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SME Cluster Series 2014: AhmedabadPublished in India by Dun & Bradstreet Information Services India Pvt Ltd. (D&B) Registered OfficeICC Chambers, Saki Vihar Road,Powai, Mumbai - 400072.Tel: +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 Seema Nair, Arif Tolnur, Dipshikha Biswas, Swatti Mathur, Rohit Pawar, Sudhir Rewale

Sales Head Jayesh Bahadur

Sales Team Nittin Maheshwari, Apoorba Kumar Patranabish, Anandita Pongurlekar, Kalyan Basu, Vini Batheja, Kartik Rao, Vaibhav Dhote, Sunena Jain, Neetu Dhamija, Rupit Kar, Romita Dey Talukdar, Avishek Tiwari, Mayank Bhanu, Shubhra Upadhyay, Anubha Garg, Sujata Bhakat, Tanya Bedi, Nitin Chaudhary, Rakesh Goyal, Vishwa Desai, Aisha Rashyani, Yashaswini Chandrashekar

Operations Team Nadeem Kazi, Ankur Singh, Sumit Sakhrani, Rajesh Gupta, Shankar Iyer, Parmeshwar More

Design Team Mohan Chilvery, Sonal Gangnaik

All rights reservedThis publication is copyright and all rights are reserved. Apart from any fair dealing for the purpose of private study, re-search, criticism or review as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the publishers.

Although every effort has been made in compiling and checking the information given in this publication to ensure that it is accurate, the authors, the publishers and their servants or agents shall not be held responsible for the continued accuracy of the information or for any errors, negligence or otherwise howsoever or for any consequence arising therefrom.

SME Cluster Series 2014: Ahmedabad

ISBN No.: 978-93-82060-36-9

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ContentsExecutive Summary .........................................................................................................I

Research Methodology ................................................................................................. III

Ahmedabad Cluster Overview ................................................................................1 - 5

Ahmedabad MSME Scenario .................................................................................7 - 10

Sector OverviewChemicals ...............................................................................................................................15 - 18

Engineering ............................................................................................................................21 - 26

Ahmedabad Cluster Insights .................................................................................29 - 43

I

Dun & Bradstreet India (D&B India), in association with British Airways reinforces its commitment towards the development of small and medium enterprises (SMEs) with the launch of its cluster-based report series, “D&B - British Airways SME Cluster Series 2014: Ahmedabad”. This report focuses on SMEs from Chemical, Engineering, Construction and other sectors in the Ahmedabad region and offers insights on the status and scenario of the SMEs operating in the Ahmedabad cluster, in terms of their financing requirements and preferences, export challenges, outlook on growth prospects and various other parameters.

Some of the key findings from our study are as under:-Majority of the firms are bullish about their sales turnover during • FY14 – around 71% indicated an increase as compared to 6% who stated a decrease.The survey findings highlight that the SMEs in Ahmedabad attribute the emergence of Ahmedabad • as a major industrial hub largely to the following three factors: its geographical advantage (81%), access to ports & road connectivity (64%) and lower cost of setting up business as compared to other competitive locations (48%).However, government support, availability of more skilled manpower and better infrastructure • were cited as the major factors by the SMEs which would help them to enhance their competitiveness.A substantial 72.5% of the SMEs surveyed cited that they are not aware of the various government • schemes such as “Capital subsidy for adopting new Technology (CLCSS) for upgrading/modernising technology for SMEs. Furthermore, of the SMEs who are aware of such programmes, 63% have availed of the schemes, while 37% have not.Only one third of the SMEs rated both ease to procure finance and the documentation process to • obtain finance as easy and nearly 63% of the respondents expect more transparency as the most crucial factor which can boost SMEs funding.Hiring people with specialised skills is one of the major challenges for SMEs in Ahmedabad • while reaching out to target customers was rated as easy or extremely easy by almost 45% of the SMES surveyed.A significant 48% of the respondents indicated that overseas laws & regulations and 45% indicated • collection of payment to be the biggest export related challenge faced by them.Nearly one-third of the SMEs undertake more than 5 domestic business trips by airways annually • while 28% make 2-5 international business trips per year and around 17% of SMEs make more than 5 international trips.More than one third of the SMEs allocate 3-5% of their companies’ total budgeted expenditure for • their business airfare travel needs.Asia, followed by Europe, South America and Africa emerged as the most frequently travelled • destinations by the SMEs in Ahmedabad.The study reflects that over half of the surveyed SMEs in Ahmedabad expect their industry to • grow by 5-10% during FY15. Nearly 60% of the SMEs in Ahmedabad cited that they are likely to focus on retaining existing customers during FY15, as part of their future business growth strategy.

The SME segment is expected to emerge as one of the key growth engines for the Indian economy. In its endeavour to aid the growth, D&B India will continue to keep track of the developments in the SME segment. We hope that this study will be a reliable and useful source of reference to the SMEs. We look forward to your comments and suggestions.

Pawan BindalDirectorDun & Bradstreet India

Executive Summary

III

Objective of the ReportThe objective of “D&B - British Airways SME Cluster Series 2014: Ahmedabad” is to develop a one point reference document, which will highlight the operational aspects, trends, challenges and benefits of operating in the Ahmedabad cluster. The report aims to provide insights that will facilitate enterprises to take informed decisions.

Methodology1. Desk Research A detailed review of relevant literature for the Ahmedabad 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 analyse the trends and challenges of companies operating in the Chemical, Engineering, Construction and other sectors in the Ahmedabad cluster.

3. Survey For the purpose of the survey, the companies were selected from internal D&B database and other

authentic sources such as cluster and/or sectoral associations.

4. Eligibility criteriaCompanies with a total income of less than • ` 1,000 mn as on FY13 in the Chemical, Engineering, Construction and other sectors were selected for the purpose of the survey.

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 scrutinised and analysed to explore the cluster dynamics. In case

of multiple choice questions, given that each respondent was asked to cite multiple priorities, the sum of percentage of responses will be greater than 100%.

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

current report.

Research Methodology

AHMEDABAD CLuSTER OvERvIEW

2 SME Cluster Series 2014: Ahmedabad Ahmedabad Cluster Overview

Ahmedabad Cluster OverviewIntroduction

About AhmedabadAhmedabad, the largest district in the state of Gujarat, with a population of 7.2 million, is known for its old architecture and the textile industry. The textile industry, in fact, has given it the name of ‘The Manchester of India’. Ahmedabad is the main commercial and business city of Gujarat, which is considered a model state in India from the perspective of economic development and economic freedom.

From the Manchester of India, with the largest share of employment in cotton textile industry, Ahmedabad has shifted to a base for pharmaceutical, automobile and engineering, agro and food processing, textile and apparel, chemicals and dyes and information technology industries, and in the recent few years, a centre for education and health tourism. Ahmedabad, alongwith Anand, Rajkot, Vadodara, Surendranagar, Jamnagar, Mehsana, Panchmahal and Kutch have emerged as favoured locations for engineering SME clusters.

The industries are located in or around Ahmedabad city (within Ahmedabad district) and have significant impact on the city’s economy. There are 11 special economic zones in Ahmedabad district, 12 industrial estates and 10 industrial parks. In the past five years or so, new large-scale industries have located in the city’s hinterland. Ahmedabad has also emerged as a major financial centre.

Industrial Estates in Ahmedabad

Industrial Estate Area (In hectares)

Apparel Park (Ambica Mill) 38.04

Kathwada 128.94

Dholka 42.78

Zone-D Ahmedabad City Industrial Estate 6.55

Vatva 542.3

Odhav 110.95

Viramgam Estate 42.71

Vani-Viramgam 2.02

Naroda 331.23

Kerala 109.64

Dhandhuka 40.13

Sanand 1.89Source: MSME-DI, Ministry of MSMEs

3SME Cluster Series 2014: AhmedabadAhmedabad Cluster Overview

Demographics

Population With a population of 7.2 million, Ahmedabad is the largest district in Gujarat, accounting for 11.9% of the state’s population. It terms of density of population, Ahmedabad is the second largest district, having a population density of 890 people per sq. km (Surat leads with a population density of 1,376 people per sq. km). Ahmedabad is among the top five districts in Gujarat witnessing fastest population growth (2001-2011). Between 2001 and 2011, Ahmedabad reported a decadal population growth rate of 22.31%. Ahmedabad is also the most urbanised district in Gujarat, with around 84% of the population residing in urban areas.

Population Snapshot: Ahmedabad

Population Male Female Total

2001 3.1 2.7 5.8

2011 3.8 3.4 7.2Units: In mnSource: Census

Literacy

Literacy Scenario: Ahmedabad

Literacy Rate Male Female Overall

2001 87.31 70.83 79.50

2011 92.44 80.29 86.65Units: %Source: Census

At 86.65%, Ahmedabad, alongwith Surat has the highest literacy rate among all the districts in the state of Gujarat.

Industrial ScenarioAhmedabad is an industrial base for sectors such as chemicals, textiles, drugs & pharmaceuticals and agro & food processing industries. Textile and chemicals have been the major sectors of investment and employment in Ahmedabad since 1980.

Ahmedabad is an industrial hub for textiles and is popularly known as the Manchester of India. Over the years, Ahmedabad has developed robust urban infrastructure for the services economy. Leveraging the existing textiles, chemicals and pharmaceutical base, Ahmedabad is attracting several large multinational players. Some of the major companies present here include Adani Group, Reliance Industries, Nirma Group of Industries, Arvind Mills, Claris Life Sciences, Cadila Pharmaceuticals, Shell, Vadilal Industries Ltd, etc. Most of the medium and large scale industries are concentrated in talukas such as Ahmedabad city, Sanand, Viramgam, Daskroi and Dholka.

Due to the presence of several educational institutions in Gujarat, the Ahmedabad-Gandhinagar corridor has emerged as an innovation, technology and R&D hub. The advancement of outsourcing industry has resulted in Ahmedabad becoming one of the growing industrial cities of India with major economic activities. This has continued through various phases of growth of IT-enabled services and more recently, with the growth of biotechnology sector. Among the major cities in the country, Ahmedabad has a comparatively higher number of biotechnology and pharma companies. The biotechnology industry in Ahmedabad and Gujarat in general is primarily focused in biotechnological business with specialization in the fields of manufacturing and marketing and research of pharma chemicals, herbal neutraceuticals, pharmaceutical ingredients and veterinary products.

4 SME Cluster Series 2014: Ahmedabad Ahmedabad Cluster Overview

During 2012-13, Ahmedabad had the second largest number of ITIs in Gujarat, at 61, just following Junagadh, which had 63 ITIs in 2012-13. Among the various districts in Gujarat, Ahmedabad had the highest number of sanctioned seats in the ITIs (12,141 seats during 2012-13).

Ahmedabad Chemical ClusterThe Ahmedabad Dyes/Chemicals (including packaging) cluster is located within the Municipal Corporation limits of the City of Ahmedabad in the central region of Gujarat in the Golden Corridor. There are more than 1,200 different dyestuffs derived from a vast variety of chemicals. The chemicals have a wide range from organic to inorganic substances. The plastic manufacturing in this cluster is incorporated to the packaging of the dyestuff and chemicals.

Ahmedabad Pharma ClusterThe evolution of the drugs and pharmaceutical cluster in Ahmedabad started off with the establishment of Alembic Chemical Works Ltd in Vadodara during 1907. A strong growth of small firms took place during the 1970s and 1980s. The major products manufactured in the cluster include pharmaceuticals, both allopathic and ayurvedic formulation, in different dosage forms (tablets, liquid, capsules and injectables) and medical disposable products.

Snapshot of SEZs in AhmedabadAs per the website of Industries Commissionerate, Government of India, as of 15th May 2013, Ahmedabad had the second highest number of SEZs (15) approved by the Government of India.

District-wise no. of GOI-approved SEZs in Gujarat

Source: Office of The Industries Commissionerate, Gujarat

5SME Cluster Series 2014: AhmedabadAhmedabad Cluster Overview

SEZs in Ahmedabad

Developer LocationSector & Area

recommended by GoG (in hectares)

Status of approval by GoI

Zydus Infrastructure Pvt.Ltd. Chacharwadi-Vasna,Sari, Matoda,Tal: Sanand,Ahmedabad

Pharma: 48.83 Notified and operational

AHMEDABAD APPAREL PARKGujarat Industrial Dev. Corpn

Ahmedabad Apparel: 38 Notified and operational

Ganesh Infrastructure Pvt. Ltd Tragad and Chharodi,Tal: DascroiAhmedabad

IT/ITeS: 54 Notified

CPL Infrastructure Pvt. Ltd. Haripura, Raika, FedraTal: Dhandhuka,Ahmedabad

Pharma: 200 Notified

Calica Construction & Impex P. L. OganajAhmedabad

IT/ITeS: 16 Notified

Myron Realtors Private Ltd SanathalTal: SanandAhmedabad

IT/ITeS: 10.93 Notified

Dishman Infrastructure Limited Kerala-Bhayala and ChiyadaTal: Bavla,Ahmedabad

Pharma: 164.415 Notified

Adani Township & Real Estate Co. Pvt. Ltd. DantaliAhmedabad

IT/ITeS: 20 Formal approval

Dishman Infrastructure Ltd Kerala-Bhayalaand ChiyadaTal: Bavla,Ahmedabad

Engineering: 133.86 Formal approval

Pradip Overseas Limited BhamasaraTal: BawlaAhmedabad

Textile: 109.98 Formal approval

Gaurinandan Property Holders Pvt Ltd BadarabadTal: DaskroiAhmedabad

IT/ ITES: 16-11-66 Formal approval

SGV Infrastructure Pvt Ltd. MakarbaTal: CityAhmedabad

IT/ITeS: 11-42-24 Formal approval

DHOLERA SEZ DholeraAhmedabad

Multi-product: 1,000 In-principle Approval

Jindal Worldwide Limited BhamasaraTa: BavlaAhmedabad

Textile: 101 In-principle Approval

Aventure MultiPark Limited Vataman, Vaarna and Jhakhada,Tal: Bavla,Ahmedabad

Multi-product: 1,012 In-principle Approval

Note: Special Economic Zones approved by Board of Approval in GujaratSource: Office of The Industries Commissionerate, Gujarat

AHMEDABAD MSME SCEnARIO

8 SME Cluster Series 2014: Ahmedabad Ahmedabad MSME Scenario

Ahmedabad MSME ScenarioIntroductionMSMEs in the Ahmedabad district play a pivotal role in driving the economic growth of the region. Ahmedabad city is considered as a commercial capital of Gujarat and is classified as a mega city. The district of Ahmedabad is one of the industrially developed districts in Gujarat, with 12 industrial estates, 12 Special Economic Zones (SEZs) and 10 industrial parks. The city’s industrial growth has been contributed by a well-developed infrastructure, prudent industrial policy and a peaceful industrial atmosphere. The district has various types of micro, small and medium scale industries dealing in textiles, chemicals, machinery, metal products, pharmaceutical, engineering, plastics, electrical appliances, electronics and cars among others.

Industry Scenario at a GlanceAhmedabad district has around 87,377 industrial units, out of which 64,836 are SSIs and 22,541 are MSMEs. The Small Scale Industries (SSIs) constitute more than 74% of the total MSME industrial unit strength of Ahmedabad. Industrial units in Ahmedabad employ over 500,000 people, with SSIs employing around 52% of the total workforce.

Description Particulars

Registered Industrial Units (Nos.)SSI – 64,836

MSME – 22,541

Employment Nos. SSI – 263,119

MSME – 238,254

No. of industrial areas 12Source: Brief Industrial Profile of Ahmedabad District, Ministry of MSME

Since 1980, Ahmedabad has seen major investments and employment in its textile and chemical industry. The Ahmedabad Textile Industry’s Research Association (ATIRA) has also contributed majorly towards developing Ahmedabad as an industrial hub for textiles. Industrialisation in Ahmedabad district has increased the scope for ancillary industries in mechanical sectors, which include manufacturing of auto parts, spares, rubber parts, plastics components and brass components among others. Electrical engineering items, pharmaceuticals & bulk drugs, chemical products and mechanical-based items are the major exportable items from the MSME sector of Ahmedabad district.

Trend of MSME units in AhmedabadAhmedabad district reported a rising trend in the number of MSME units between FY07 and FY11. The number of registered MSME units increased from 1,389 in FY07 to 9,124 in FY11, a CAGR of 60.1%. During the same period, the investment and employment in registered units also increased at a CAGR of 53.8% and 39.6% respectively.

9SME Cluster Series 2014: AhmedabadAhmedabad MSME Scenario

Year-wise trend of units registered

Source: Brief Industrial Profile of Ahmedabad District, Ministry of MSME

Snapshot of micro & small enterprises and artisan units in Ahmedabad district

Type of Industry no. of units Employment (no.)

Base metal products, Machinery equipment & parts 6,164 51,982

Chemical & allied products 3,657 41,996

Ores, Minerals, Mineral Fuels, Lubricants, Gas 1,219 18,320

Other manufactured articles & services 309 3,474

Railways, Airways, Ships & Road surface transport 149 4,270

Rubber, Plastic, Leather 852 8,299

Textile 4,396 40,196

Vegetable, Horticulture, Forestry Products, Beverages, Tobacco 704 8,743

Wood, Cork, Thermocol, Paper & Articles 1,594 15,697

Others 3,795 42,463

Total 22,839 235,440Source: Brief Industrial Profile of Ahmedabad District, Ministry of MSME

Initiatives by MSME-DIPresence of Micro, Small, Medium Enterprises Development Institute (MSME-DI) in Ahmedabad since 1961 has helped in development and promotion of small scale industries in Gujarat. MSME-DI has provided assistance to many SSI units for upgradation of technology, skill development, marketing and enhancing exports among others. The organisation offers various extension services to the small scale sector in the state of Gujarat. The institute has also taken an initiative to offer information facilitation counter, training halls, library and workshop for MSME entrepreneurs. During FY12, the institute trained 4,356 people under their Entrepreneurship & Skill Development Programme (ESDP). During the same period, 256 entrepreneurs took the benefit of the institute’s MSME Help Desk for assistance regarding industrial policies, schemes of GOI & Govt. of Gujarat.

10 SME Cluster Series 2014: Ahmedabad Ahmedabad MSME Scenario

Prominent Clusters in Ahmedabad

Clusters Functional units (no.)

Turnover (` Bn)

value of exports (` Bn)

Employment (no.)

Investment (` Mn)

Foundry Cluster 700 18 2 10,000 4

Textile Machinery Cluster 150 75 1.5 2,500 2

Dyestuff Cluster, Vatva 419 30 150 50,800 2.5

Dyestuff Cluster, Naroda 154 18.5 - - 3.5Source: Brief Industrial Profile of Ahmedabad District, Ministry of MSME

Potential MSMEs in AhmedabadDevelopment in urban infrastructure has attracted service industry in Ahmedabad. Other than service industry, Ahmedabad has new business potential in various MSMEs including food processing, textile, mining, pharmaceutical and sugar, among others.

Potential Areas

Sr. no. Service Industry MSME

1 Software development/Web designing Food processing

2 Call Centre Cotton textile

3 Cable Operator Non-ferrous metal mining

4 Interior Designer Allopathic pharmaceutical

5 Legal Activities Manufacturing & refining of sugar

6 Market Research Support services to water transport

7 Financial & LeasingSource: Brief Industrial Profile of Ahmedabad District, Ministry of MSME

11SME Cluster Series 2014: AhmedabadAhmedabad MSME Scenario

PRE-ENGINEERED BUILDINGS

SECTOR OvERvIEW

CHEMICALS• EnGInEERInG•

14 SME Cluster Series 2014: Ahmedabad Engineering

CHEMICALS

16 SME Cluster Series 2014: Ahmedabad Chemicals

ChemicalsIntroductionThe chemical and petrochemical industry in India plays a vital role in the growth and development of the agriculture and industrial sectors of India. It has both direct and indirect linkages with various sectors such as automobiles, pharmaceuticals, textiles, paints and food processing.

Key Facts:As per the United Nations Industrial Development Organization (UNIDO) as on 2008, the Indian chemical industry is sixth largest in • the world and third largest in Asia. The size of the Indian chemical industry was valued to be around USD 108.4 bn during 2010. It is estimated to account for around 3% • share in the global chemical industry.According to the Central Statistics Office (CSO), during FY13, the chemicals and chemical products sector accounted for around 2.5% • of the GDP as compared with about 2.1% of GDP in FY11.During FY13, the proportion of this sector in the GDP for manufacturing sector stood at 14.9% (at 2004-05 prices) as compared to • 12.2% in FY11.According to the Department of Chemicals and Petrochemicals (DCPC), the projected growth of petrochemicals and chemicals is • estimated to be 12.6% and 10% respectively, during the Twelfth Five year Plan.

Production Trend: Chemicals and Petrochemicals During FY08 to FY13, the total production of selected major chemicals increased at a CAGR of around 1.3%. Although, alkali is the largest segment, the key segment driving the growth of the chemical sector is dyes and dyestuffs, which grew at a CAGR of around 7.9% during the above mentioned period. This segment is followed by pesticides, which increased at a CAGR of around 3.5% during the same period. However, growth of the chemical sector fell sharply from 7.1% in FY11 to 2.5% in FY12 and further contracted by 1.0% in FY13, largely due to reduced demand as a consequence of domestic economic slowdown. The chart below highlights the segment-wise production of selected major chemicals from FY08 to FY13:

Production of selected major chemicals (In ‘000 MTs)

Source: Department of Chemicals and Petrochemicals

The production of selected major petrochemicals grew at a slightly faster pace compared with chemicals at a CAGR of around 3.3%, during FY08 to FY13. This was propelled largely by the growth of performance plastics and polymers, which increased at a CAGR of 3.8% each during the same period. However, elastomers recorded a decline in production by an

17SME Cluster Series 2014: AhmedabadChemicals

average of 3.6% during the above stated period. The chart below shows production of selected major petrochemicals from FY08 to FY13:

Production of selected major petrochemicals (In ‘000 MTs)

Source: Department of Chemicals and Petrochemicals

International TradeDuring FY08 to FY13, the total exports of the chemicals and petrochemicals sector grew at an average of 18.0% and stood at ` 1,507.1 bn as on FY13. During Apr-Dec FY14 total exports amounted to ` 1.296.1 bn. Total imports grew at an average of around 22.6% during FY08 to FY13 to ` 2,023.5 bn as on FY13. During Apr-Dec FY14 total imports amounted to ` 1748.5 bn.

The total imports of major chemicals and petrochemicals contributed around 8.6% of total imports of India during Apr-Dec FY14, whereas exports contributed to 9.4% of total exports of India during the same period.

The chart below shows the trend in imports and exports of major chemicals and petrochemicals during FY08 to FY12:

Exports and Imports of Chemicals and Petrochemicals (` Bn): FY08 to FY14

*Apr-Dec FY14Source: Department of Chemicals and Petrochemicals

18 SME Cluster Series 2014: Ahmedabad Chemicals

FDI in chemicals sector declined sharply during FY13In the chemical sector, 100% FDI is allowed and manufacturing of most products inter-alia covering organic/inorganic, dyestuffs, and pesticides is de-licensed, barring some items that require mandatory licensing due to their hazardous nature.

As per Department of Industrial Policy and Promotion (DIPP), the chemicals sector (other than fertilizers) accounted for about 2.6% of total FDI inflows in India during Apr-Jan FY14.

FDI in chemicals sector (other than fertilisers)

* Apr-Jan FY14 Source: DIPP

Although the FDI in chemicals sector showed a robust growth rate of 71.7% during FY12, it declined sharply during FY13 by 92.8%. This was largely due to a weak domestic economy and prevalence of uncertainty, weak sentiment and weak global recovery, which made foreign investors more cautious about their investments. Other factors include infrastructure bottlenecks and high cost of power. However, during FY14 (April-Jan), the FDI inflows into chemicals sector noted an improvement and stood at US$ 496 mn as compared with US$ 292 mn during FY13.

Outlook:As per the estimates of the planning commission, during the twelfth five-year plan the Indian chemical industry is expected to grow at 11% p.a. to reach a size of USD 224 bn by 2017. The factors that would drive this growth include the country’s increasing population, growing middle class population, and rising disposable income. All these factors are expected to boost the demand for chemical consumption.

Further, the Government of India has taken several measures to promote investment in this sector. Under the twelfth five-year plan, a provision of ` 5.8 bn has been proposed. Out of this, ` 500 mn is proposed for the establishment of the Indian chemicals inventory, ` 250 mn is for chemical promotion and development scheme and the balance is to be used for an upgradation of technology.

However, some of the key challenges that the Indian chemical industry continue to face include high cost of raw materials, power supply, and lack of adequate infrastructure facilities. Moreover, there has been a growing environmental concern, which has although pushed the industry to adopt modern technology is also helping improve operational efficiencies. Increased investment in R&D is expected to boost Indian chemical industry’s competitiveness at a global level.

19SME Cluster Series 2014: AhmedabadChemicals

PRE-ENGINEERED BUILDINGS

EnGInEERInG


Engineering India’s core industrial strategy over the years has been the development of engineering and capital goods sector. This sector forms the basis for the enhancement of the country’s domestic manufacturing capabilities and so forms a vital ingredient in driving the nation’s economy.

Engineering sector in India comprises of diverse set of productsIndia now has a strong base of engineering and capital goods sector. Capacity creation in core sectors such as power, infrastructure, mining, oil, general manufacturing sector, automotive, process, and consumer goods industries all drive demand for this sector. It propels the growth of its user industries through the manufacturing of a wide range of machineries and equipment in India.

The sector is broadly categorized into heavy and light engineering goods. The heavy engineering sector includes machineries such as power generating sets, earthmoving and mining equipment, power plant equipment, textile machinery, process plant machinery, packaging machinery equipment, and automotive equipment. The 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.

Broad Classification of Engineering Sector

23SME Cluster Series 2014: AhmedabadEngineering

A majority of MSMEs operate in the light engineering sector, which comprise of low technology machines such as castings, forgings, fasteners, bearings, steel pipes, and tubes. A few of the MSMEs are restricted to the assembly of imported components. Although MSMEs are known to dominate the low technology, light engineering segment, a few of them have also forayed into the manufacturing of niche and high value-added products.

A number of products that constitute the light engineering segment serve as an input for high engineering and capital goods sector. Demand for high engineering and capital goods therefore influence the overall health of the light engineering sector. Some of the products manufactured under the light engineering sectors such as different types of fasteners (except high tensile and special purpose fasteners), conventional hand operated sewing machines, bicycle parts, and other components are reserved for the SSI sector.

Engineering goods1 sector is undergoing healthy growth phaseEngineering goods sector has been growing at a robust pace over the last few years. The sector’s growth is dependent on the growth of its user industries. For the engineering goods sector, key user industries include power sector, textile, automotive, oil and gas, and iron and steel. Growth of the engineering goods sector is attributed to a healthy demand for these user industries.

The sector’s production has grown at a healthy CAGR of 13.4% during FY05 to FY11, amassing ` 1,068.2 bn in FY11. For the period FY12 to FY17, the growth is projected to be 17.3% for the engineering goods sector.

Engineering Goods – Production and Market Size

Source: Report of working group on Capital Goods & Engineering Sector, Department of Heavy Industries, D&B ResearchP- Projected for Twelfth Five Year Plan

The market size for the overall engineering goods sector has grown at a considerable pace of approximately 15% CAGR from FY05 to FY11, to reach a level of Rs 1,164.5 bn in FY11. The market size for the sector is driven by multiple factors such as macro-economic situation, GDP growth, policy support, state of key infrastructure sectors, state of user industries, and project implementation.

The engineering goods sector is deriving its demand from capacity creation in sectors such as iron and steel, consumer durables, power, mining, automotive, and oil and gas. FDI reforms and de-licensing of the sector through government policies have ensured growth in the market size of the engineering goods sector. This sector is estimated to have employed 370,000 people at the end of FY11.

1 Engineering goods for the purpose includes bearings, steel pipes and tubes, steel pipes and tubes, seamless pipes and tubes, nuts, bolts, rivets etc. castings, forgings, metal containers including cylinders, steel wires and ropes, engines, pumps, compressors, valves & actuators, gears etc.


Trend in growth of some of the sub-segments of the engineering sector under Index of Industrial Production

Source: CSO and MOSPI

Most of the segments under the engineering sector continued to witness a decline during FY14 after recording a decline during FY13. Sectors like radio, TV and communication equipments (-26.8%), office, accounting & computing machinery (-14.2%) and motor vehicles (-9.1%) witnessed a higher rate of decline.

Production Snapshot of some of the key segments in the Light Engineering sector

unit Production

FY12 (Apr’12 - nov’13)

Roller Bearings Nos in mn 806.5 537.5

Bicycles Nos in mn 14.7 8.9

Tin Metal Containers ` bn 3.7 2.6

Medical and surgical equipment ` bn 3.5 2.4

Steel castings & C.I. castings Tonnes 488,733.2 321,385.3

Nut & bolts in organized sector Tonnes 113,287.0 66,878.0

Stampings & forgings in organized sector Tonnes 483,611.0 291,066.2 Source: Department of Industrial Policy & Promotion, D&B research

Engineering goods continued exhibiting weakness in exports during FY14India’s engineering goods exports have been growing steadily over the last decade recording a double digit growth rate. Exports growth declined during FY10 as the global financial crisis impacted global trade severely. While engineering exports recovered during FY11 and FY12, it again contracted during FY13 in tandem with the decline in overall exports. The decline further extended into FY14 as well with engineering exports registering a decline of 4.2% during Apr-Feb FY14. India’s engineering goods exports were affected by prolonged global weakness and slowdown in the global economy.


India’s Engineering Exports from FY09 to FY14

Source: Reserve Bank of India (RBI), D&B Research R – Revised; P- Provisional

Decline in exports of engineering goods also impacted its share in the overall exports for India. The sector’s share of the total of India’s exports has declined steadily from 25.5% in FY09 to 21.7% in FY13. However, for FY14 (upto Feb 2014), the share of exports for the sector increased to 22.2%, reflecting marginal recovery.

YearExports - Engineering Goods

Growth %% Share uSD in Bn

2008-09 25.5 47.29 26.5

2009-10 21.4 38.27 -19.1

2010-11 23.1 58.14 51.9

2011-12 22.2 67.83 16.7

2012-13 21.7 65.29 -3.7

2013-14* 22.2 62.54 -4.2Source: RBI, D&B Research


Engineering goods exports sub segments for FY14*

* For Apr-Feb FY14Source: RBI

Major contributors to engineering goods exports in FY14 include transport equipment (31%), machinery, and instruments (23%) and manufacture of metals (14%).

OutlookKey policy initiatives, infrastructure development, and capacity additions in major sectors are bound to increase industrial and manufacturing growth and the outlook for the engineering goods sector in India looks promising. Recent government policy initiatives such as 100% FDI in most sectors will help in funds inflow and will be the catalyst for growth of this sector. Initiatives in infrastructure development and capacity additions in infrastructure sectors such as power, mining, and oil & gas will benefit the sector in the long run.

Going forward, MSMEs are likely to experience a shift in landscape, as the government will integrate this sector, as part of its industrial policy. Many of the policy measures and initiatives will provide necessary momentum to the growth of the MSME sector. The government’s focus on improving manufacturing infrastructure and engineering sector will lead to a more conducive growth for MSMEs in India.

AHMEDABAD CLuSTER InSIGHTS

30 SME Cluster Series 2014: Ahmedabad Ahmedabad Cluster Insights

Ahmedabad Cluster InsightsDun & Bradstreet India (D&B India) carried out a comprehensive study based on a primary survey of the small and medium enterprises (SMEs) operating and based in Ahmedabad. The objective of the primary survey was to highlight the business trends of the SMEs operating in Ahmedabad, in terms of their operations, financing, technology, exports, outlook on growth prospects and major challenges faced. Companies with a total income below ` 1,000 mn during FY13 were considered for the purpose of the survey.

From the Manchester of India, with the largest share of employment in cotton textile industry, Ahmedabad has emerged as a favourable location for pharmaceutical, automobile and engineering, agro and food processing, textile and apparel, chemicals and dyes and information technology industries, and in the recent few years, a centre for education and health tourism. There are 11 special economic zones in Ahmedabad district, 12 industrial estates and 10 industrial parks. Ahmedabad has also emerged as a major financial centre.

Some of the key findings from our primary study are highlighted in this section.

Ahmedabad SME Cluster - SME Perspective

Majority of the companies fall in the income bracket of upto ` 10 millionAs per our survey 41% of the SMEs operating in the Ahmedabad cluster had an annual income of upto ` 10 million during FY13 and 30% belonged to the income group between ` 10 mn - ` 100 mn. Further, 17% of the total surveyed SMEs were in the income group ` 100 mn - ` 500 mn and 12% in the income group of ` 500 mn - ` 1000 mn.

Sector-wise income composition (%)

Source: D&B Research

In the income group upto ` 10 million, 50% of the companies were in the engineering sector followed by chemicals (18%). In the income group of ` 500 to ` 100 million, majority i.e. 38% were in the chemical sector followed by engineering (25%) and FMCG (25%).

In terms of annual performance during FY14 majority of the firms are bullish about their sales turnover during FY14 – around 71% indicated an increase as compared to 6% who stated a decrease.

31SME Cluster Series 2014: AhmedabadAhmedabad Cluster Insights

Sales turnover in FY14 vs FY13 (%)


Sector wise, the chemical sector was very optimistic. Out of the total SME’s who indicated an increase in their sales turnover, 37% were in the chemical sector, followed by 20% in engineering and 14% in textile and garments.

Financing Trends

Only one third of the SMEs rated both ease to procure finance and the documentation process to obtain finance as easyAround 20% of the SMEs rated documentation process to obtain finance as difficult. In terms of access to alternative source of finance 21% rated it as difficult and 44% rated access to alternative source of finance as moderately easy.

Financing availability parameters



More transparency among financial institutions for financing SMEs emerged as the most important measure to enhance SME fundingLess transparency among the financial institutions is one of the major obstacles which SMEs in Ahmedabad face while sourcing finance. Thus, nearly 62% of the respondents expect more transparency as the most crucial factor which can boost SMEs funding. This was followed by collateral free loans from financial institutions would be the next important step that would boost SME funding. Around 54% of the respondents stated that the limit up to which bank’s grant credit should be increased to improve SME funding.

On a sectoral level, collateral free loan is one of the most important factors considered by the engineering SMEs that will boost funding whereas SMEs in the chemical sector found making credit rating mandatory to boost SME financing.

Measures to boost SME funding (%)


Human Resource Related Trends

Hiring people with specialised skills is one of the major challenges for SMEs in AhmedabadOne of the most critical human resource challenge faced by the SMEs in Ahmedabad was hiring people with specialised skills with 28% indicating the same. Managing salary expectations emerged as the other major human resource challenge faced by these SMEs.

Human Resource related challenges faced by SMEs in Ahmedabad (%)



Awareness of Government schemes

Majority of the respondents in Ahmedabad are unaware of the various government support schemes provided for SMEsA substantial 72.5% of the SMEs surveyed in Ahmedabad cited that they are not aware of the various government schemes such as “Capital subsidy for adopting new Technology (CLCSS) for upgrading/modernising technology for SMEs. Furthermore, of the SMEs who are aware of such programmes, 63% have availed of the schemes, while 37% have not.

Furthermore, a substantial 72% of the surveyed companies indicated that they do not participate in the government’s various training and skill development programmes available for SMEs. Of the SMEs who do take part in such programmes, 68% indicated that they find such programmes ‘Moderately Beneficial’ and 21% find such programmes ‘Extremely beneficial’. However, about 11% also indicated that they do not find these programmes beneficial.

Participation in governmnet’s training & skill development programmes (%)


Access to market and marketing

Around 38% of the SMEs reported export revenue to constitute 0-20% of their estimated revenues for FY14The survey revealed that for 38% of the surveyed SMEs in Ahmedabad, their export revenues would be in the range of 0-20% of their total revenues in FY14. Another 30% estimate the share of their export revenues in total revenues to be in the 20-40% range during FY14. Majority of the export related companies belonged to the chemical sector followed by engineering and textiles.


Share of exports in total revenues in FY14 (%)


The survey revealed that for 38% of the surveyed SMEs in Ahmedabad, their export revenues would be in the range of 0-20% of their total revenues in FY14. Another 30% estimate the share of their export revenues in their total revenues to be in the 20-40% range during FY14. Majority of the export related companies belonged to the chemical sector followed by engineering and textiles.

Overseas laws & regulations and collection of payment are the two major challenges faced by SMEs in the export markets

Major export related challenges (%)


The survey results revealed that overseas laws & regulations and collection of payment were the two most important challenges faced by the exporters in Ahmedabad.

For the engineering companies factors such as meeting international quality standards, collection of payment, overseas laws & regulations are the major challenges faced while dealing in exports market.


SMEs in the chemical sector indicated overseas laws & regulations, trade financing and high export duties as the key hurdles for the exports. For the companies in the textile sector lack of market information was the most important challenge amongst others. In the construction sector high export duties and collection of payment are the critical challenges faced by the SMEs.

Marketing related parameters (%)


Availability of skilled marketing & sales personnel was rated as moderately easy by almost half of the surveyed SMEs in Ahmedabad while reaching out to target customers was rated as easy or extremely easy by almost 45% of the SMEs surveyedAs per the survey results, for the SMEs in Ahmedabad marketing their products are not too difficult. SMEs in Ahmedabad revealed that availability of skilled marketing & sales personnel was not difficult for them. Only 15% expressed difficulty in sourcing skilled marketing & sales personnel, while 36% stated it was easy or extremely easy for them. Around 45% confirmed it was moderately easy. SMEs’ in the engineering, construction and chemical sector find it moderately easy to avail skilled marketing & sales personnel.

Majority of the respondents i.e. 39% declared that reaching out to target customers was moderately easy while only 13% rated it as difficult. Around 45% rated it as easy or extremely easy.

SMEs in the engineering and construction sector find it relatively easy to reach out to target customers while a considerable section of the SMEs in the textiles and garment sector find it difficult to reach out to their target customers.

Infrastructure Facilities

nearly 45% of the surveyed SMEs in Ahmedabad rated ‘roadways & highways connectivity’ as extremely easy, while more than one-third of the companies rated ‘access to ports and airports’ as easyIn terms of the status of infrastructure facilities in Ahmedabad, access to ports and airports was rated as easy by as much as 36% of the respondents, while another significant 32% rated this as extremely easy. Similarly, connectivity to roads and highways in Ahmedabad was rated as extremely easy by 45% of the SMEs surveyed. In addition, around 32% of the SMEs in Ahmedabad rated connectivity to roads and highways as extremely easy.

Nonetheless, a minor section indicated their discomfort towards access to ports and airports in Ahmedabad. A sector-wise and income-wise analysis of the survey findings indicate that 20% of the SMEs belonging to construction sector and 19% of the companies with income between ` 10 mn and ` 100 mn rated access to ports and airports as difficult.


Infrastructure facilities in Ahmedabad (%)


SME Business Travel Trends

Trend of domestic & international business trips (%)


nearly one-third of the SMEs undertake more than 5 domestic business trip by airways annually while 28% make 2-5 international business trips per yearThe survey reveals that a significant section i.e. 32% of SMEs undertake more than 5 domestic business trips in a year, while only 16% make 1 domestic business trip by airways. Among the SMEs who opted for international travel, a considerable 28% undertake 2-5 business trips annually, 17% make more than 5 international trips while only 19% make 1 international trip.


Sector-wise trend in international trips


Around 41% of the SMEs in the chemical sector undertake the maximum number of internationally trips, i.e more than 5 trips annually while 44% of the SME’s in other sectors (mostly in textile and garments) undertake 2-5 international trips. Nearly one third of the SMEs in the engineering and construction sector make 1 international trip annually.

Sector-wise trend in domestic trips


The survey data reflects that one third of the SMEs in the construction sector as well as in the other sectors category (mostly in textiles and garments) and 41% of the SMEs in the chemical sector undertake more than 5 domestic business trips annually.

Around 39% of the SMEs in the other sectors category who belong to textile and garments, FMCG and metals sector make 2-5 domestic business trips. One fourth of the SMEs in the engineering sector and nearly one third of the SMEs in the chemical sector make 2-5 domestic business trips.


Sector-wise: Budgeted allocation for business airfare travel


More than one third of the SMEs allocate 3-5% of their companies’ total budgeted expenditure for their business airfare travel needsAround 36% of the total SMEs surveyed allocate 3-5% of the total budgeted expenditure for their business airfare travel needs. Within the sectors, 41% of the total SMEs in the engineering sector, 44% of the SMEs in the construction sector and 36% of the total SMEs in the chemical sector allocate 3-5% of the total budgeted expenditure for their business airfare travel needs.

Majority of the SMEs participating in the survey i.e. 45% have revealed to have allocated only up to 2% of the total budgeted expenditure for their business air travel requirements. In that budget category, 56% of the SMEs in the other sectors category (comprising of textile and garments, FMCG and metals) and 45% of the SMEs in the chemical sector have indicated to have reserved only upto 2% of the total budgeted expenditure for their air travel needs.

Only 14% of the SMEs in the chemical sector have indicated to allocate a higher share i.e. 11 - 15% of the total budgeted expenditure for their air travel needs.

Asia, followed by Europe, South America and Africa emerged as the most frequently travelled destinations by the SMEs in AhmedabadThe survey indicates that Asia is the most frequently travelled destination with 57% of the respondents opting for the same. While Europe is the second frequently travelled destination, only 38% indicated this. The survey also reveals that 20% and 12% of the total SMEs and travel to Africa and Australia respectively as well.


Most frequently travelled destinations (%)


Three fourth of the total SMEs in the chemical sector and 50% of the total SMEs in the engineering sector identified Asia as the most frequently travelled destination. Around 45% of the SMEs in the chemical sector and 30% of the SMEs in the chemical sector opted Europe to be their frequently travelled destination. Around 18% of the SMEs in the chemical sector indicated Africa to be their international travel destination.

Value-added services offered by airline companies emerged as the most important benefit sought by the SMEs while choosing a particular airlineAs per the survey, 70% of the SMEs stated that value-added services offered by airline companies are the biggest benefits derived by them upon choosing a particular airline. Reward points/corporate discounts followed by free travel insurance were considered by the SMEs as the other most important benefits that they receive with 64% and 58% of the respondents selecting these parameters, respectively.

Benefits of choosing a particular airline (%)



Lowering class of travel, reducing conference/exhibition travel and using the cheapest airline are as the important measures which the SMEs plan to take in order to manage their business travel cost over the next yearThe SMEs in Ahmedabad ranked the parameters lowering class of travel, reducing conference/exhibition travel and using the cheapest airline in the below given preference order indicating that they would take into consideration these options while managing their business travel costs over the next year.

Managing business travel cost over the next year


Advantages and barriers to business growth in Ahmedabad

SMEs in Ahmedabad cited geographical advantage and access to ports and road connectivity as the top two factors that have led to the emergence of Ahmedabad as a major industrial hub.As shown in the chart below, our survey findings highlight that the SMEs in Ahmedabad attribute the emergence of Ahmedabad as a major industrial hub largely to the following three factors: its geographical advantage (81%), access to ports & road connectivity (64%) and lower cost of setting up business as compared to other competitive locations (48%).

Factors for Ahmedabad emerging as a major industrial hub (%)

*As compared to other competitive locations;**including foreign playersSource: D&B Research


As per majority of surveyed SMEs, the two major growth barriers in Ahmedabad were poor access to finance and deficiency in availability of skilled manpowerOverall, inadequate access to finance and dearth in availability of skilled manpower emerged as the two major growth barriers for SMEs operating in Ahmedabad. Furthermore, about 75% of the companies falling under the income bracket of ` 500 mn to ` 1,000 mn indicated government regulations as a major growth barrier. While 75% of respondents with income in the range of ` 100 mn to ` 500 mn cited dearth in availability of skilled manpower, another 66.7% of SMEs under the income range of ` 10 mn to ` 100 mn indicated low budget for technology implementation/upgradation as a major barrier for their company’s growth.

A sector-wise analysis of the survey findings reveals that majority (59%) of the SME in the chemicals sector cited government regulations and unavailability of skilled manpower as the two major growth barriers, while around 90% of the surveyed engineering SMEs indicated poor access to finance in ahmedabad as a major barrier to growth of their company.

Major barriers to growth for SMEs in Ahmedabad (%)


Growth Strategies & Outlook

Over half of the surveyed SMEs in Ahmedabad expect their industry to grow by 5-10% during FY15As per the survey results, around 51% of the surveyed SMEs in Ahmedabad expect their industry to grow by 5-10% during FY15. While 23% of the respondents expect their industry to record less than 5% growth, another considerable proportion (22%) of respondents expect their industry to grow by more than 10% during FY15. Nonetheless, a smaller proportion (1.4%) of the surveyed SMEs anticipates industry growth to decline by less than 5% in FY15.

A sectoral analysis reveals that nearly 63% and 42% of the SMEs from chemicals and engineering sectors respectively expect their industry to record moderate growth of 5-10% during FY15. While a significant 37% of the engineering companies expect the industry to post less than 5% growth in the coming fiscal year, more than one-fourth (27%) of the respondents operating in the chemicals sector expect the industry to grow by more than 10% in FY15.


Outlook on industry growth for FY15 (%)


As part of their business growth strategy for FY15, majority of the SMEs in Ahmedabad are likely to focus on retaining existing customersNearly 60% of the SMEs in Ahmedabad cited that they are likely to focus on retaining existing customers during FY15, as part of their future business growth strategy. Moreover, over 57% of the respondents also indicated that they are likely to focus on exploring opportunities in newer markets and/or launch new products and services during FY15.

Business growth strategies (%)



Factors that can enable SMEs in Ahmedabad to become more competitive

Government support, availability of skilled manpower and better infrastructure were the major factors cited by the SMEs to help enhance their competitivenessAs per our survey finding, below are some of the factors that according to the SMEs in Ahmedabad would enable them to become more competitive.

In addition to the above, the surveyed SMEs operating in Ahmedabad opined that factors like additional financing options, collateral free loans, ease in raw materials availability, favorable government policies and support schemes, low prices for raw materials, information on working capital management, lesser government regulations and more transparency in documentation would also enhance their competitiveness.

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