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Director Pawan Bindal

Research and Analysis Naina Acharya, Rohit Singh, Yogesh Jambhale, Aakanksha Sawant, Christopher D’Souza, Arun Singh, Omesh Kandalkar, Rohit Pawar, Amol Lad

Sales Head Jayesh Bahadur

Sales Team Nittin Maheshwari, Sandeep Parakkal, Vini Batheja, Sunena Jain, Tanya Bedi, Apoorwa Tyagi, Aloka Chatterjea, Nitheen Patric, Sapna Mishra, Vishwa Desai, Sindhu Ravi

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

Design Team Mohan Chilvery, Sonal Gangnaik

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SME Cluster Series 2015: CoimbatoreISBN 978-93-82060-74-1

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

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

Coimbatore Cluster Overview ....................................................... 1 - 6

Industry Overview

Engineering ........................................................................................ 11 - 16

Food Processing .................................................................................. 19 - 23

Textile .................................................................................................25 - 27

Coimbatore Cluster Insights ...................................................... 29 - 35

I

Executive SummaryDun & Bradstreet India, in association with State Bank of India 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 – State Bank of India SME Cluster Series 2015: Coimbatore’.

To gain deeper insights about Coimbatore cluster, Dun & Bradstreet conducted a study of the small and medium enterprises from Coimbatore. SMEs from varied manufacturing and service sectors such as engineering, textiles, food processing, electrical and electronic components, logistics and IT among others were a part of this study. The study was aimed at finding the business perspective of SMEs about Coimbatore cluster including positive and negative factors of doing business, guidelines for new entrepreneurs and future challenges among others.

Key findings from our study are as under:-

• High entrepreneurship spirit and growth potential, easy availability of raw materials and availability of skilled labor because of good technical and non-technical institutes emerged as the major positive aspects of conducting business in Coimbatore

• Lack of proper infrastructure development in the city and high cost of doing business emerged as obstacles for doing business in Coimbatore

• Nearly all respondents were in favor of advising new entrepreneurs to start their business in Coimbatore

• Rising cost of doing business and availability of skilled labor emerged as the two biggest challenges that Coimbatore-based entrepreneurs will face in the next 2-3 years

• Nearly 33% of respondents were satisfied with the current level of government support for small and medium enterprises in Coimbatore

The SME segment promises to emerge as one of the key growth engines for the Indian economy. Dun & Bradstreet India will continue to keep track of developments in the SME segment. We are confident that this study will serve as a reliable source of reference to SMEs. As always, we welcome your feedbackand comments.

Naina AcharyaDeputy Leader - OperationsEconomic Analysis GroupDun & Bradstreet India

II

III

Research MethodologyObjective of the ReportThe objective of “SME Cluster Series 2015: Coimbatore” 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 SMEs operating in the Coimbatore 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 Coimbatore 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 MSMEs from the engineering, textiles, food processing sectors in the Coimbatore 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 in FY15 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.

OvERvIEW Of MSMEs IN INDIA

2

Overview of MSMEs in IndiaMicro, Small and Medium Enterprises (MSMEs) play a pivotal role in the overall industrial and economic development of a nation and are considered as the prime drivers for employment generation and GDP growth, besides contributing to the balanced regional development. Further, MSMEs contribute greatly to economic diversification, social stability, and play an important role in development of the private sector. Today, most parts of the world consider nurturing the seeds of entrepreneurship among the foremost priorities for overall economic development.

The entrepreneurial spirit and innovative nature of these enterprises have been crucial in driving competitiveness in the economy. MSMEs and entrepreneurs play an important role for developing new paths to enable an economy achieve more sustainable and inclusive growth. The Organization for Economic Co-operation and Development (OECD) reports that over 95% of the enterprises in the OECD region are MSMEs accounting for almost two-third of the private sector employment.

Definition and Economic Contribution of SMEs to the Indian EconomyOver the past two decades, MSMEs sector has emerged as the most vibrant and dynamic sector of the Indian economy, with operations spanning across the manufacturing and services sectors. In addition to 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 equipments (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

ClassificationManufacturing Enterprise

Investment in Plant & MachineryServices Enterprises

Investment in Equipments

Micro Up to ` 2.5 Mn Up to ` 1 Mn

Small Above ` 2.5 Mn & up to ` 50 Mn Above ` 1 Mn & up to ` 20 Mn

Medium Above ` 50 Mn & up to ` 100 Mn Above ` 20 Mn & up to ` 50 MnSource: Ministry of Micro, Small and Medium Enterprises

MSMEs play a crucial role of a catalyst in driving growth of the Indian economy by providing vital linkages to large local and international value chains. MSMEs are the backbone of the Indian economy by providing employment to more than 100 mn people. There are nearly 49 million MSMEs and contribute to nearly 8% of the country’s GDP and 40% to India’s exports. The gross value of output of MSME manufacturing sector stood at ` 18,099 bn in FY13. There are more than 6,000 products manufactured by the Indian MSMEs, in addition to providing a wide range of services.

Overview of MSMEs in India 3

Rural units with 20 mn working enterprises account for 55.3% of the total working enterprises in the MSME sector. On the other hand, there are 16.2 mn working enterprises in the urban area accounting for 44.7% of the total working enterprises in the MSME sector. Indian MSMEs are spread across the length and breadth of the country, with the southern region accounting for almost one third of the total MSMEs in India.

Indian MSME Scenario

Period Enterprises (Million)Market value of fixed

Assets (` billion)

2006 - 07 36 8,685

2007 - 08 38 9,205

2008 - 09 39 9,771

2009 - 10 41 10,385

2010 - 11 43 11,059

2011 - 12 45 11,828

2012 - 13 47 12,688

2013 - 14 49 13,637Source: Ministry of Micro, Small and Medium Enterprises, Annual Report 2014-15Projected data for the years 2007-08 to 2013-14

Lending Scenario in MSME SectorWith a view to enhance banks’ credit to the MSME sector, the Reserve Bank of India has issued timely guidelines on lending to the priority sector. According to the RBI guidelines, all loans granted to the Micro and Small Enterprises (MSMEs) under the MSME segment are classified as a part of priority sector lending. Under the priority sector lending targets of all scheduled commercial banks (SCBs) for the MSME segment, banks are required to extend 60% of total MSME sector advances to micro (manufacturing) enterprises having investment in plant and machinery below ` 2.5 million and to micro (services) enterprises having investment in equipment less than ` 1 million.

Deployment of Bank Credit to MSE Sector (` bn)

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

8000.00

2008 2009 2010 2011 2012 2013 2014 2015

Note: Figs. denote outstanding credit as of March each year upto 2014, and as of Jan for 2015Source: RBI

COIMBATORE CLuSTER OvERvIEW

6

Coimbatore Cluster OverviewCoimbatore is among the most industrially developed and commercially vibrant districts of Tamil Nadu. It is the third largest city in Tamil Nadu and is known as the “The textile capital of south India” or “The Manchester of South India” and has a high concentration of small, medium, large scale industries, around 25,000 units. Coimbatore houses various industries, including textiles, textile machinery, cement, rubber, transport equipment, foundry, various engineering goods, health care facilities, and has a friendly culture and hospitality. It serves as an entry and exit point to the neighbouring state of Kerala and to the hill station of Udhagamandalam (Ooty) and has the locational advantage of being closer and well connected to Chennai, Bengaluru, and Kochi.

Geographical locationCoimbatore is strategically located at the junction of three southern states, Karnataka, Kerala, and Tamil Nadu. It is situated in the extreme west of Tamil Nadu near Kerala. It is surrounded by the mountains on the west with reserve forests and the Nilgiri Biosphere reserve on the northern side.

Coimbatore: Geographical data Coimbatore: Surrounding Districts

Particular StatisticsDirection District

North Nilgiris

Latitude 10o10’N-11o30’N South Dindigal

Longitude 76o40’E - 77o30’E East Erode

Area 7469 sq kms West KeralaSource: Brief Industrial Profile of Coimbatore District 2012-13 Coimbatore district - Demographic profileCoimbatore is one of the most populous cities of Tamil Nadu. It has seen a steady rise in population, over the years. Over the decade 2001-2011, population of the city increased by 18.6%. It has a population density of 731 persons per sq km and urban population contributes to around 76% of the population of the district. It boasts of a high literacy rate of 83.98% owing to the presence of numerous good educational institutions.

Demographic profile

Parameter 2001 2011Area 4,732 sq kms 4,732 sq kms

Population (2011 census) 2,916,620 3,458,045

Population density 631 731

Literacy 78.50% 83.98%

Urbanization rate 75.73 %Source: Brief Industrial Profile of Coimbatore District 2012-13

Transport infrastructureCoimbatore has a well developed transport infrastructure and is well connected with most cities and towns in India by rail, road, and air. Coimbatore has a well connected road transport network comprising various arterial roads and national and state highways. The city has six major, well connected arterial roads and three national highways. These include NH - 47 (Kochi - Salem), which passes through the city, NH - 67 (Mysore - Nagappattinam), and NH - 209 (Bangalore - Dindigul). The bypass road connects the three major highways to the city. Coimbatore has 13 railway stations and is a major junction on the Madras-Palghat Broad gauge section.

Coimbatore Cluster Overview 7

Road infrastructure (kms) (2011-12)

Type of road kmsCorporation/Municipalities roads 2,376

Town panchayat road 1,663

National Highways 105

State Highways 1,169

Panchayat & forest roads 7,626Source: Statistical Handbook

Rail infrastructure (2012-13)

Parameter valueRoute length (kms) 169

Track length (kms) 278

Railway stations (No) 13Source: Statistical Handbook

Coimbatore has an airport at Peelamedu and an air force base at Sulur. The airport caters domestic flights to all the major Indian cities and international flights to Sharjah, Singapore, and Colombo. Coimbatore airport reported a 5.9% increase in freight movement and a 4.1% decline in passenger traffic during FY14.

Air traffic at Coimbatore airport

Parameter fY13 fY14 (%) changeAircraft movement

International 846 949 12.2

Domestic 12,006 12,400 3.3

Passenger trafficInternational 112,397 119,557 6.4

Domestic 1,185,407 1,124,743 -5.1

freight (in tonnes)International 583 957 64.2

Domestic 6,097 6,115 0.3Source: Airport Authority of India

Public Health Infrastructure (2012-13)

Type of health centre Nos.Hospitals 1,161

Dispensaries 250

Sanitary centers 24

Nursing Homes 414

Maternity & Child Welfare clinic 210

Allopathy 1,460

Ayurvedic 62

Unani 18

Homeopathy 85Source: D D Health, Coimbatore, Statistical Handbook

8

EducationCoimbatore is an education hub of South India and has a vibrant educational infrastructure. It houses government education institutions along with aided and private institutions. It has best engineering colleges in Tamil Nadu such as the Coimbatore Institute of Technology and P.S.G College. The high number of professional colleges in the city provides adequate skilled manpower for the industry to thrive in this city.

Educational infrastructure

Type of institute Number

Universities 5

Agriculture and horticulture colleges 4

Medical colleges 7

Engineering colleges 59

Law college 1

Teacher training institutes 19

Government industrial training institutes 2Source: Coimbatore District Administration

Economic and industrial scenarioCoimbatore is one of the largest industrial centres in Tamil Nadu after Chennai and is part of the Coimbatore-Tirupur-Erode Industrial corridor. It has more than 25,000 industrial units, spanning across various industries such as textiles, pumps and motors, textile machinery, foundries, auto components, and engineering. The textile cluster around Coimbatore is the leading textile hub in the country with exports to various parts of the world. Further, it has a vibrant textile machinery industry accounting for more than 80% of the textile machinery manufacturing in India. Coimbatore accounts for around 50% of the water pumps production in the country and is among the largest foundries in India.

The 88 acre estate at Kurichi and 36 acre facility at Malumichampatti are the two industrial parks in Coimbatore. Both are of The Small Industries Development Corporation (SIDCO).

Important Industries in Coimbatore District

1. Textiles

2. Hosiery

3. Cement

4. Motors & Pumps

5. Wet Grinders

6. Solar heaters

7. Safety Valves

8. Stabilizers various type of Electrical and Non Electrical machines

9. Animal Feed

10. Steel rolling

11. Paper

12. Sugar

13. Flour Mills

14. Dairy

15. Soya

16. Ancillary Machinery

Source: Coimbatore District Profile, District Statistical Hand Book, 2013-14; Coimbatore District Administration

Coimbatore Cluster Overview 9

MSME Scenario in Coimbatore District, 2013-2014

Sr. No Name of the Block/Taluk No. of MSME units Employment

1 Annur 28 477

2 Coimbatore North 5402 43,502

3 Coimbatore South 3806 31,721

4 Mettupalayam 243 2,087

5 Pollachi 295 3,425

6 Sulur 122 1,317

7 Valparai 10 181

Total 9,906 82,710Source: District Industrial Centre, Coimbatore

Prominent Non-Food MSMEs in Coimbatore District, 2013-14

Industry No. of units All Employees value of output (` mn)

Share in value of output (%)

Mfg. of Textiles 2,044 8,731 13,750.6 42.5

Mfg. of weaving apparel Dressing 418 3,611 3,863.8 11.9

Mfg. of Electrical Machinery & apparatus 405 4,648 1,657.7 5.1

Mfg. of Fabricated metal products 1,320 4,680 1,461.4 4.5

Mfg. of Machinery and equpiment 1,124 4,519 1,418.9 4.4

Mfg. of Rubber and Plastics Products 479 3,192 1,116.6 3.4

Others 3,969 26,543 9,121.1 28

Total 9,759 55,924 32,390.2 100Source: District Industrial Centre, Coimbatore

Major sectorsCoimbatore is home to a number of thriving industries, which range from over a century old textile industry to the recent age IT/ITeS industry.

Textiles sectorCoimbatore is home to a large number of textile mills spread across all sizes (small, medium, and large) and is home to some of the well known textile research institutes such as the Central Institute for Cotton Research (CICR)- Southern Regional station, South Indian Textiles Research Association (SITRA), and the Sardar Vallabhai Patel International School of Textiles and Management. Furthermore, two of the Centers of Excellence proposed for technical textiles are based in Coimbatore, namely Meditech, a medical textile research centre based at SITRA, and InduTech based in PSG College of Engineering and Technology. It is well known of the quality of its cotton and dyed fabric all over the world and accounts for a major portion of exports from the country.

Textile machineryThe growth of the textile industry in Coimbatore led to the inception and development of the textile machinery industry. Coimbatore houses some of the best known global brands in textile machinery manufacturing and component manufacturing.

10

Pumps manufacturingCoimbatore is called as the “Pump city of Asia” and it was here that the first motor in India was manufactured. The need for irrigation for the cotton crop led to the development of the pump and motor manufacturing sector in Coimbatore. Today, it is one of the largest engineering activities in the city and supplies to more than 40% of India’s requirements of motors and pumps. Aquasub engineering, Mahendra Pumps, Suguna pumps, Sharp Industries, Deccan Pumps, CRI Pumps, Texmo Industries, PVG Industries, Flowserve, Kirloskar Brothers, and KSB Pumps are the major pump manufacturers based in the city.

Wet grindersCoimbatore has more than 700 units manufacturing different types of wet grinders and their components, which are marketed all over India and exported as well. The availability of natural stones suitable for wet grinders led to the development of this industry in Coimbatore. Furthermore, the numerous engineering, fabrication, and electroplating units in and around Coimbatore aided the growth of this industry.

Auto componentsCoimbatore is also known for the auto component industry and has emerged as one of the most trusted outsourcing destinations for the auto component industry. Skilled manpower (technical talent) and resource availability have been the major factors, which have led to this development. Indian auto majors source major components and sub-assemblies from the city. Moreover, technical partnerships and strategic alliances with global manufacturers have given the Coimbatore auto component industry an edge in the international market. Many auto component manufacturing companies are OE partners to multinational brands. Several international automotive manufacturers source components ranging from exhaust systems to braking systems, seating, electronic and electrical components, mechanical engine parts, body components, and suspensions and radiators. Some of the auto component makers in Coimbatore include Robert Bosch GmbH, PRICOL, Craftsman Automation, and Roots Industries.

Jewellery and gems manufacturingCoimbatore is one of the leading manufacturing hubs of imitation and gold jewellery and is a diamond cutting and polishing centre of South India. The jewellery manufacturing industry in the city has more than 2,000 manufacturers employing more than 40,000 skilled workers directly or indirectly. It caters to both the domestic and overseas market (US, Europe, Canada, Australia, Asian countries). Several jewellery retail chains are based in Coimbatore or have their manufacturing base in Coimbatore. The city is home to a number of companies manufacturing jewellery making machinery.

Information technology and BPOCoimbatore is the second largest producer of software in Tamil Nadu after Chennai. It is emerging as an IT/ITeS hub and the launch of TIDEL Park and other planned IT parks in and around the city have aided its growth. Government of Tamil Nadu has provided incentives for the IT and BPO sectors making it an attractive proposition for the IT/ITES companies. Major IT companies such as Cognizant Technology Solutions, Wipro, Ford, Robert Bosch GmbH, IBM, Tata Consultancy Services, Tata Elxsi, Dell, CSS Corp, Aditi Technologies, and KGISL having a presence in the city. Coimbatore ranks 17th among the global outsourcing cities.

Coimbatore Cluster Overview 11

INDuSTRY OvERvIEW

Engineering• food Processing• Textile•

14

ENGINEERING

16

EngineeringIndia’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 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

Engineering Sector

Heavy Engineering

Textile Machinery

Power Plant Equipment

Material Handling Equipment

Process Plant Machinery

Oil field Equipment

Mining Equipment

Metallurgical

Machine Tool

Automotive

Light Engineering

Low Technology:

Rolling bearing

Industrial fasteners

Ferrous castings

Steel forgings

Seamless steel pipes SAW Pipes

Bicycle

High Technology:

Medical instruments

Process control instruments

Engineering 17

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 and 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.

Production of engineering goods sector shows double digit growthEngineering 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, amounting to ` 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

Period Production (` bn) Growth (%)

FY05 501.42

FY06 606.14 20.9

FY07 738.96 21.9

FY08 870.59 17.8

FY09 946.97 8.8

FY10 941.73 -0.6

FY11 1068.2 13.4

FY12 (P) 1245.58 16.6

FY13 (P) 1455.51 16.9

FY14 (P) 1704.51 17.1

FY15 (P) 2000.59 17.4

FY16 (P) 2353.58 17.6

FY17 (P) 2775.26 17.9

Source: Report of working group on Capital Goods & Engineering Sector, Department of Heavy Industries, Dun & Bradstreet ResearchP- Projected under 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 ` 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.

18

The engineering goods sector derives 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.

Engineering goods exhibited double digit export growth during fY15India’s engineering goods exports have grown at a CAGR of nearly 17% from FY10 to FY15. Exports of engineering goods which had shown de-growth in FY13 gradually regained their momentum by recording 8% and 14% growth respectively in FY14 and FY15. Their share in India’s total exports increased from 19% in FY10 to nearly 24% in FY15.

India’s Engineering Exports from fY10 to fY15

PeriodEngineering Goods Exports (uS$ mn)

GrowthIndia’s commodity exports (uS$ mn)

Share in India’s Commodity Exports (%)

FY10 33,618.9 178,751.4 18.8

FY11 50,278.9 49.6 251,136.2 20.0

FY12 59,923.3 19.2 305,963.9 19.6

FY13 59,165.5 -1.3 300,400.7 19.7

FY14 64,078.5 8.3 314,415.7 20.4

FY15 73,114.6 14.1 310,533.9 23.5Source: Reserve Bank of India (RBI), Dun & Bradstreet Research

Engineering 19

20

Engineering 21

fOOD PROCESSING

24

Food ProcessingFood processing sector is one of the largest industries in India contributing significantly to GDP, employment, and investment and ranks fifth in the world in exports, production and consumption. It is one of the major employment intensive segments constituting nearly 13% of employment generated in registered units. According to the latest Annual Survey of Industries (ASI) for 2012-13 (P), the total number of persons engaged in registered food processing sector stood at 1.68 mn. The sector constitutes nearly 10% and 12% of GDP in the manufacturing and agriculture sectors.

GDP – food Processing Industries Exports of processed food & related commodities

604 588 675

821 845

0

200

400

600

800

1000

FY09 FY10 FY11 FY12 FY13

Rs

Bn

14.8

20.4

31.8

36.2 37.8

0

5

10

15

20

25

30

35

40

FY10 FY11 FY12 FY13 FY14

US$

Bn

Source: Ministry of Food Processing Industries, GoI, Annual Report 2014-15

Industry StructureThe food processing industry comprises six major segments — fruits and vegetables, milk and milk products, meat and poultry, marine products, grain processing, and consumer food. The industry can be divided into three groups — primary, secondary, and tertiary, depending on the level of processing involved. Primary processing relates to conversion of raw agricultural produce, milk, meat, and fish into a commodity that is edible, while at the tertiary level, processing leads to a high-value, ready-to-eat products such as bakery products and instant food.

The level of food processing in India is low compared with other countries, creating huge scope for investment and growth in the sector. The demand for processed product is currently on the increase, with many companies starting operations in the last few years. Further, there are huge losses resulting in lower processing levels.

Food Processing 25

Major segments of food processing industry

Food Processing

Fruits and Vegetables

India is the second largest

producer of the Fruits (81.3

Million tonnes) and vegetables (162.2 Million tonnes) in the

world, contributing 12.6% and

14.0%, respectively to the total world

production.

Milk and Milk products

India is the largest milk producing

country in the world with the production of 132.4 million tonnes FY13.

Meat and poultry

India has the world’s largest population of

livestock and is world’s 5th

largest producer of meat. Ranks 1st in the world in buffalo meat

production, second in goat

meat production, 5th

in egg production, 9th in poultry meat production, 18th

in broiler production.

Marine products

India ranks second in world fish production,

contributing about 5.4% of

global fish production.

Total fish production

during 2013-14 is estimated at

9.45 mt

Grain processing

India produced about 257.1 MT of food grains in

FY13

Consumer food

Is among the fastest growing

segments in India. It includes

packaged food, aerated soft

drinks, packaged

drinking water, and alcoholic

beverages

Source: Ministry of Food Processing Industries, Government of India and Dun & Bradstreet Research food processing industry: Processing levels

Primary Processing Secondary Processing Tertiary Processing

Includes basic cleaning, grading, and • packaging (as in case of fruits and vegetables)

Includes alteration of the basic product to • a stage just before the final preparation (as in case of milling of paddy to rice)

It leads to a high, value-added ready-to • eat food such as bakery products, instant foods, and health drinks

Source: Dun & Bradstreet Research Growth driversEconomic growth and expanding middle class, changing lifestyles, and food habits along with the growth of organized retail sector and demand for functional foods are the major demand drivers for the food processing industry. India has registered a steady rise in processed food exports. Strategic geographic location and proximity to food importing nations creates a favourable environment for export of processed foods in India. India is a richly endowed agricultural nation. Given the resource endowment, India has the potential to become one of the largest food processing countries in the world, with government policies aiding the growth of the sector.

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Growth drivers for the food processing industry

Domestic demand drivers Export opportunities Supply side factors Policy support

Rising disposable incomes• Growing middle class, • urbanization, and a young populationChanging lifestyles and food • habitsGrowth of organized retail and • private label penetrationDemand for functional foods • and neutraceuticals

Increasing exports with • advantage of proximity to key export destinationsExpected spike in global • demand as emerging markets grow at a faster paceImprovements in product and • packaging quality is aiding in the rise of exports

Favorable climate for • agriculture – wide variety of cropsLarge livestock base aids dairy • and meat processing sectorInland water bodies, long • coastline help marine products

Mega food parks, Agri Export • Zones to attract FDI and aid infrastructureEncouragement to private • sectorTax incentives and other sops• Relaxed FDI norms• Focus on infrastructure• Incentives for development of • storage facilitiesFocus on R&D and • modernization

Source: Dun & Bradstreet Research

foreign Direct Investment (fDI)FDI is permissible up to 100% through the automatic route for all processed food products except for items reserved for Micro and Small Enterprises (MSEs). FDI is permissible under the automatic route up to 24% of the capital for manufacture of items reserved for Micro, Small & Medium enterprises (MSMEs). For FDI of more than 24%, industrial license under Industries (Development & Regulation) Act, 1951 is required.

fDI in food processing industry

Period fDI (uS$ mn)

2009-10 278.89

2010-11 188.67

2011-12 170.21

2012-13 401.46

2013-14 3,982.88

2014-15 (Apr-Nov) 317.24Source: Annual Report 2014-15, Ministry of Food Processing Industries, Government of India Industry StructureThe unorganized sector dominates the Indian food processing sector, accounting for almost 70% of the total market in terms of volume. The SSI reservation has lead to the dominance of the small scale units in the industry. Although the reservations have been done away with, the number of large scale units is relatively lower.

Food Processing 27

food processing clusters in India

State Clusters Orissa Balangir, Balasore, Cuttack, Ganjam, Koraput, Puri, and Sambhalpur

Maharashtra Pune, Thane, Aloka, Bhandra, Chandrapur, Dhule, Gadchiroli, Jalgaon, Nagpur, Nanded, Ratnagiri, Sudhudurg, Wardha, and Yavatmal

Karnataka Bijapur, Gulbarga, Bijapur, Mysore, Mangalore, and ShimogaPunjab Amritsar, Gurdaspur, Sangrur, Kapurthala, and MogaKerala Kochi Delhi DelhiAndhra Pradesh East Godavari, West Godavari, Srikakulam, Vizag, Krishna, and KurnoolUttar Pradesh Mazzafarnagar, SaharanpurMadhya Pradesh IndoreHaryana Karnal, Kurukshetra, Panipat, and KaithalBihar MuzzafarpurRajasthan Alwar, Madhopur, Bharatpur, Gangapur, Jaipur, and BikanerTamil Nadu Madurai, Thanjavur, and Salem West Bengal Kolkata Himachal Pradesh Kullu, SirmaurGujarat Rajkot, Ahmedabad

Source: Dun & Bradstreet Research, UNIDO, SIDO

Challenges Despite enormous potential for the food processing sector in India, the industry faces various challenges such as supply chain gaps and lack of product innovation.

Challenges Lack of primary processing, storage, and distribution facilitiesSupply chain institutional gaps (procurement dependence on APMC markets)Inadequate link between production and processing (lack of processable varieties)Lack of product development and innovationSeasonability of operations and low capacity utilisationInadequate focus on quality and safety standards

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TExTILE

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TextileIndia’s textile Industry mostly comprises small-scale companies, non-integrated spinning firms, weaving firms, finishing firms, and apparel making enterprises. With only a few large players and numerous small and medium-size companies, the Indian textile industry is fragmented. It is classified as the hand-spun and hand-woven sector and the capital intensive, organized mill sector, which comprises spinning and composite mills.

Readymade garment, cotton textiles, man-made textiles, wool and woolen textiles, silk, handloom products, carpets, jute, coir, and coir manufacturers are the main sectors within textile industry.

India is one of the few countries with a complete and integrated textile value chain with production at each level of textile. The share of Indian textile sector in the nation’s GDP is 6%, in exports is 13% and is the second largest employer after agriculture. Its share of global exports is around 5%.

Trends in the local marketAccording to Ministry of Textiles, India’s cloth production grew by 4% in FY15 and stood at 64,219 mn sq mtrs. The powerloom and hosiery segments account for nearly 60% and 26% of the total cloth production respectively and both grew by 5% in FY15.

India’s cloth production (Mn Sq Mtrs)

Particulars fY11 fY12 fY13 fY14 fY15 CAGR

Mill Sector 2,205 2,313 2,418 2,531 2,491 3.1

Handloom 6,907 6,901 6,952 7,104 7,202 1.1

Power loom 38,015 37,445 38,038 35,693 37,566 -0.3

Hosiery 14,634 12,946 14,541 16,199 16,960 3.8

Total 61,761 59,605 61,949 61,527 64,219 1.0* Provisional Source: Ministry of textiles

Export ScenarioAccording to Ministry of Textiles, India’s Textiles & Clothing (T&C) exports registered a growth of19.76% in FY12, 6.02% in FY13 and 12.94% in FY14 touching US$ 39.45 billion. Textiles exports in the first nine months during FY15 (Apr-Dec) witnessed growth of 15% as compared to corresponding period of previous year. Exports of ready-made garments account for the largest share with 47% of the total textiles exports, followed by cotton textiles with 35% and 18% of man-made textiles. India’s textiles products, including handlooms and handicrafts, are exported to more than hundred countries across the globe with the US and EU accounting for nearly two-thirds of India’s textiles exports.

Textile 31

Exports (uS$mn) fY12 fY13 fY14* 2014-15 (Apr-Dec.)*

Readymade garment 13,094.6 12,398.1 14,385.8 11655.47

Cotton textiles 11,139.3 11,272.3 12,509.9 8686.9

Man-made textiles 5,658.0 5,045.7 5,693.9 4398.47

Wool and woolen textiles 501.2 415.4 423.6 403.72

Silk 475.7 403.6 397.5 331.31

Handloom products 551.9 515.3 370.2 265.24

Carpets 847.5 988.1 1,037.1 1,099.58

Jute 465.0 390.2 378.5 270.12

Coir and coir manufacturers 211.9 196.4 229.6 174.28* Provisional Source: Ministry of textiles

Main Features of Vision 2024-25 –According to the Vision, Strategy and Action Plan for Indian Textile and Apparel sector –

The sector needs to get US$ 180 billion to US$200 billion investment for achieving the production capacity • of about US$ 650 billion by 2024-25.

With a 20% CAGR in exports India would be exporting about US$ 300 billion of textile and apparel by • 2024-25. With the lower 15% CAGR in exports, India would be exporting about US$ 185 billion of textile and apparel by 2024-25.

Considering the targeted growth in exports, India should by then have a market share of 15% to 20% of the • global textile and apparel trade from the present level of 5%.

COIMBATORE CLuSTER INSIGHTS

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Coimbatore Cluster InsightsIntroduction

Dun & Bradstreet conducted a study of the small and medium enterprises from Coimbatore. SMEs from varied manufacturing and service sectors such as engineering, textiles, food processing, electrical and electronic components, logistics and IT among others were a part of this study. The study was aimed at finding the business perspective of SMEs about Coimbatore cluster including positive and negative factors of doing business, guidelines for new entrepreneurs and future challenges among others.

Following are some of the key findings of the study:

Positive aspects of doing business in CoimbatoreAmong the fastest growing city in South India with high • entrepreneurship spiritEasy availability of raw materials• Availability of skilled labor because of good technical • and non-technical institutes

Negative aspects of doing business in Coimbatore

Lack of proper infrastructure in the city (Frequent power • supply interruptions)Rising cost / high cost of doing business•

Coimbatore Cluster Insights 35

Nearly all respondents were in favor of advising new entrepreneurs to start their business in Coimbatore today

Strategies to succeed for new entrepreneurs keeping in mind today’s business environment

New entrepreneurs should take advantage of Coimbatore’s • diversified business activities and high industrial activity In today’s volatile business climate and high level of • competition, client relationship should be a key focus areaProducts should be of international standards for catering • to global marketsThere should be no compromise in quality and innovation • should be a key element in product designing

Challenges for entrepreneurs doing business in Coimbatore in the next 2-3 years

Rising cost of doing business• Availability of skilled labor• High level of competition• Infrastructure development•

Nearly 33% of respondents were satisfied with the current level of government support for small and medium enterprises in Coimbatore