Capital Goods


The engineering sector is the largest of the industrial sectors in India. It accounts for 27% of the total factories in the industrial sectors and represents 63% of the overall foreign collaborations. India’s engineering sector has witnessed a remarkable growth over the last few years driven by increased investment in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India’s economy.

India, on its quest to become a global superpower, has made significant stride towards developing its engineering sector. The Government has appointed Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods, products, and services from India. India export transport equipment, capital goods, other machinery/equipment, and light engineering products such as castings, forgings, and fasteners to various countries of the world. The Indian semiconductor industry offers a high growth potential area as industries which source semiconductors as inputs are themselves witnessing high demand.

India became a permanent member of the Washington Accord (WA) in June 2014. The country is now a part of an exclusive group of 17 countries who are permanent signatories of the WA, an elite international agreement on engineering studies and mobility of engineers.

Market size

Turnover of the capital goods industry was estimated at US$ 92.00 billion in 2019 and is forecast to reach US$ 115.17 billion by 2025.

India exports engineering goods mostly to US and Europe, which account for over 60% of the total export. Engineering exports were recorded at US$ 75.90 billion in April (FY20) and reached US$ 60.25 billion in January (FY21). Index of industrial production (IIP) for electrical equipment industry stood at 105.5 in FY20.

The Indian machine tool production and consumption were estimated at Rs. 6,150 crore (US$ 872.46 million) and Rs. 15,670 crore (US$ 2.22 billion), respectively, in 2019-20.


100% FDI is allowed through the automatic route, with major international players looking for growth opportunities to enter the Indian engineering sector. The engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing cost, technology, and innovation. The above, coupled with favourable regulatory policies and growth in the manufacturing sector, has enabled several foreign players to invest in India.

According to The United Nations Conference on Trade and Development (UNCTAD), India ranked among the top 10 recipients of Foreign Direct Investment (FDI) in 2019, attracting US$ 49 billion in inflows, a 16% increase from the previous year, driving FDI growth in South Asia.

FDI inflows for miscellaneous mechanical and engineering sectors stood at US$ 3,669.51 million between April 2000 and December 2020 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

In the recent past, there have been many major investments and developments in the Indian engineering and design sector:

  • In March 2021, Hitachi ABB Power Grids Ltd. bagged order worth Rs. 160 crore (US$ 21.66 million) to supply transformers to the Indian Railways.
  • In January 2021, Tesla, the electric car maker, set up a R&D centre in Bengaluru and registered its subsidiary as Tesla India Motors and Energy Private Limited.
  • In December 2020, Schindler partnered with L&T Technology Services Limited (LTTS) to enhance its innovative digital engineering capabilities. Under this partnership, LTTS would provide services & solutions for product development, innovation and engineering that will help Schindler accelerate its digitisation and connectivity initiatives.
  • In December 2020, Daimler India (a commercial vehicle maker), which recently set up 10 new touchpoints, is focusing on network expansion. The company plans to have at least 350 dealerships pan-India by 2022.
  • In December 2020, Larsen & Toubro (L&T) has won multiple orders to supply mining equipment to coal, cement and iron ore sectors. The contract’s scope includes supply of equipment and maintenance contracts to support operations over 3-4 years.
  • In November 2020, Larsen & Toubro delivered the first hardware—a booster segment—for the Gaganyaan Launch Vehicle to ISRO, ahead of schedule.
  • In November 2020, BHEL, state-owned engineering firm, set a record by successfully developing and testing the highest-rated auto transformer in India. At the National High Power Test Laboratory (NHPTL) in Madhya Pradesh, BHEL successfully developed and tested the auto transformer.
  • In November 2020, Mahindra Logistics Ltd., a supply chain management service provider, has developed a ‘built-to-suit’ warehousing capacity in Tamil Nadu. This workspace would cater to two key customers in the e-commerce and auto-engineering industries. The facility is focused on offering integrated solutions to an e-commerce player and a German auto-component supplier.
  • In November 2020, Samsung partnered with IIT-Jodhpur to establish AR-VR Innovation Lab. In cooperation with the faculty of the Department of Computer Science and Engineering (IIT-Jodhpur), Samsung engineers will provide courses to B.Tech, M.Tech and Ph.D. students. In addition, the facility will be used by fellow researchers to perform experiments. The laboratory will train up to 35 students a year.

Government Initiatives

The Indian engineering sector is of strategic importance to the economy owing to its intense integration with other industry segments. The sector has been de-licensed and enjoys 100% FDI. With the aim to boost the manufacturing sector, the Government has relaxed the excise duties on factory gate tax, capital goods, consumer durables and vehicles.

  • In April 2021, Under the Development cum Production Partner (DcPP) programme, Defence Research and Development Organisation (DRDO) allowed private sector firms to develop and produce missile systems, such as vertical launched surface and air missile system programmes, to promote the domestic defence industry.
  • The Indian telecom equipment market is likely to increase owing to the government’s Rs. 12,195 crore (US$ 1.6 billion) production-linked incentive scheme approved for telecom gear manufacturing in February 2021.
  • The upcoming new textile policy (in draft version as of February 2021) is likely to focus on setting up manufacturing hubs for textile machineries with the help of FDIs.
  • In December 2021, the Government of India announced that they are in talks with Argentina and Brazil to ink trade pacts with the two largest markets in South America, as it seeks to strengthen trade with the region.
  • The Export Policy Uttar Pradesh 2020-25 for promoting export growth and competitiveness, providing export subsidiaries with the required export-related assistance and services and creating & improving technical and physical infrastructures to improve exports from state industries.
  • In November 2020, to strengthen the capital goods (CG) sector, the government has set up a 22-member interministerial committee through initiatives, which will help this sector to effectively contribute to the national target of achieving a US$ 5 trillion economy and a US$ 1 trillion manufacturing sector.
  • In the Union Budget 2021, the government has given a massive push to the infrastructure sector by allocating Rs. 233,083 crore (US$ 32.02 billion) to enhance the transport infrastructure.
  • The government expanded the ‘National Infrastructure Pipeline (NIP)’ to 7,400 projects. ~217 projects worth Rs. 1.10 lakh crore (US$ 15.09 billion) were completed as of 2020.
  • The Union Cabinet has approved incentives up to Rs. 10,000 crore (US$ 1.47 billion) for investors by amending the M-SIPS scheme in order to further incentivise investment in electronics sector, create employment opportunities and reduce dependence on import by 2020.
  • Government approved the ‘Production Incentive Scheme’ (PLI) for large-scale electronics manufacturing.

Road Ahead

Turnover of capital goods industry is expected to increase to US$ 115.17 billion by 2025F. India’s engineering R&D market will increase from US$ 36 billion in FY19 to US$ 42 billion by FY22.

India needs Rs. 235 trillion (US$ 3.36 trillion) of investment in infrastructure in the next decade (2020 29).

The export of engineering goods is expected to reach US$ 200 billion by 2030.

Note: Conversion rate used for April 2021 is Rs. 1 = US$ 0.01334

Note: F- Forecast

References: IBEF (Indian Brand Equity Foundation )Media reports, Press releases, EEPC India, Press Information Bureau (PIB), Department for Promotion of Industry and Internal Trade (DPIIT), The Confederation of Indian Industry (CII), Indian Electrical & Electronics Manufacturers’ Association (IEEMA)

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