The Hindu : Favourable climate for machine tool makers

Online edition of India's National Newspaper
Monday, Jan 26, 2004

Business

Business

Favourable climate for machine tool makers

The Triennial trade show of the Indian machine tool industry, IMTEX, along with the tooling industry's exhibition, Tooltech, will be on at the Godrej factory premises at Vikhroli in Mumbai from January 28 to February 3. This year's exposition is being held at a time when there is a resurgence in the Indian manufacturing sector, particularly in the engineering industry. The President of the Indian Machine Tool Manufacturers' Association (IMTMA), V. S. Goindi, in an interview with N. N. Sachitanand, outlines the prospects for the <243>machine tool industry.

QUESTION: How has the machine tool industry fared in calendar 2003 in India?

ANSWER: The year 2003 has been a good year and we expect a growth of 25 to 30 per cent over the production of 3,704 metal working machines worth Rs. 481.70 crores in 2002. Despite this robust growth, the production achieved is not expected to reach the peak of 1996. The share of CNC machines in the overall production continues to increase as user preference has shifted to highly productive cost-effective solutions. Five years ago the share of CNC machines was 45 per cent and in 2003 it is expected to be 65 per cent. Turning centres, together with machining centres, electro-discharge machines and grinding machines, comprised nearly 70 per cent of the production of metalworking machine tools in calendar 2002.

Q: What growth rates of the domestic market for machine tools do you envisage in the coming years? What factors are hindering growth?

A: Investments taking place in the automobile and auto component industries and those involved in the manufacture of engineering products for export are spurring machine tool demand in the country. We expect an average growth of 20-25 per cent for the industry during 2004 and 2005. The high incidence of taxes, totalling almost 37 per cent, is a factor restricting the growth of this industry.

New technologies

Q: Which are the new machining technologies that are being adopted by Indian users?

A: High speed machining, multiple operation machining in single setup and hard machining are gaining ground. The emerging technologies are non-conventional machining such as laser, electrochemical machining or waterjet machining. These are being offered by some manufacturers.

Q: What are the trends in the prices of machine tools?

A: In spite of rising input costs, the industry today is in a position to offer lower prices compared to those prevailing five years ago. This has been possible due to sustained efforts in building competitiveness.

Q: In which types of machines does India have a competitive advantage? What are the major handicaps to better competitiveness?

A: India has a distinct advantage in stand alone CNC machines such as CNC lathe, machining centres and grinding machines apart from general purpose machines such as lathes, drilling machines, milling machines and grinding machines. We are also competitive in the area of special purpose machines and tailor made machining solutions. In many cases, such solutions have been supplied indigenously at as low as 50 per cent of the imported price.

Major handicaps

The major handicaps to cost competitiveness vis-a-vis imported machines are high domestic taxes and import duties on control systems, ball screws and other hightech components that go into CNC machines. These could become a major competitive handicap in future in the light of free trade agreements signed with countries such as Thailand and Singapore.

Q: What is the current level of imports of machine tools? Why do Indian consumers import?

A: Imports are around 40-50 per cent of the total consumption of machine tools. In 2002 a total of 2,960 metalworking machines were imported valued at Rs. 433 crores. By and large, imports are restricted to specialised requirement not produced in the country such as high speed, high precision machines and heavy duty machines. A few users, who export their products, do import their capital goods under the EPCG (Export Promotion and Credit Guarantee) scheme on price consideration. However, large-scale imports of second hand machines, mainly in the area of metal forming, gear cutting and grinding are a cause for concern. The current import tariff on machine tools is 25 per cent and we do not expect significant reduction in the customs duty by 2005. However, non-implementation of VAT at a national level and multiple taxes in different States are a major concern. Government financial support for R & D activities is also low. It may be mentioned here that China/Taiwan and the developed countries give or have given such support in a big way to this strategic industry knowing the multiplier effect it has on the contribution to the GDP by the manufacturing sector.

Fiscal demands

Q: What are the specific fiscal demands that the industry has placed before the Government?

A: Reduction in the import duty of CNC systems and other sub-systems that are not produced domestically.

Reduction in the excise duty of machine tools supplied to sectors that cannot Modvat excise duty paid on capital goods such as job shops, small scale manufacturers — the SSI sector.

Discouraging the import of second hand machines by considering 60 per cent of the value of the new machine for evaluating the import duty.

Pattern of uses

Q: How is the Indian market for machine tools divided in terms of user sectors today and how has it changed from the time of the last IMTEX?

A: About 50 per cent of the machine tools are consumed in the automobile and auto component sector. Fifteen to twenty per cent are the supplies to defence production and the Railways. The balance is consumed by other engineering industries. By and large there is no major change in the sectors consuming machine tools since IMTEX 2001. However the auto sector is growing much faster today and will form a bigger slice of the machine tool market in the near future.

Q: What are the export prospects and what categories have the best possibilities?

A: Indian manufacturers exported 211 metal working machine tools valued at Rs. 48.50 crores in 2002, which was about 10 per cent of the value of production that year. Our vision is to achieve 30 per cent export in the next few years. Our machines have a good acceptance level in the European and Asian markets. Germany, Italy, the U.K., France, Spain, China, Thailand and West Asia have been identified as the targets with the highest potential. The IMTMA, with support from UNIDO and the Indian Government, has been organising group participation of Indian manufacturers in international machine tool exhibitions to promote exports. Further, a few Indian manufacturers have set up a permanent display centre in Germany.

Q: What changes have come about in the structure of the industry changed since 2001? Any foreign investment coming in?

A: Since IMTEX 2001, there has been no significant change in the structure of the industry in terms of percentage of small scale units. However, pressure of superior quality at reduced price is forcing small manufacturers to upgrade their product quality. The last five years were crucial for this industry. Recessionary trends had forced a few units to close shops. Most machine tool manufacturers are privately held companies and there could perhaps be some form of consolidation through mergers and acquisitions. With significant improvement in demand, we do anticipate fresh investment in this sector. Major machine tool manufacturers in Europe and the U.S. are exploring possibilities of setting up joint ventures in India.

Q: What is a significant new trend in the relationship between users and machine tool vendors in India?

A: The practice of providing of total machining solutions to the user instead of just machining equipment is catching on. This will also require better tie-ups between machine tool and tooling manufacturers.

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