| Design
engineering - The next big thing in India’s
IT services portfolio |
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The
Made in India v/s Made in China manufacturing war
has a new turn of events with Indian engineering
design companies using high-end engineering skills
to drive down product development costs, not only
designing the product but also developing prototypes
locally.
Earlier,
engineering design firms focused on just the low
end conversion of physical engineering data into
software readable data. Now, these firms are developing
not only the design for the product, but also testing
it for stress, material composition and performance
in a real test environment by developing the prototype. |
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For
instance, Pune-based Onward Technologies has developed
a complete seating system for an US car major. Not
only did the company re-design the whole seating
system, it also developed a physical prototype.
This was tested in the government-controlled DRDO
test lab in Pune to ensure it meets Indian and European
standards. Subsequently, the order for manufacturing
the seats was given to a local company using the
designs given by Onward. The TVS group is doing
the same with its group company Harita Infoserve.
The Kalyani group companies are said to have been
winning most of their export orders on the basis
of their engineering design skills.
Apart
from pure engineering design firms, captive units
of MNCs- like Kvaerner Powergas India (KPGI) a subsidiary
of Norwegian Aker Kvaerner or Udhe India, a subsidiary
of German firm Udhe- are positioning themselves
to show that volumes and margins for their global
operations can be increased by outsourcing jobs
to India.
KPGI
is currently trying to convince its Australian office
that it can corner a larger chunk of the market
in Australia by bidding competitively and outsourcing
the excess projects to its Indian counterpart. The
rationale being that once the design is outsourced
to India, manufacturing will also follow. In fact
recognizing this potential, KPGI has been able to
increase its team from 600 to 1,000 people.
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Our Say |
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current market scenario shows that the
number of design engineering projects
have increased substantially compared
to a few years ago with the mix changing
in favour of overseas design projects.
Within the engineering design segment
itself, business design outsourcing
opportunity in the automobile industry
itself is touted to be over $1-bln.
To
win contracts, Indian companies are
not only projecting their manufacturing
prowess in terms of lower cost of production,
but also their ability to design and
manufacture a product at a much lower
price. The thumb rule is that 70-80%
of the cost of manufacturing is frozen
at the design level. By changing the
way customers look at manufacturing,
Indian companies are looking at driving
manufacturing orders through design.
On
the people front, India’s pool
of experienced engineers is now becoming
a force to reckon with. Interestingly
the last Exxon Report mentioned that
the average age of an engineer in Europe
is 40-45 years, which means there will
not be many engineers available in Europe
five to ten years from now. This may
well indicate the move of high-end engineering
design jobs to India that will drive
manufacturing in the long run. |
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| Tax
Breaks help bring India’s core sectors to
the fore |
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The
Indian finance ministry’s decision to ease
norms for granting tax breaks under Section 10 (23G)
to financial institutions and banks extending long-term
finance, for projects in the power, telecom, ports,
roads and hospitality sectors, is set to generate
more investments.
Under
Section 10 (23G), companies and funds that make
long term capital available to infrastructure projects
are exempt from paying income tax on the dividends
and interest income arising from such investments.
In the hospitality sector projects, the tax benefit
of Section 10 (23G) is given to companies and funds
that advance long term finance to hotels in the
three star category and above. |
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Foreign
Investors extending long term finance, or investing
in shares floated by companies undertaking infrastructure
projects, are eligible for tax breaks under this
section. Any income accruing as dividends, interest
or long term capital gains to the Foreign Investor
on investments in any infrastructure undertaking
is exempt from tax.
Until
recently, approvals under 10 (23G) were given
for three years. Companies undertaking these projects
were required to renew their applications after
three years. But from January this year, the finance
ministry dispensed with this norm. It decided
to grant a one time approval for applications
cleared after January 12 — or with prospective
effect.
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Our Say |
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move will give a definite impetus to
the infrastructure sector with companies
undertaking infrastructure projects
standing to gain as project financing
costs go down. Also the one time approval
substantially reduces the hassle of
renewing the approval after every three
years. The attractiveness of the tax
breaks coupled with the ever increasing
demand in these sectors should make
it worthwhile for Foreign Investors
to look at long term profitable investments
into India. |
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