sme cluster series 2016: pune

Dun & Bradstreet – Oriental Bank of Commerce SME Cluster Series 2016: PunePublished 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

New Delhi Office1st Floor, Administrative Building,Block ‘E’, NSIC - Technical Services Center,Okhla Industrial Estate Phase - III,New Delhi - 110020.Tel: +91 11 4149 7900 / 01Fax: +91 11 4149 7902

Kolkata Office166B, S. P. Mukherjee Road,Merlin Links, Unit 3E, 3rd Floor,Kolkata - 700026.Tel: +91 33 2465 0204Fax: +91 33 2465 0205

Chennai OfficeNew No: 28, Old No: 195,1st Floor, North Usman Road,T. Nagar, Chennai - 600017.Tel: +91 44 2814 2265 / 75Fax: +91 44 2814 2285

Ahmedabad Office801 - 8th Floor, Shapath V,Opp. Karnavati Club,S. G. HighwayAhmedabad – 380054.Tel: +91 79 6616 8058 / 59Fax: +91 79 6616 8064

Bengaluru OfficeNo. 7/2 Gajanana Towers,1st Floor, Annaswamy Mudaliar Street,Opp. Ulsoor Lake,Bengaluru - 560042.Tel: +91 80 4250 3500Fax: +91 80 4350 3540

Hyderabad Office504, 5th Floor,Babukhan’s Millennium Centre,6-3-1099 / 1100, Somajiguda,Hyderabad - 500082.Tel: +91 40 6662 4102, 6651 4102Fax: +91 40 6661 9358

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

All rights reservedExcept for any fair dealing for the purpose of private study, research, criticism or review as permitted under the Copyright Act, no part or portion of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.

DISCLAIMERThis publication is circulated by Dun & Bradstreet to the select recipients and at Dun & Bradstreet’s sole discretion. The publication shall neither be reproduced, republished, publicly circulated, disclosed nor shall be copied, modified, redistributed, or otherwise made available to any person or entity, in any form whatsoever including by way of caching, framing or similar means, whether in part or whole, without the prior written consent of authorized representatives of Dun & Bradstreet. This publication is meant for the fair and internal use of the recipients. Dun & Bradstreet provides no advice or endorsement of any kind through this publication. This publication does not constitute any recommendation by Dun & Bradstreet to enter into any transaction or follow any course of action. All decisions taken by the recipients shall be based solely on the recipient’s evaluation of circumstances and objectives. Dun & Bradstreet recommends that the recipient independently verify the accuracy of the contents of the publication, upon which it intends to rely. This publication contains information compiled from various sources over which Dun & Bradstreet may not have control and / or which may not have been verified by Dun & Bradstreet, unless otherwise expressly indicated in the publication. Dun & Bradstreet, therefore, shall not be responsible for any accuracy, completeness or timeliness of the information or analysis in this publication. Dun & Bradstreet thus, expressly disclaims any and all responsibilities and liabilities arising out of the publication or its use by the recipient or any person or entity.

Dun & Bradstreet – Oriental Bank of Commerce SME Cluster Series 2016: PuneISBN 978-93-82060-93-2

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

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

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

Pune Cluster Insights .......................................................................13

Pune Cluster Overview ....................................................................19

Industry Overview

Automobile Components ..............................................................29

Engineering ................................................................................35

IT & ITeS ....................................................................................41

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: Pune’.

To gain deeper insights about Pune cluster, Dun & Bradstreet conducted a study of the small and medium enterprises (SMEs) from Pune. SMEs from varied sectors such as engineering, auto components, IT & ITes, pharmaceuticals among others were a part of this study. The study was aimed at finding the perspective of SMEs about the business environment in Pune cluster including their feasibility of doing business, growth prospects, strategies for new entrepreneurs, future challenges among others.

Key findings from our study are as under:-

• 56% of the respondents find it easy in terms of doing business in the city

• 56% of respondents are very optimistic and 36% of the respondents are moderately 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 Identification of proper location within the city for business set up

o Hiring of skilled and trained manpower for business

o Build market intelligence, conducting market study for product relevance

o Create marketing strategies and build good customer base with initiatives such as offer competitive pricing, provide customers with good after sales service, focus on creating ‘value addition’ for customers etc.

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

o Infrastructure development

o Availability of power and water

o Transportation within the city

o Availability of skilled labour, cost of labour and other labour issues

o Government policies, complex legal procedures and high tax burden

• Nearly 88% Pune based entrepreneurs 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: Pune” 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 Pune 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 Pune 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 Pune 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

pete

ncy

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

Or Contact nearest NSIC field office

MarketingSupport

OvERvIEW Of MSMEs IN INDIA

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

pete

ncy

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






MarketingSupport

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.

PuNE CLuSTER INSIGHTS

14 Pune Cluster Insights

Pune Cluster InsightsIntroduction

Dun & Bradstreet has conducted a study on small and medium enterprises (SMEs) from Pune. SMEs covered under the survey spread across varied sectors such as engineering, automobile, IT & ITEs, pharmaceuticals among others. The study was aimed at finding the perspective of SMEs about the business environment in Pune cluster including their feasibility of doing business, growth outlook, future challenges and guidelines for new entrepreneurs among others.

Following are some of the key findings of the study:-

Ease of doing business and growth prospects of SMEs in PuneAccording to the survey, 56% of the respondents find Pune ‘moderately easy or extremely easy’ in terms of ease of doing business environment. When respondents were asked about their perspective on the prospect of the growth of their business in next 3 years, 56% of the respondents cited outlook as ‘very optimistic’ for business growth. In addition to this, 36% of the respondents were ‘moderately optimistic’ about their business growth in the same time frame.

Positive aspects of doing business in PuneIn the study conducted, the entrepreneurs in Pune were asked about the positive aspects of doing business in Pune. Following are some of the key insights received from the businesspersons from the city:

15Pune Cluster Insights

Availability of resourcesa. Conducive business environment with strong buying capacityb. Availability of skilled labour c. Geographic location of the city with good transportation connectivityd.

Strategies for new entrepreneurs keeping in mind today’s business environment.The survey also requested the entrepreneurs in Pune to advice strategies for new businesspersons in the city keeping in mind current business environment. Few of the suggestions received the respondents in the study are as follows:

Identification of proper location within the city • considering factors such as good infrastructure, low employee cost, nearness to source of raw materials etc. for business set upHiring of skilled and trained manpower for • businessBuild market intelligence i.e. study of competition, • products, sound knowledge of government policies and systems, product pricing etc.Create marketing strategies and build good • customer base with initiatives such as offer competitive pricing, provide customers with good after sales service, focus on creating ‘value addition’ for customers etc.

16 Pune Cluster Insights

Major challenges for entrepreneurs doing business in Pune in the next 2-3 yearsThe study also asked entrepreneurs about business aspects where they see lot of scope for improvement in terms of doing business in the city for next two to three years. Some of the business aspects where improvement is needed as cited by the respondents are as follows:

Infrastructure• Availability of power and water• Transportation within the city• Availability of skilled labour, cost of labour and other labour issues• Government policies, complex legal procedures and high tax burden•

The above findings were substantiated further when approximately 21% of the respondents claimed infrastructure as the major challenge for doing business in the city for next two to three years. About 19% of the respondents indicated rising cost of doing business as the major challenge, and 14% cited local competition and availability of skilled manpower as the major challenges for doing business in the city.

17Pune Cluster Insights

Expectations from financial institutions for faster growth of SMEsThe respondents cited following measures by financial institutions to spur the growth of SMEs in the business:

Reduction in interest rates by financial institutions to cut down cost of • funds borrowed for the businessNeed to ease up the process for SMEs, including faster clearance in • loan procedure

Opinion about government’s ‘Make in India campaign’ for Pune SMEsThe respondents in the city gave a very encouraging response about the government’s ‘Make in India’ campaign. Nearly 88% respondents opined that the ‘Make in India’ campaign launched by the Union Government is beneficial for the SMEs in the city.

MarketingSupport

Raw MaterialDistribution Scheme

NSIC has signed agreements / MoUs with the major

Coal and Polymer products etc.). These arrangements






PuNE CLuSTER OvERvIEW

MarketingSupport

Raw MaterialDistribution Scheme

NSIC has signed agreements / MoUs with the major

Coal and Polymer products etc.). These arrangements






20 Pune Cluster Overview

Introduction

Pune – The cultural capital of MaharashtraPune is the second largest city in the state of Maharashtra and is located 560 metres (approximately 1,837 feet) above the sea level, on the Deccan plateau, on the banks of the Mutha River. It is the cultural capital of Maharashtra and is popularly known as the ‘Queen of the Deccan’. The city is renowned for its various forts and historic places and has some of the finest, oldest, and most prominent educational institutions of India, which has earned it the tag - ‘Oxford of the East’. University of Pune, College of Engineering Pune, and Fergusson College are few examples. Pune became a popular hub for the automobile and Information Technology (IT) industries and with the passage of time, the city has grown into one of India’s major industrial hubs. It has gained prominence for steel, equipment, biotechnology, and pharmaceutical sectors, which form some of the major manufacturing sectors.

Demographics

PopulationPune is one of the most populous districts and ranks third in terms of state population in Maharashtra. The city’s population, according to the 2011 Census, was more than 9.4 mn, with a population density of 603 people per sq km. During 1951 to 2011, Pune has seen an average decadal population growth rate of 30%. During 2011, Pune’s male population showed a literacy rate of 92.7%, which was 11.6% higher compared to the female population which stood at 81.1%. The city’s youth and adolescent population made up for 36.6% of the total population, out of which around 95% was literate as of 2011.

Literacy rate (%)2001 2011

Male female Overall Male female Overall88.3% 71.9% 80.5% 92.7% 81.1% 87.2%

Economic Scenario

During FY14, the Pune district contributed 51% of the total GDDP (at current prices) of the Pune division (Pune district, Satara district, Sangli district, Solapur district, and Kolhapur district are parts of the Pune division). Gross District Domestic Product (GDDP) (at current prices) of the Pune division grew by 12.7% y-o-y to ` 3,380.52 bn in FY14 and its NDDP grew by 12.9% y-o-y. The city’s per capita Net District Domestic Product (NDDP) also grew by 11.5% y-o-y. The city of Pune contributed 11.4% to the Maharashtra state income.

Pune Cluster Overview

21Pune Cluster Overview

Gross/Net District Domestic Product And Per Capita Net District Income

Pune DivisionGDDP (` Bn) NDDP (` Bn) Per Capita NDDP (in `)

fY13 fY14 fY13 fY14 fY13 fY142,999.0 3,380.5 2,699.5 3,047.4 1,147 1,279

MaharashtraGSDP (` Bn) NSDP (` Bn) Per Capita NSDP (in `)

fY13 fY14 fY13 fY14 fY13 fY1413,222.2 15,101.3 11,952.1 13,651.5 1,039 1,171

Source: Directorate of Economics and Statistics ‘Economic Survey of Maharashtra 2014-15’

Industrial Scenario

Pune is home to many prominent industries in India. Many among these are into the manufacturing of auto components, locomotives, agro-based products, electronic consumer durables, pharmaceuticals, chemicals and IT software among others. The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.

Large-scale companies present in PuneThermax Bajaj Auto

Kirloskar Cummins Mahindra and Mahindra

Tata Electric And Locomotive Company Mercedes Benz India Ltd

Alfa Laval SKF Bearings

Weikfield India Kirloskar Pneumatics

Tata Motors Volkswagen India Pvt Ltd

Infosys Technology Fiat India Automobiles

Special Economic ZonesPune district has some of the biggest economic zones in the state of Maharashtra with numerous large IT and ITeS companies. Some of them include Infosys Ltd, Wipro Ltd, and Syntel International Ltd. The presence of these popular IT names in the city makes the sector one of the most prominent ones in the district.


Industrial Areas in Pune Pimpri Chinchwad Bhigwan

Malegaon Pandare

Chakan Phase 1 Indapur

Chakan Phase 3 Kharadi Knowledge Park

Chakan Phase 4 Pune InfoTech Park (Hinjewadi Phase-I)

Jejuri & Addl. Jejuri Pune InfoTech Park (Hinjewadi Phase-II)

Ranjangaon (GC) Pune InfoTech Park (Hinjewadi Phase-III)

Kurkumbh (Daud) Talawade Software Park

Baramati (GC) Source: Maharashtra - Investment Regions, MIDC

Potential opportunities in PunePune is filled with prominent companies working in a wide range of sectors and industries as well as respected educational institutions. This opens up many possible opportunities across the city.

Prominent Industries • IT/ITeS

• Automobile industry

• Agricultural resources and agro-based industry

Products and services with high potential in Pune’s MSME Sector

• Dairy based products

• Automobile components

• Bio-coal briquettes from agro-waste

• General purpose machine shop

• Herbal and ayurvedic products

• Agro-processing export-oriented units

• Cold storage unit

• Starch from Jowar

• Solar cell

• Computer software/BPO/IT related products

Major challenges hindering MSME growth in Pune

1. Loan availability

2. Inadequate infrastructure facilities

3. Lack of proper marketing and promotional activities


Policies and Schemes for MSMEsThe Government of Maharashtra continues its thrust on developing the MSME sector in the state. It recently announced its decision to come up with a dedicated industrial policy to provide the MSMEs with all the necessary incentives and facilities to set up their businesses in the state. The state is also working towards reducing the number of approvals required for setting up a business in Maharashtra.

As of December 2014, there were 211,403 MSME units functioning in Maharashtra with investments of ` 506 billion and employment to 26.9 lakh people. Among the various districts, at 83,033 MSMEs, Pune accounted for the single largest share of 39.3% in the total number of MSME units in the state; it also had the largest share of 34.9% in MSME employment in the state (as of December 2014).

State-specific Schemes & Policies

Package Scheme of IncentivesIn order to encourage the expansion of industries to the industrially less developed areas, the Government of Maharashtra has been giving a package of incentives for new/expansion units located in such regions. Under the scheme, during 2014-15 (upto December), an amount of ` 17.6 billion was disbursed as an incentive to eligible MSMEs, large scale industries and mega projects.

Maharashtra Industrial Policy 2013

The Industrial Policy 2013 focuses on the following:

1. Increased focus on less developed regions of the state to bring them on par with mainstream industrial development

2. Customized package of incentives for Ultra Mega and Mega Industrial Investment

3. Holistic approach to MSME development

4. Initiatives to encourage employment-intensive industries

5. Path-breaking initiatives for investor facilitation and ease of doing business

6. Optimal utilization of land for industrial development

7. Strengthening of industrial infrastructure

8. Assistance of unviable sick units for easy exit and to viable sick units for revival

9. Incentives to bring about sustainable industrial development

Policy targets were:

1. To achieve manufacturing sector growth rate of 12-13% p.a.

2. To achieve manufacturing sector share of 28% of state GDP

3. To create new jobs for 2 million persons

4. To attract investment of ` 5 lakh crore


Strategies to achieve the above objectives also involve a bigger push for MSME development, including developing skilled manpower; renewed focused on MSME; offering additional incentives to employment intensive Mega units, and considering agro processing as a thrust sector.

Highlights of Schemes and Policies for MSMEs in India

Industrial Cluster Development ProgrammeThe Government announced a scheme for the development of potential clusters to facilitate the deployment of available resources for effective implementation and more sustainable results in the long term. This is an intelligent strategy which will help enhance the productivity and competitiveness of MSMEs and entrepreneurs.

Micro Small Enterprises - Cluster Development Programme (MSE-CDP)The Government modified the MSE-CDP scheme for micro & small enterprises in February 2010. Under this scheme, the Government offers financial support as grant-in-aid in order to establish a Common Facilities Centre and infrastructure development to improve the overall working of the clusters.

Industrial Infrastructure upgradation SchemeThe scheme aims at creating incentives in the industries by providing quality infrastructure through PPP in selected functional clusters.

Key Highlights of Union Budget 2016-17 for MSMEs

1. Allocation for the Ministry of MSME has been increased by 14.7% to ` 34.65 billion.

2. National Scheduled Caste and Scheduled Tribe Hubs will be created in the MSME Ministry. The Hub will facilitate professional support to SC and ST entrepreneurs in the MSME sector.

3. Presumption taxation scheme for small and medium enterprises has been extended to a turnover limit of ` 20 million against ` 10 million.

4. Plans are to set up 1,500 multi skill institutes across the country under the Pradhan Mantri Kousal Vikash Yojana (PMKVY) at a total cost of ` 170 million.

5. New manufacturing companies incorporated on or after March 1, 2016 to be given an option to be taxed at 25% + surcharge and cess, provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

6. Lower the corporate tax rate for the next financial year for relatively small enterprises i.e. companies with turnover not exceeding ` 50 million (in the financial year ending March 2015), to 29% plus surcharge and cess.

INDuSTRY OvERvIEW

Automobile Components• Engineering• IT & ITeS•

AuTOMOBILE COMPONENTS

30 Automobile Components

Over the last few years, India has emerged as a global hub for sourcing auto components. Factors such as proximity to key automotive foreign markets, relatively lower cost of operations compared to Europe and Latin America and an increasingly expanding domestic market has led to the robust growth in this sector. As per Automotive Component Manufacturers Association of India (ACMA), the turnover of the auto components sector is expected to cross US$ 100 bn mark; while exports are projected to reach about US$ 35-40 bn by 2020.

Industry Structure The auto components sector in India is broadly classified into organised and unorganised segment. The organised segment caters to original equipment manufacturers (OEMs) while the unorganized sector comprises low-valued products and caters to the aftermarket category. Some of the sub-sectors include engine parts, drive transmission & steering parts, body and chassis, suspension and braking parts, equipment, electrical parts and others such as fan belts, die castings, sheet metal parts, etc.

Product Share (%)

Engine Parts 31%

Drive Transmission& Steering Parts

19% Body & Chassis;

12% Suspension & Braking Parts

12%

Equipments 10%

Electical Parts 9%

Others 7%

Source: ACMA

PerformanceAfter a challenging FY14, the year FY15 brought some cheer for the auto component manufacturers. Revival in demand brought about healthy growth across all automobile segments. According to ACMA, the Indian auto components industry registered a turnover of ̀ 2.3 tn, growing by almost 11%, compared to 2% decline in the previous year. Several government initiatives towards better road infrastructure brought about an upswing in the transportation segment leading to revival in demand from OEMs in the MCV, HCV and passenger vehicle segment. In the last five years, the sector has registered a healthy CAGR of 11%.

Automobile Components

31Automobile Components

Turnover of Auto Component Industry

1386

1883

2046

2160

2117

2348

25.3

35.9

8.7 5.6

-2.0

10.9

-5

0

5

10

15

20

25

30

35

40

0

500

1000

1500

2000

2500

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

%

Turnover (LHS) Growth (RHS)

` bn

Source: ACMA

Auto Components Supplied to OEMs (%)

PVs 44%

Two-Wheelers 22%

Tractors 8%

HCV 8%

MCV 5%

Three-Wheeler 4%

LCV 4%

Backhoe Loaders 2% Other

2%

HCV 1%

Source: ACMA

International TradeAs the country’s overall exports declined, exports of auto components from India have registered a healthy growth rate of about 10%, reaching US$ 11.2 bn in FY15. This was achieved primarily due to revival in demand from the US and Turkey, exports to which grew by 19% and 39%, respectively. Region-wise, Europe accounted for nearly 36% share in exports followed by Asia and North America at 25% and 23% respectively.

32 Automobile Components

Export Import Trend (uS$ bn)

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Exports 4.2 6.7 8.8 9.7 10.2 11.2

Imports 8 10.9 13.8 13.7 12.8 13.58

0

2

4

6

8

10

12

14

16

Source: ACMA

The five year trend in auto component trade reveals that India continues to be a net importer from countries such as China, Germany, Japan and South Korea. However, on CAGR basis, auto components exports (21.7%) have grown faster than imports (11.2%).

Y-o-Y share of Top 10 countries in India’s Auto component exports (%)Countries 2013-14 2014-15USA 20.5 22.35

Germany 8.08 7.51

UK 6.16 5.43

Turkey 5.2 6.49

Italy 4.93 4.79

Brazil 4.03 3.37

Thailand 3.41 3.38

France 3.32 2.92

China 3.04 3.07

UAE 2.77 2.95Source: ACMA

InvestmentsCapital investments in the auto components industry have hit a five year low at US$ 0.46 bn in FY15, compared to US$ 1.7 bn in FY10. Capital investments in the sector peaked in FY11 reaching US$ 2-2.5 bn. Since then, the sector has witnessed a consistent decline in investments owing to distressed market conditions.

33Automobile Components

Capital Investments (uS$ bn)

1.7

2.5

1.9 1.75

0.73

0.46

0

0.5

1

1.5

2

2.5

3

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Source: ACMA

ENGINEERING

36 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.

37Engineering

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%.

38 Engineering

Exports of Engineering Goods

-4-20246810121416

0

10000

20000

30000

40000

50000

60000

70000

80000

FY12 FY13 FY14 FY15

Grow

th R

ate

(%)

Expo

rts i

n U

SD m

illio

n

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.

39Engineering

IT & ITeS

42 IT & ITeS

The Indian Information Technology (IT) and IT enabled services (ITeS) sectors have emerged as the growth engines of the Indian economy over the past decade. The sectors contribute substantially to India’s exports and GDP growth and generate massive urban employment. IT-BPM industry’s relative share in India’s GDP stands at 8.1%. Large integrated players, including Indian and global IT service providers that have established their presence in India, dominate the industry. According to NASSCOM estimates, the Indian IT-BPM (Business Process Management) industry is estimated to account for US$ 146 billion during FY15, representing a growth of 13% over FY14. The industry is estimated to provide direct employment to nearly 3.5 million people and indirectly employs over 10 million people. Moreover, India’s market share in the global sourcing market increased from 52% in 2012 to 55% in 2014.

At 14%, the domestic IT-BPM market, at US$ 48 billion in FY15, is estimated to grow faster than the exports market, driven largely due to the e-commerce market. IT services and software products are the next fast growing segments, growing at 10% and 12%, respectively.

Production of Electronics and IT-ITeS Industry

*Estimates based on inputs from Industry Associations, Ministries & other OrganizationsSource: Annual Report 2014-15, Department of Electronics and Information Technology (DeitY)

The Indian technology industry is today, is known as one of the global “Digital Skills Hub”. The country, as of today, hosts over 7,000 digital focused firms with start-ups fueling innovation by investing further in futuristic technologies. India has been creating a future-ready digital workforce. According to NASSCOM, India harbors more than 1, 50,000 employees with SMAC skills, more than 50,000 employees are skilled in analytics, 30,000 people in enterprise mobility and over 50,000 in cloud and social media & collaboration.

IT & ITeS

43IT & ITeS

Growth DriversGrowth in the IT services segment is being driven by SMAC-cloud enablement, custom developing application for mobile and with the renewed focus on infrastructure projects, there has been an increased demand for SI and IT consulting. There has also been an increased demand for managed and data center services from the Small and Medium Enterprise segment.

Growth in the software products segment is being driven by the rising demand for mobile app development, security software, system software, customer analytics products, among others. Although there is growing demand for knowledge services (mainly analytics), the BPM segment remains a CIS-dominated segment. The BPM segment is witnessing continuous demand from sectors such as BFSI, telecom, healthcare, retail, etc.

The attractiveness of the Indian IT-ITeS sector is mirrored in the FDI equity inflows. As per the Department of Industrial Policy & Promotion, between April 2000 and February 2015, the computer software and hardware industry received FDI equity inflows to the tune of US$ 14.86 billion, accounting for 6% of the total FDI inflows during the period. This makes it the fourth largest recipient of FDI inflows behind services, construction development and telecommunications sectors. However, to exploit the full potential of the sector, there is an urgent need for the government and all concerned stakeholders to come together and create a more conducive environment for development of infrastructure in tier-2 and tier-3 cities to leverage their potential and allow the IT and ITeS industry to emerge more cost competent and sustain its vibrant growth.

Export ScenarioImproving business prospects in the US and Europe as a result of gradual revival in consumer confidence, economic recovery and return of discretionary spending, is expected to enhance exports. For FY15, export revenues of the IT-BPM industry is estimated to cross US$ 98 billion, increasing by 12.3% (y-o-y). ER&D and product development segment is the fastest growing at 13.2%, driven primarily by higher value-added services from existing players and an increased business from GICs.

Exports in Electronics and IT & ITES Sector

Source: Annual Report 2014-15, Department of Electronics and Information Technology (DeitY)

44 IT & ITeS

Exports of IT services are estimated to grow by 12.6% in FY15. Value-added services around SMAC – upgrading legacy systems to be SMAC-enabled, greater demand for ERP, CRM, mobility from manufacturing segment and user experience technologies in the retail segment is driving the growth in IT services. Growth in the Business Process Management segment is being driven by greater automation, expanding omni-channel presence, application of analytics across entire value chain, etc.

OutlookTo survive in a globally connected, and increasingly competitive world, IT enabled enterprise digital transformation will be a must. With rapidly-evolving technologies, changing consumer preferences and oftentimes competing channels, many organizations struggle with how to transform internally to meet the challenges of this new, always connected digital world. Emerging technology trends in the industry, such as SMAC (Social media, Mobility, Analytics, and Cloud), Internet of things, artificial intelligence, software defined networking and storage, hybrid and personal clouds, smart grids and 3D printing, on service offerings around application development and system integration are expected to fuel growth and create new avenues of growth. Organizations therefore need to carefully walk the path towards a comprehensive digital transformation with a concrete strategy to utilize its strengths and alleviate its challenges. Besides growing service offerings around application development and system integration, the IT industry growth is also expected to get a shot in the arm as SMEs are rapidly bridging the technology adoption gap with an aim to boost their operational capability and increase competitiveness. Furthermore, the country’s tech-savvy generation and their spirit of entrepreneurship is also enhancing India’s image as a hub for technology start-ups, which are creating new markets and driving innovation. The Indian IT-BPM industry is well set on its goal to reach revenues of USD 300 billion by 2020.

45IT & ITeS