuSTER OVERVIEW

14 Vadodara Cluster Overview

Vadodara, also known as Baroda, is the third largest city in the state of Gujarat, after Ahmedabad and Surat. The city is spread over an area of 7,794 sq km. It is the administrative headquarters of Vadodara District located on the banks of the Vishwamitri river, southeast of Ahmedabad. There are 12 tehsils in the district namely Vadodara, Padra, Karjan, Savli, Waghodiya, Dabhoi, Sinor, Sankheda, Chhota Udepur, Naswadi, Kwant and Pavi Jetpur.

The city houses Lakshmi Vilas Palace belonging to the Royal Gaekwad Dynasty of the Marathas. It is also the home of the Maharaja Sayajirao University of Baroda, which is the largest university in Gujarat. Major industries in Vadodara include petrochemicals, engineering, chemicals, pharmaceuticals, plastics and Forex.

As per Census 2011, Vadodara had population of around 4.2 million of which male and female were 2.2 million and 2 million respectively. The city recorded an increase of 14.4% in the population compared to population as per 2001. The density of population also increased from 482 persons per sq km in 2001 to 552 persons per sq km in 2011. The aggregate literacy rate of Vadodara stood at 78.9% with male literacy rate of 85.4% and female literacy rate of 72%.

Population: Distribution and densityPopulation – 2001 (in ‘000) Population – 2011 (in ‘000) Density persons (per sq km)Male female Total Male female Total 2001 20111,897 1,745 3,642 2154 2,011 4165 482 552

Source: Census of India 2011

InfrastructureThe city is well connected with the other major cities of the country through rail, road and air infrastructure.

RoadVadodara is well connected to all major locations, such as Delhi and Mumbai through Delhi-Mumbai industrial Corridor and National Highway 8. NH 8 also connects Vadodara major industrial centers of Gujarat namely Ahmedabad, Rajkot, Ankleshwar and Surat. State highway 6 connects the district with Ahmedabad, Surat, and Rajkot and other districts. India’s first national expressway located in Gujarat also connects Vadodara to Ahmedabad.

Vadodara Cluster Overview

15Vadodara Cluster Overview

Road infrastructure Type of Roads KmsNational Highways 95

State Highways 1,138

Main District Highway 850

Other district & Rural Roads 2,009

Rural road/ Agriculture Marketing Board Roads 880

RailVadodara is well connected with all major locations such as Delhi and Mumbai, as well as other districts of the State through a broad gauge railway line. The district has 476 Km of railway line.

AirVadodara city has a domestic airport at Harni, which is well connected with four metro cities viz. Delhi, Mumbai, Chennai and Bengaluru.

Economy and industry profileVadodara has a plethora of opportunities. Some favourable factors in the region for industrialisation are as follows:

i. Vadodara is located in Gujarat, a state that has been a frontrunner in industrialisation in the country

ii. It is a key strategic destination for industrialisation since the Delhi-Mumbai industrial corridor passes through the city

iii. The district has huge reserves of dolomite and fluorspar and hence, offers tremendous growth potential for processing industries

iv. Vadodara is one of the foremost education hubs in India and has potential to attract various knowledge-specific industries.

Major crops cultivated in the district are rice, wheat, sorghum, yellow peas, grams, oil seeds, groundnut, tobacco, cotton and sugar cane. Manufacturing plants of several private industry players, as well as Public Sector Units are located in the district.

Mineral reserves in the district include dolomite, fluoride, black trap, quartz, fluorspar, agate, gravel, marble, graphite, manganese ore and granite. The district has 720 MMT reserves of dolomite and 11.6 MMT reserves of fluorspar. The district accounts for as much as 98 % of the total production of dolomite in Gujarat.


Trend of Industrial units in VadodaraThere were 396 industrial units registered in Vadodara in 1985 and by 2011, the number crossed the 18,000 mark.

Industrial EstatesThere are fifteen industrial areas presently operating in the district including Sankheda, Pavi Jetpur, Dabhoi, Ranoli, Limda, Por Ramangamdi, Nadesari, Vaghodia, Makarpura, PCC, Savli, Manjusar-Alindra & Jhumkal, Alindra (Expansion), Pilol Expansion and Pilol (Bombadier) Expansion. Industrial estates in Vadodara span across 3,215.15 hectares of land. Salvi Industrial Estate and PCC are the two major industrial estates as they account for more than 35% of the total area.

Industrial area Land acquired (hectares)

Land developed (hectares)

No. of plots No. of units in production

Makarpura 355.08 248.55 2,370 2,346

Nandesari 271.68 190.18 510 504

P.C.C. 666.16 466.31 370 370

Vaghodiya 314.91 220.43 924 872

Limda 53.10 37.17 - -

Ranoli 41.22 28.85 255 251

Por Raman-Gamdi 134.44 94.11 562 537

Dabhoi 10.92 7.64 77 73

Sankheda 00.81 00.57 14 11

Pavi Jetpur 00.95 00.67 13 10

Savli 544.29 - 814 492

Manjusar-Alindra & Jhumkal 536.69 377.07 - -

Pilol Expansion 73.52 51.46 - -

Alindra (Expansion) 208.9 146.23 - -

Pilol (Bombadier) Expansion 2.48 1.73 - -Source: Brief Industrial Profile of Vadodara District

Government of Gujarat has been encouraging promotion of Special Economic Zones (SEZs) which are considered as growth engines that can boost manufacturing, augment exports and generate employment. Government of Gujarat has enacted the Gujarat SEZ Act, 2004, the SEZ Rules, 2005 and SEZ Regulations and SEZs amendment Act, 2007. Under the Act, assistance is provided to both the developer and co-developer of SEZ for development of infrastructure facilities and providing services. Tax concessions are also provided to the units coming up in the SEZ. As on Feb 2016, Vadodara had three SEZs have been formally approved by Board of Approvals after coming into force of SEZ Rules.


SEZs in VadodaraDescription/SEZ Aspen SEZ L&T SEZ Biotech Savli SEZ

Name of developer Aspen Infrastructures Ltd Larsen & Toubro Ltd Gujarat Industrial Development Corporation

Location Waghodia Ankhol Savli

Area (hectares) 115.64 10 15.81

Type of SEZ Hightech engineering products and related services

IT/ ITES Biotechnology

Source: SEZIndia

MSME ProfileThe industrial clusters in Vadodara district include chemicals & fertilizers, pharmaceuticals, biotechnology, cotton textiles, machine tools, glass, engineering, tobacco, fisheries and dairy. The district has many reputed organizations which are engaged in the production of variety of goods like textile, chemicals, rubber & its products, food products, metal works, equipments, leather & leather products, tobacco, ceramics & cement etc. There are over 18,000 small scale industries operating in Vadodara district. Details on existing Micro and Small Enterprises and artisan units in Vadodara:

Type of Industry No. of units Investment (` mn) EmploymentAgro Based 1,055 220.45 3,611

Cotton Textile 1,925 164.17 5,184

Wood / wooden based furniture 601 33.20 2,659

Paper & paper products 770 367.70 4,901

Leather Based 173 9.79 503

Rubber, Plastic & Petro products 1,153 575.84 11,936

Chemical & chemical based 1,411 1226.89 12,749

Mineral based 885 307.64 14,319

Metal based (steel fabrication) 2,173 817.64 14,958

Engineering units 1,481 1013.23 10,446

Electrical machinery & transport equipment 861 234.24 7,393

Repairing & Servicing & Others 5,718 489.51 12,495Source: DIC, Vadodara


Investment profile of MSMEs (in FY14)Classification units Investment (` bn) Employment

Micro 2,389 5.44 24,839

Small 228 3.30 5,287

Medium 22 2.06 2,172

Total 2,639 10.80 32,298Source: Industries Commissionerate, Govt of Gujarat

Outlook of MSMEs in the districtThe Government of Gujarat has introduced several schemes to create a conducive industrial environment for MSMEs in the state. These include market development assistance, assistance for labour intensive industries, assistance for R&D activities, assistance for industrial infrastructure, financial assistance to logistics parks, financial assistance to plastic industry, assistance to start ups/ innovation and assistance for common environment infrastructure amongst others

Moreover, the Government has also taken initiatives to encourage MSMEs to undertake environment protection measures. Assistance for environment management projects and encouraging green practice and offering environmental audit to MSMEs are the two schemes provided by the Government of Gujarat.

Potential for new MSMEs in Vadodara

• Cotton ginning, cleaning and baling• Salt mining, quarrying, screening etc.• Rice, flour and dal milling• Weaving, manufacture of silk and silk mixture

fabrics• Manufacture of inorganic acids• Manufacture of urea and other organic

fertilizers• Off shore extraction of petroleum• Manufacture of explosive, ammunition and

fire works

• Manufacture of biscuits, cakes and pastries

• Manufacture of wooden industrial goods

• Engraving, etching and block making etc.

• Manufacture of paints, varnishes, enamels or

lacquers

• Manufacture of homoeopathic or biochemical

pharmaceutical preparations

Source: Brief Industrial Profile of Vadodara District

INDuSTRY OVERVIEW

Chemicals• Engineering• Pharmaceuticals• Textiles•

CHEMICALS

24 Chemicals

ChemicalsThe chemical industry is considered as the backbone of the industrial and agricultural development in the country and is accountable for the growth of several downstream sectors such as textiles, papers, paints, soaps, detergents and pharmaceuticals among others.

A strong chemical sector facilitates several economic and strategic benefits for the country. As on FY13, the size of the Indian chemical industry was estimated at around ` 7,829.49 bn in terms of value of its output. According to the estimates of Central Statistics Office (CSO), the chemical and chemical products sector accounted for 2.51% of India’s GDP (at 2004-05 prices) in FY13, compared with 2.53% in FY12. During the same period, its share in the manufacturing GDP (at 2004-05 prices) grew from 15.55% in FY12 to almost 16% in FY13.

Composition of the Chemical IndustryThe chemical industry comprises of all types of large and small scale manufacturing units. It is highly diversified and comprises of more than 80,000 commercial products. Broadly, the sector categorises major chemicals into five categories namely alkali chemicals, inorganic chemicals, organic chemicals, pesticides, and dyes & dyestuffs.

Alkali Chemicals Soda Ash, Caustic Soda, Liquid Chlorine

Inorganic Chemicals Aluminium Fluoride, Calcium Carbide, Carbon Black, Potassium Chlorate, Sodium Chlorate, Titanium Dioxide, Red Phosphorous

Organic Chemicals

Acetic Acid, Acetic Anhydride, Acetone, Phenol, Methanol, Formaldehyde, Nitrobenzene, Citric Acid, Maleic Anhydride, Pentaerythritol, Aniline, Chloro Methanes, ONCB, PNCB, MEK, Acetaldehyde, Ethanolamines, Ethyl Acetate, Ortho- Nitro Toluene, isobutylebenzene, Methanol

Pesticides and Insecticides

D.D.T., Malathion, Parathion(Methyl), Dimethoate, D.D.V.P.,Quinalphos, Monocrotophos, Phosphamidon, Phorate, Ethion, Endosulphan, Fenvalerate, Cypermethrin, Anilophos, Acephate, Chlorpyriphos, Phosalone, Metasystox, Abate, Fenthion, Triazophos, Lindane, Temephos, Deltamethrin, Alphamethrin, Profenofos Technical, Pretilachlor Technical, Lambda Cyhalothrin, Phenthoate, Permethrin Tech, Imidacaloprid Tech, Captan & Captafol, Ziram(Thio Barbamate), Carbendzim(Bavistin), Calixin, Mancozab among others.

Dyes and Pigments

Azo Dyes, Acid Direct Dyes(other than Azo), Basic Dyes, Disperse dyes, Fast Colour Bases, Ingrain Dyes, Oil Soluble (Solvent Dyes), Optical Whitening Agents, Organic Pigments, Pigment Emulsion, Reactive Dyes, Sulphur Dyes (Sulphur Black), Vat Dyes, Solubilised Vat dyes, Food Colours, Napthols, Other Dyes.

Source: Department of Chemicals and Petrochemicals, Ministry of Chemicals & Fertilizers, GoI

25Chemicals

Production Trends of Major ChemicalsThe production of major chemicals in FY14 was 9,627 thousand MT, as compared to 9,440 thousand MT in the previous year implying a growth of 2%. Among major chemicals, alkali chemicals had the highest share in total chemical production in India. During FY14, alkali chemicals’ production was 6,481 thousand MT, and accounted for more than 65% of the total chemical production. The dyestuff sector is also one of the crucial segments of the Indian chemical industry, which has several linkages with a variety of sectors such as textiles, leather, paper, plastics, printing inks, and foodstuffs. This sector registered the highest growth in production of 18.4% y-o-y in FY14.

The production of pesticides and insecticides segment, which accounts for a major input in the Indian agricultural sector, registered the fastest CAGR during the period 2009-14 at 7.4%. This segment grew at about 16% y-o-y.

Segment-wise share in Production (%) Five Year Production Trends of Major Chemicals

Alkali Chemicals 67%

Inorganic Chemicals

9%

Organic Chemicals

19%

Pesticides And Insecticides

2%

Dyes And Dyestuffs

3%

0

1

2

3

4

5

6

7

8

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

AlkaliChemicals

InorganicChemicals

OrganicChemicals

PesticidesAnd

Insecticides

Dyes AndDyestuffs

Perc

enta

ge

in T

hous

and

MT

FY10 FY11 FY12 FY13 FY14 CAGR

Source: Department of Chemicals and Petrochemicals, Ministry of Chemicals & Fertilizers, GoI

International TradeThe Indian chemical sector (includes petrochemicals and excludes pharmaceutical products and fertilizers) accounted for 9.4% of the total export value and 8.9% of total import value in FY14. During the same period, the chemical industry exported 1087 thousand MT of major chemicals while it imported 3,721 thousand MT of the same. Import of chemicals appeared to be dominating the international trade, with organic chemicals itself accounting for more than 65% of the total major chemical imports in FY14. In exports too, organic chemicals accounted for the highest share of 30.6%, followed by dyes and pigments, which accounted for 30.2% of overall chemical exports during FY14.

26 Chemicals

Government Policies and Incentives

1. fDI: The government has permitted 100% FDI into the chemical sector through the automatic route. It is among the most attractive sectors with respect to FDI inflows. In 2014-15, it received FDI inflows to the tune of USD 669 mn.

2. Export Incentives: The sector also enjoys benefits under some of the prominent export incentive schemes such as export promotion capital goods scheme, duty drawback scheme, focus product scheme, special focus product scheme and focus market scheme.

3. Union Budget 2015-16: The recent Union Budget announced some major measures for the chemical sector such as reduction in basic customs duty (BCD) to reduce cost of raw materials. Duties on certain inputs were reduced to address concerns over duty inversion. The Union Budget also announced exemption from Education Cess and Secondary and Higher Education Cess levied on excisable goods. Further, the government announced general exemptions such as transport of goods for export by road from the factory to a land customs station.

Apart from the incentives stated above, the sector also enjoys several incentives related to R&D,

areas of operation, SEZ, and state incentives.

OutlookIn the near future, the sector is expected to draw benefits in the form of accelerated investments and growth. The sector is considered as one of crucial sectors under the Make in India campaign. Further, with Asia emerging as the global chemical manufacturing hub, Indian chemical exports are expected to witness more demand. The domestic market too, will witness greater traction with the emergence of new segments such as speciality and knowledge chemicals.

27Chemicals

ENGINEERING

30 Engineering

EngineeringThe engineering sector plays an important role in the development of other industrial sectors of the economy. It is closely linked with the manufacturing and infrastructure sectors. The sector caters to capacity creation requirements in an array of sectors like power, mining, oil & gas, refinery, steel, automotive and consumer durables. Engineering products are largely used as input in the capital goods industry. Hence, the growth and demand of this sector is largely fuelled by the growth and demand of the capital goods industry.

Indian engineering companies enjoy some degree of advantage in some of the engineering sub-sectors vis-à-vis foreign players, in terms of manufacturing costs, market knowledge, technology and creativity. The sector, therefore, attracts immense interest from foreign players. The government has de-licensed the engineering sectors and has allowed 100% FDI. Between Apr 2000 and Dec 2015, the foreign direct investment (FDI) inflows into India’s miscellaneous mechanical and engineering industries stood at around USD 2,993.45 mn.

Engineering is a diverse sector encompassing a number of segments and can be broadly classified into the heavy engineering and light engineering sectors.

Heavy EngineeringHeavy engineering usually involves the manufacture of high value goods, using high-end technology. It generally entails huge capital investments and has high entry barriers. The heavy engineering industry comprises of machineries such as mining equipment, cement machinery, textile machinery, machine tools, material handling equipment, oil field equipment, rubber machinery, metallurgical machinery and dairy equipment. The heavy engineering goods find applications in industries such as power, infrastructure, steel, cement, petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles and textiles, among others.

Light EngineeringThe light engineering sector consists of a diverse set of sub-sectors including items such as medical instruments, sophisticated process control equipment, castings, forgings, fasteners, bearings, steel pipes and tubes. These sectors usually use medium to low end technology as compared to high-end technology used in the heavy engineering industry. Relatively lower requirement of capital and technology makes it a low entry barrier sector. The light engineering segment is characterised by small capacities and high level of competition. It is a highly labour intensive sector, and generates ample employment opportunities in the economy.

Some products that form part of the light engineering segment serve as inputs for the heavy engineering and capital goods sectors. Demand for engineering and capital goods, therefore, influence the overall health of the light engineering sector.

31Engineering

Broad Classification of Engineering Sector

Engineering Sector

Heavy Engineering

* Textil Machinery * Cement Machinery * Sugar Machinery * Rubber Machinery * Material Handling Equiipments * Oil Field Equipments

* Metallurgical Machinery * Mining Machinery * Dairy Machinery * Machine Tools

Light Engineering

* Roller Bearing * Welding Equipment and Consumables * Medical and Surgical Instruments * Ferrous Castings * Process Control Instruments * Seamless Steel Pipes and Tubes

* Electrical resistance Welded Steel Pipes and Tubes * Submerged-Arc Welded (SAW) Pipes * Industrial Fasteners * Steel Forging * Bicycle

Engineering goods exports displayed decent growth in fY15A major portion of India’s exports of engineering goods goes to UK and Europe, which together account for over 60% of total engineering goods exports. Recently, India’s exports of engineering goods to Japan and South Korea have grown significantly.

India’s exports of engineering goods have been growing steadily over the last decade, reflecting a double digit growth rate. Exports declined during FY10 as the global financial crisis severely impacted global trade. While engineering exports recovered during FY11 and FY12, it again contracted during FY13 in tandem with a decline in overall exports. Engineering exports returned to growth in FY14, growing by 8.1% as India’s overall exports grew by 4.7% during the year. As per data provided by the Engineering Export Promotion Council of India (EEPC) for FY15, India’s export of engineering goods grew by 14.7% in spite of a decline in overall exports. In FY15, India’s exports of engineering goods stood at USD 70.7 bn as compared to USD 61.6 bn in FY14. The sector’s share in overall exports stands at around 23%.

32 Engineering

Exports of Engineering Goods

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Export of Engineering Goods Growth

Source: Engineering Export Promotion Council of India (EEPC)

The Way forwardIncreased investment in infrastructure development and industrial production has helped India’s engineering sector to grow rapidly over the past few years. The Government envisages the current spending on engineering services to increase to USD 1.1 tn by the year 2020. With development in associated sectors such as automotive, industrial goods and infrastructure, coupled with a well-developed technical human resources pool, engineering exports are also expected to touch USD 120 bn by 2015.

GoI has made several announcements in the recent Union Budgets which are expected to directly and indirectly help the engineering sector. The Union Budget 2016-17 announced a slew of changes in indirect taxes, particularly customs and excise duty, to boost local manufacturing. The duty changes on inputs seek to make manufacturing competitive for sectors such as IT, capital goods and defence. For instance, GoI has scrapped excise duty on inputs, parts and components, and subparts for the manufacture of charger or adapter, battery and wired headsets or speakers of mobile phones. Measures such as exemption in customs duty on machinery used in the manufacture of semiconductor wafer fabrication, capital goods used in the manufacture of fuses and exemption in excise duty on capital goods used by ship repair units are also likely to aid the growth of the capital & engineering goods industry.

The government has also taken steps to improve the quality of technical education in the engineering sector by allocating a sum of ` 5 bn for setting up five more IITs in the states of Jammu & Kashmir, Chhattisgarh, Goa, Andhra Pradesh and Kerala. Funds have also been allocated for several infrastructure projects which are further expected to provide an impetus to the engineering sector.

33Engineering

PHARMACEuTICALS

36 Pharmaceuticals

The Indian pharmaceutical sector has gained an eminent position globally. It is also known as the ‘Global Pharmacy of the World’. The characteristics of the Indian pharmaceutical market make it unique. First, branded generics dominate, making up to 70-80 percent of the retail market. Second, local players have enjoyed a dominant position driven by formulation developments capabilities and early investments. Third, price levels are low driven by intense competition. While India ranks 14th globally in terms of value, it is ranked third in volumes. In 2014, the global pharmaceutical market reached a new high at US$ 1,060 bn. India stands as a key contributor in the global pharmaceutical sector, with key advantages of low cost of raw material, low R&D costs and scientific manpower availability. The sector has done remarkably well and has been a game changer in many markets.

For instance, offering low cost treatment towards fighting AIDS in African countries and offering simple, powerful and cost-effective vaccines worldwide. According to Department of Pharmaceuticals, India’s pharmaceutical sector accounted for 1.5% of the global pharma sector in value terms and 10% by volumes in 2015.

Global Ranking of India’s Pharmaceuticals Sector (2015)With a turnover of over US$ 30 bn, the Indian pharmaceutical sector ranks 3rd and accounts for 10% of • world’s production by volume of productionRanks 14th and accounts for 1.5% of the global production value• Ranks 3rd in generic production• Exports to more than 200 countries and ranks 17th in terms of export value of bulk actives and dosage • formsLargest number of US-FDA-compliant plants; nearly 1400 WHO-GMP approved Pharma Plants, and 253 • European Directorate of Quality Medicines (EDQM) approved plants.

Domestic MarketAccording to the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizer, GoI, the annual turnover of the Indian pharmaceutical sector stood at ` 1,280.4 bn during 2013-14, registering a growth of 12.7% over the previous year. Of this, the share of export of drugs, pharmaceuticals, and fine chemicals stood at ` 632.93 bn, accounting for 49.4% of the total turnover.

Pharmaceuticals

37Pharmaceuticals

Growth in Net Sales (%)

Source: Department of Pharmaceuticals, Annual Report 2014-15

International TradeIndia continuously for the last three years ending 2014 has been bagging around 30% of the total ANDAs granted by USFDA and in 2012 & 2013 India was topping the list. To-day India has come to be known as provider of Responsible Health care. India offers Generics covering all therapeutic categories and has 2911 active Type-II DMF’s filed with USFDA. Over 43 multinational companies operate from India with manufacturing facilities catering to domestic and overseas markets.In rupee terms, pharmaceutical exports reached ` 942.8 bn in 2014-15, and have clocked a CAGR of 10.3% to US$ 15.5 billion during 2014–15 from US$ 10.4 billion during 2010–11.

Pharmaceutical Exports

Source: Pharmexcil Annual Report 2014-15

38 Pharmaceuticals

Formulations continued to dominate the Indian pharmaceutical exports with 73% share; while the share of bulk drugs has reduced drastically from 41% in FY11 to 23% in FY15.

Composition of fY15 Exports (in %)

Source: Pharmexcil Annual report 2014-15

India exports to over 200 countries. During FY15, the top five exporting destination countries for the Indian pharmaceutical sector comprised the US, UK, South Africa, Russia and Nigeria, with the US accounting for more than 25% of the total exports according to Pharmexcil, Ministry of Commerce & Industry, GoI. The US is the largest importer of Indian products with the export rate rising at an annual rate of 19.8%.

Investment Scenario in Indian Pharma SectorDrugs & Pharmaceuticals have been amongst the sectors attracting highest FDI inflows since many years. In FY15, the Indian drugs and pharmaceutical sector attracted FDI of US$ 1,523 mn, registering a growth of almost 20% over the previous year. It ranked fifth in terms of attracting FDI during FY15 amongst the top sectors.

foreign Direct Investment

Source: Department of Industrial Policy and Promotion (DIPP)

39Pharmaceuticals

Government InitiativesThe Department of Pharmaceuticals has been continually enabling the Indian pharmaceuticals industry to play a leading role in the global market and to ensure abundant availability of good quality medicines at reasonable prices within the country for mass consumption.

Under “Make in India” initiative for creating an enabling framework for stimulating investments in Pharma manufacturing, Department of Pharmaceuticals has formed Task Forces onTF 1- Enabling the Private Sector to lead the growth of Pharmaceutical sectorTF 2- Medical Devices and Pharmaceutical Manufacturing Equipment’sTF 3- Development of capabilities for each critical vertical

Indian pharmaceutical companies are all set to join the league of leading global players. The GoI is also making efforts to attain world class healthcare facilities within the country and achieve pharma penetration in rural areas as well. Some of the recent schemes launched by the government include:

1. Scheme for Cluster Development Programme for Pharma Sector (CDP-PS): The CDP-PS scheme was launched in July 2014 to enhance capabilities of SMEs in the pharma sector. The scheme involves setting up new pharma clusters and upgrading the existing ones. Projects will be sanctioned for upgrading infrastructure in industrial estates, parks, industrial areas and Greenfield projects.

2. FDI through automatic route: In the pharmaceutical sector, 100% FDI is allowed through the automatic route for Greenfield investment and through government approval route for brownfield investment. In a recent move, 100% FDI through the automatic route for manufacturing of medical devices has been permitted. This move is expected to increase manufacturing of medical devices in the country and drive collaborations to develop new technologies.

3. Foreign Trade Policy 2015-20: Under the recently announced Foreign Trade Policy 2015-20, India aims to double its exports to US$ 900 bn by 2019-20, by promoting trade in sectors such as drugs & pharma and engineering goods. It also plans to overcome the challenge of market access and non-tariff barriers that hinder pharma exports across countries such as China and Japan.

4. Pharma Vision 2020: As per this programme, the government aims to make India a global end-to-end drug manufacturing country.

5. Jan Aushadhi: The government launched its Jan Aushadhi campaign, under which it markets low cost generic medicines under its own brand. Under its first phase, the government launched 501 medicines which are available at local chemists.

TExTILES

42 Textiles

India’s textile Industry is largely constituted of small-scale companies, non-integrated spinning firms, weaving firms, finishing firms, and apparel making enterprises. With only a few large players and numerous small and medium-sized companies, the Indian textile industry is fragmented. It can be classified into the hand-spun and hand-woven sector and the capital intensive, organized mill sector, which comprises spinning and composite mills. Readymade garments, cotton textiles, man-made textiles, wool and woollen textiles, silk, handloom products, carpets, jute, coir, and coir manufacturers are the main sub-sectors within the textile industry.

India is one of the few countries in the world with a complete and integrated textile value chain. As per the Ministry of Textiles, the Indian textiles industry accounts for 14% of industrial production, which is 4% of GDP, employs about 45 million people and accounts for 13% share of the country’s exports basket. Data furnished by the US Comtrade 2013 as in June 2014 ranks India 2nd in terms of textile and clothing exports with a value of USD 40 bn.

Trends in the local marketAccording to the Ministry of Textiles, India’s aggregate cloth production grew by 2.7% in FY15 to 64,333 mn. sq. mtrs. The powerloom segment accounts for nearly 60% of the total cloth production.

India’s cloth production (million square metres)Particulars fY11 fY12 fY13 fY14 fY15 CAGRMill Sector 2,205 2,313 2,418 2,531 2,486 3.0

Handloom 6,907 6,901 6,952 7,104 7,203 1.1

Power Loom 38,015 37,445 38,038 36,790 37,750 (0.2)

Hosiery 14,634 12,946 14,541 16,199 16,894 3.7

Total 61,761 59,605 61,949 62,624 64,333 1.0 Source: Ministry of Textiles

Export ScenarioAccording to the Ministry of Textiles, the value of India’s textiles & clothing exports (including handicrafts) grew by a handsome 19.8% in FY12, 6% in FY13 and another 12.9% in FY14 to touch USD 39.5 bn. Exports of ready-made garments account for the largest share with close to 50% of the total textiles exports, followed by cotton textiles with 35% and 18% of man-made textiles. India’s textiles products, including handlooms and handicrafts, are exported to more than a hundred countries across the globe, with the US and EU accounting for nearly two-thirds of India’s textiles exports.

Textiles

43Textiles

Main Features of Vision 2024-25

According to the Vision, Strategy and Action Plan for Indian Textile and Apparel sector:-

• The sector needs to get USD 180-200 bn investment for achieving a production capacity target of about USD 650 bn by 2024-25

• With a 20% CAGR in exports, India would be exporting about USD 300 bn of textiles and apparel by 2024-25; with a lower 15% CAGR exports would stand at USD 185 bn

• Considering the targeted growth in exports, India’s market share in the global textiles and apparel trade will have expanded from the present level of 5% to around 15-20%

VADODARA CLuSTER INSIGHTS

46 Vadodara Cluster Insights

Vadodara Cluster InsightsIntroduction

Dun & Bradstreet conducted a study of the small and medium enterprises (SMEs) from Vadodara. SMEs from varied manufacturing & services sectors such as chemicals, packaging, steel, glass, pharmaceuticals, auto components, and software among others were a part of this study. The study was aimed at finding the perspective of SMEs about the business environment in Vadodara cluster including their growth prospects, guidelines for new entrepreneurs and future challenges among others.

Following are some of the key findings of the study:

Business environment of Vadodara and growth prospects of SMEsAccording to the survey, more than 60% of the respondents stated that Vadodara offered ease of doing business. Around 80% of the respondents were optimistic about the growth prospects of their business, with 52% stating that they had a very optimistic outlook about business in the district for the next three years.

Positive aspects of doing business in VadodaraThe study reveals many positive aspects of doing business in Vadodara. Of these, some of the aspects that most respondents stated were:-• Conducive business environment with ample

growth opportunities• Better connectivity through rail and road making

it easily approachable • Good infrastructure facilities

47Vadodara Cluster Insights

Tips for new entrepreneurs keeping in mind today’s business environmentThe study also attempted to seek inputs from established entrepreneurs on what new entrepreneurs in Vadodara would need to set up businesses successfully. Accordingly, some of the tips provided were as under:-

Focus on good and sound sales & marketing• Maintain good quality products• Timely supply of goods & services•

Major challenges to doing business in Vadodara in the next 2-3 yearsThe study also sought to capture respondents’ perspectives on negative aspects of doing business in Vadodara. The negative aspects pointed out are:-• Lack of skilled manpower• Domestic competition

The major challenges for entrepreneurs seeking to do business in Vadodara over the next 2-3 years are:-• Availability of skilled labour with around 57%

respondents indicating this as a major challenge• Around 53% cited competition from multinational

companies as another challenge• Around 43% of the respondents found lack of

infrastructure development in the city

48 Vadodara Cluster Insights

Major things expected from financial institutions for faster growth of SMEsSupport from financial institutions is essential for SMEs to sustain their growth. The study shows that SMEs in Vadodara seek support from financial institutions largely in terms of:-

Reduce cost of finance including rate of interest • with over 40% respondents expecting thisNeed to be ease up entire process for SME, • including faster clearance and less documentation in loan procedure indicated by 27% respondents

Opinion about government’s ‘Make in India campaign’ for Vadodara SMEs• Nearly 87% respondents agreed that Make in

India’ campaign is beneficial for them.