Cluster Series 2016...• The Chennai cluster is known for the following sectors –auto components and leather. The same was reflected in the survey as majority of the respondents

SME Cluster Series 2016: ChennaiPublished 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

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Director Pawan Bindal

Research and Analysis Naina R Acharya, Rohit Singh, Yogesh Jambhale, Agnel Peter, Mihir Shah, Christopher D’Souza, Omesh Kandalkar, Yash Kavi, Aakanksha Sawant, Rohit Pawar, Nishikant Sharma

Sales Head Jayesh Bahadur

Sales Team Suhail Aboli, Ajith Alex George, Sunena Jain, Keerthi Madhu, Apoorwa Tyagi, Subhonita Gargari, Karan Abrol,Sushmita Nigam, Smita Roy, Anchal Devnani, Nehal Khosla, Manjula Dinakaran, Aditya Balachander, Ayushi Nayak

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

Design Team Mohan Chilvery, Shilpa Chandolikar, Tushar Awate, Sonal Gangnaik, Yakoob Mohammed

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SME Cluster Series 2016: ChennaiISBN 978-93-86214-11-9

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

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

Overview of MSMEs in India ......................................................... 5–8

Industry Overview

Manufacturing ....................................................................................... 13-19

Services .................................................................................................21-27

Chennai Cluster Overview ......................................................... 29–36

Chennai Cluster Insights ............................................................ 39–43

1

Executive SummaryDun & Bradstreet India, in association with Lakshmi Vilas Bank, 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 – Lakshmi Vilas Bank SME Cluster Series 2016: Chennai’.

To gain deeper insights about the Chennai cluster, Dun & Bradstreet conducted a study of the SMEs in Chennai. SMEs from varied sectors such as engineering, auto components and IT & ITeS among others were a part of this study. The report focuses on SMEs from Chennai and offers insights in terms of their business perspective, financing requirements & preferences and outlook on growth prospects among others.

Key findings from our study are as under:-

• The Chennai cluster is known for the following sectors –auto components and leather. The same was reflected in the survey as majority of the respondents were from the aforesaid manufacturing segment. Further, it was observed that approximately, 63% of the respondent companies were also involved in exports

• According to our study, more than 60% of respondents shared that the business conditions in the cluster were favorable especially in terms of ease of doing business. Key enablers include availability of skilled labour and good infrastructure facilities

• The respondents in the Chennai cluster are optimistic about the future growth of their business. The central and state government policies related to SMEs are expected to play an important role in the growth of the businesses in the cluster

• Around 61% of the respondents felt that financial institutions should provide guidance on working capital management which is a key indicator of financial health of any business. Apart 51% of the respondents are expecting the financial institutions to provide the information of industry or market

The SME segment is regarded as the key growth engine for the Indian economy. In its endeavor to aid the growth, Dun & Bradstreet India will continue to keep track of the developments in the SME segment. We hope that this study will be a reliable and useful source of reference to the SMEs. We look forward to your comments and suggestions.

Naina R AcharyaDeputy Leader - OperationsEconomic Analysis GroupDun & Bradstreet India

2

3

Research MethodologyObjective of the ReportThe objective of “SME Cluster Series 2016: Chennai” 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 Chennai 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 Chennai 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 Chennai 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.

OVERVIEW Of MSMEs IN INDIA

SME Cluster Series 2016: Chennai6

IntroductionMicro, 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. The entrepreneurial spirit and innovative nature of these enterprises have been crucial in driving competitiveness in the economy. 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 EconomyThe 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 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). Nonetheless, revision in the existing definition of MSMEs has been proposed by the Ministry of MSMEs. In this regard, ‘The Micro Small and Medium Enterprises Development (Amendment) Bill, 2015’ has already been introduced in Lok Sabha which is still under consideration. The table below provides the existing definition of MSME as well as the proposal of revised definition.

India’s Definition of MSMEsSector Investment LimitManufacturing Investment in plant and machineryMicro Up to ` 2.5 mn

Small Above ` 2.5 mn & up to ` 50 mn

Medium Above ` 50 mn & up to ` 100 mn

Services Investment in equipmentsMicro Up to ` 1 mn

Small Above ` 1 mn & up to ` 20 mn

Medium Above ` 20 mn & up to ` 50 mnSource: Ministry of Micro, Small and Medium Enterprises, GoI

MSMEs play the crucial role of a catalyst in driving growth of the Indian economy by providing vital linkages to large local and international value chains. As per the Fourth All India Census of MSME, 2006 MSMEs are estimated to contribute around 45% to India’s manufacturing output and 40% to India’s exports, in terms of value.

Overview of MSMEs in India

SME Cluster Series 2016: Chennai 7

As per the Annual Report FY16 of Ministry of MSMEs, more than 117 million people were employed in around 51 million working enterprises in FY15.

Rural units with 200.2 lakh working enterprises account for 55.3% of the total working enterprises in the MSME sector. On the other hand, there are 161.6 lakh 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. Further, nearly 32% of the enterprises are engaged in manufacturing activities, while the remaining 68% are engaged in services. In terms of ownership patterns amongst MSMEs, 90.1% are proprietary enterprises, 4% are partnership enterprises, 2.8% are privately run enterprises, 0.5% are publically listed, 0.3% are owned by cooperatives/trusts, while the remaining 2.3% do not have a specific ownership pattern. There are more than 6,000 products manufactured by the Indian MSMEs, in addition to providing a wide range of services.

Lending Scenario in MSME SectorWith a view to enhance banks’ credit to the MSME sector, the Reserve Bank of India has issued timely guidelines, according to which, all loans granted to the Micro and Small Enterprises (MSEs) under the MSME segment are classified as a part of priority sector lending. The Presumption taxation scheme for small and medium enterprises has also been extended to turnover limit of ` 20 million against ` 10 million. 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 & service) enterprises. As of March 2015, total priority sector lending by all SCBs to the MSEs stood at ` 8,003.4 bn compared to ` 7,078.0 bn as of March 2014, registering a growth of 13.1%.

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

9000.00

2009 2010 2011 2012 2013 2014 2015

Source: RBINote: Figures denote outstanding credit as of March each year


In addition, to facilitate easy access to finance by MSMEs the Government/RBI has:1) Launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities

extended to micro & small enterprises (MSEs) up to ` 10 mn.2) Issued guidelines in mandatorily requiring banks to dispense with collateral requirement for loans up to ` 1

mn to MSEs.3) Set up a Micro Units Development & Refinance Agency (MUDRA) Ltd which would be responsible for

refinancing all Micro-Finance Institutions, which are in the business of lending to MSEs up to ` 1 mn.

Apart from this, in view of the problems faced by most of the MSMEs regarding modernization of technology, the government is implementing Credit Linked Capital Subsidy Scheme (CLCSS) under which 15% (subject to maximum of ` 1.5 mn) upfront subsidy on capital investment for technology upgradation is provided to MSMEs. The allocation of funds for the scheme during FY16 is ` 3 bn with a physical target of 5,700 units. Besides, the government is implementing schemes for market development and export promotion. More than 1500 technologies under 51 products/sub-sectors, have been approved under the scheme. Total 30,732 units have availed subsidy of ` 17.8 bn since the inception of the scheme.

The Indian Government has announced the following policies and schemes to promote MSMEs in the union budget of 2016-17• National Scheduled Caste and Scheduled Tribe Hub will be created in the MSME Ministry. The Hub will

facilitate professional support to SC and ST entrepreneurs in the MSME sector• Presumption taxation scheme for small and medium enterprises has been extended to turnover limit of ` 20

million against ` 10 million.• 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.• Allocation for the Ministry of MSME has been increased by 14.7% to ` 34.65 billion.• 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.

• 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.

The Way forwardConsidering the critical role played by MSMEs in economic development, particularly in terms of job creation and boosting economic growth, the Government has, over the years, launched and implemented a plethora of schemes and policies for this sector. Yet the MSMEs continue to suffer from critical challenges affecting their growth and even survival, particularly due to lack of availability of adequate and timely credit, high cost of credit, access to technology, lack of skilled manpower, and inadequate marketing support and infrastructure facilities, among others. The widespread lack of information and awareness among the MSMEs regarding the various schemes and policies designed and implemented by the Government to foster their growth has been acting as a major dampener towards exploiting their full potential.

SME Cluster Series 2016: Chennai 9Credit Support for

Raw Material

Processing Fees

Financing Procurement of Raw Materials

Rate of Interest and Processing Fee(w.e.f.02 Oct.2016)

Rate of Interest

Special

Package

for

Micro

Enterprises

INDuSTRy OVERVIEW

Manufacturing• Services•

MANufACTuRINg


Manufacturing sector plays a vital role in creating jobs and the overall economic growth of a country. Manufacturing also provides the demand base for the products of many other growing sectors of the economy, thereby creating substantial backward linkages.

During the first quarter of 2016, world manufacturing growth continued to be sluggish due to the weak recovery process in industrialized economies and weakened growth prospects in developing and emerging industrial economies owing to significant decline in exports. However, the manufacturing output in developing and emerging industrial economies increased by 4.7% as compared to the previous quarter and contributed around 90% of global manufacturing growth in the first quarter of 2016.

As per United Nation Industrial Development Organisation (UNIDO) estimates, India ranked sixth among the world’s ten largest manufacturing countries. India accounted for about 2.45% of the global manufacturing value added (MVA) in 2015. The country has not only increased its share in the global MVA from 1.74% since 2005, but has also managed to sustain growth levels compared to certain developed and developing nations such as the US, UK, Japan, Germany and Brazil amongst others that witnessed a drop in share.

Share of Leading Manufacturing Economies in World MVACountry/Economy 2005 (%) 2010 (%) 2015 (%)

China 11.75 18.69 23.84

USA 20.43 17.77 16.54

Japan 11.14 10.43 8.93

Germany 7.29 6.55 6.37

Republic of Korea 2.54 2.95 3.09

India 1.74 2.36 2.45

Italy 3.70 2.94 2.42

France 3.13 2.61 2.34

Brazil 3.08 2.89 2.26

Indonesia 1.65 1.70 1.93

United Kingdom 2.66 2.15 1.93

Russian Federation 2.15 1.90 1.77

Mexico 1.91 1.69 1.70

Canada 2.20 1.57 1.45

Spain 2.18 1.69 1.44Source: UNIDO

Manufacturing


Raising the global competitiveness of the Indian manufacturing sector is also imperative for the country’s long term-growth. Marking its presence amongst the fastest developing economies, the Indian economy now sets its benchmark to be amongst the top three manufacturing destinations by 2020. With ‘Make in India’ initiative, the Government of India has made the revival and growth of manufacturing a top priority. Manufacturing sector continue to occupy prominent position in the Indian economy with 36% share in production of outputAs per the advance estimates released by Central Statistical Organisation, the constant GDP growth of India over three years indicated positive trends in the economy. As per the new methodology of calculating GDP with 2011-12 as the base year, India’s GDP registered an estimated growth of 7.6% with the gross value added (GVA) showing a growth of 7.3% in FY16. The manufacturing sector in India occupies a prominent position in the economy, which is evident from its contribution in GVA which stood at 17.4% and its contribution of over 36% in production of output. In FY16, the manufacturing sector is estimated to grow at 9.5% with the Index of Industrial Production (IIP) of manufacturing registering a growth rate of 2%. The manufacturing sector growth in FY16 not only outpaced the overall GDP growth of the country but also other industry sectors including mining & quarrying, construction and Electricity. However, IIP of manufacturing sector deteriorated by 1.4% during Q1FY17.

growth in gDP and manufacturing sector

0

1

2

3

4

5

6

7

8

9

10

FY14 (2R) FY15 (1R) FY16 (AE)

Gw

oth

rate

in %

Manufacturing GDP GDP at constant market price

Source: Economic Survey 2015-16Note: R represents revised figures; AE is advance estimates

In FY15 the Gross Capital Formation (GCF) at current prices stood at ` 4,276 bn as compared to ` 3,912 bn during FY14. However, the rate of GCF to GDP declined from 34.7% in FY14 to 34.2% in FY15. Among various industries, manufacturing sector contributes maximum to the GCF, however it has been noticed that its share in the overall GCF has been decreasing over the years. The manufacturing sector’s contribution in total GCF has decreased from 19.2% in FY12 to 16.9% in FY16.


Industry wise contribution to gCf (%)

0

5

10

15

20

25

FY12 FY13 FY14 FY15

Mining Manufacturing Electricity Construction

Source: Economic Survey 2015-16

Manufacturing sector comprising of 22 Sub-sectors grew 9.5% in FY16The manufacturing sector comprises of a host of registered and unregistered enterprises operating between the industry codes 15-36. In July 2016, out of the 22 sub-sectors under manufacturing, around 10 industries witnessed positive growth. These included tobacco products, coke, refined petroleum products & nuclear fuel, basic metals, textiles, machinery & equipments and rubber & plastic products among others. On the other hand, sectors such as furniture, food products & beverages, paper & paper products and office, accounting & computing machinery registered negative growth.

Growth Rates of IIP – Manufacturing Subgroups (Y-o-Y)Industry

Code Description fy15 fy16 fy17 (Apr – May) May 2016 July 2016

15 Food products & beverages 4.8 -6.1 -15.8 -4.6 -0.8

16 Tobacco products 1.0 0.2 -10.9 -4.1 22.3

17 Textiles 2.8 2.6 2.0 4.5 2.3

18 Wearing apparel 5.2 6.6 0.0 -1.2 -16.2

19 Luggage, handbags etc. 10.4 -1.4 -9.7 -7.6 -10.1

20 Wood & wood products 4.3 3.2 -5.1 -6.5 -7.9

21 Paper & Paper products 3.2 2.9 6.1 6.5 -0.8

22 Publishing, printing & reproduction of recorded media -4.1 -9.0 -6.6 -0.7 -0.9

23 Coke, refined petroleum products & nuclear fuel 0.8 6.0 11.2 6.2 12.3

24 Chemicals and chemical products -0.3 3.8 1.3 3.1 5.4

25 Rubber and plastic products 4.6 0.5 0.1 1.0 3.6

26 Other non-metallic mineral products 2.5 1.6 1.9 0.8 -0.2


Industry Code Description fy15 fy16 fy17

(Apr – May) May 2016 July 2016

27 Basic Metals 12.7 0.9 2.3 4.8 2.0

28 Fabricated metal Pro. -0.7 1.6 3.1 6.1 -3.4

29 Machinery and equipment n.e.c. 3.9 2.3 10.5 14.8 8.8

30 Office, accounting & computing machinery -38.0 0.9 18.6 18.8 -9.9

31 Electrical machinery & apparatus 21.0 -11.4 -49.2 -41.1 -59.2

32 Radio, TV and communication equipment -54.4 3.8 12.0 5.8 10.9

33 Medical, precision & optical instruments, watches and clocks -2.3 -2.2 10.9 10.1 -16.8

34 Motor vehicles, trailers 2.5 7.5 5.8 5.1 3.6

35 Other transport equipment n.e.c. 6.4 1.3 8.7 9.7 1.5

36 Furniture 7.3 44.5 7.3 -8.1 -2.5Source: Ministry of Statistics & Programme Implementation, GoINote: * Industry code as per National Industrial Classification 2004

Manufacturing export decline in fy16 owing to volatile currency market and weak global demandExports of manufacturing products declined significantly by 15.6% in FY16 to US$ 262 bn from US$ 310.35 bn in FY15 owing to the 17.2% decline in the engineering products exports which accounted for 23% share of total manufacturing exports. Other major contributors are Gems & Jewellery, petroleum products and textiles with 15%, 11.6% and 6.5% share respectively in total manufacturing exports in FY16. The main reasons for the sharp decline in the exports are the tepid global demand and a volatile global currency market. Further, stronger rupee compared with its peers also led to decline in exports.

Export (uS$ million)

Particulars fy11 fy12 fy13 fy14 fy15 fy16 CAgR (FY11-FY16)

Engineering Goods 50,278.9 59,923.3 59,165.5 64,078.5 73,114.4 60,569.9 3.80%

Gems & Jewellery 42,314.3 46,314.1 43,045.1 41,379.4 41,248.4 39,473.2 -1.40%

Petroleum Products 41,480.0 56,038.5 60,865.1 63,179.4 56,794.1 30,423.5 -6%

Textiles 11,614.8 13,710.7 12,948.9 14,994.2 16,836.3 16,956.4 7.90%

Drugs & Pharmaceuticals 10,460.8 13,150.5 14,425.4 14,944.2 15,430.9 16,883.6 10%

Cotton yarn/ Fabric/made-ups, Handloom products 7,609.8 8,987.9 9,657.0 11,090.4 10,779.6 10,100.8 5.80%

Other Commodities 87,377.6 107,838.9 100,293.7 104,749.6 96,148.3 87,596.3 0.10%

Total Exports 251,136.2 305,963.9 300,400.7 314,415.7 310,352.0 262,003.7 0.90%Source: RBINote: Data for 2015-16 are provisional and data for 2014-15 are revised


Investment flow in manufacturing sector grew 2.7% y-o-y in FY16In FY16, total non-food credit outstanding in manufacturing sector grew 2.7% y-o-y to ` 27,306 billion accounting for 41.7% of the non-food credit outstanding. During 2011-16, non-food credit in the manufacturing sector grew at a CAGR of 11.2%. Textiles and basic metals & metal products are amongst the major contributors in manufacturing non-food credit in FY16.

In the manufacturing sub-sectors credit flow to the industries like basic metal and metal products, textiles, chemical and chemical products and engineering industries increased while it decreased in case of industries like food processing, beverages & tobacco, petroleum and nuclear fuel and cement and cement products.

Deployment of non-food gross bank credit outstanding (In ` bn)Sectors fy11 fy12 fy13 fy14 fy15 fy16 CAgRFood Processing 768.4 941.5 1,173.7 1,462.5 1,715.0 1,500.9 14.3%

Beverages & Tobacco 133.0 150.6 165.1 182.9 186.5 181.5 6.4%

Textiles 1,451.0 1,594.1 1,835.4 2,022.1 2,019.2 2,058.0 7.2%

Petroleum & Nuclear Fuel 507.4 611.8 643.3 648.4 561.5 512.3 0.2%

Cement & Cement Products 294.4 369.1 458.6 539.3 560.4 543.3 13.0%

Chemical & Chemical products 1,079.2 1,269.9 1,592.4 1,663.4 1,544.9 1,645.3 8.8%

Basic metal & metal Products 2,129.6 2,618.1 3,141.2 3,607.8 3,853.9 4,160.2 14.3%

All Engineering 926.7 1,130.1 1,284.5 1,463.6 1,540.1 1,541.7 10.7%

Other Industries 8,756.1 10,688.2 12,007.8 13,574.8 14,595.0 15,163.8 11.6%

Total 16,045.8 19,373.3 22,301.8 25,164.8 26,576.3 27,306.8 11.2%Source: RBINote: Data are provisional and relate to select 47 banks, which account for 95 per cent of total non-food credit extended by all scheduled commercial banks; For 2013-14, 2014-15 and 2015-16 it is related to 46 banks.

Government’s various policy initiatives likely to benefit the manufacturing sectorThe Government of India took various policy measures to boost the exports and overall growth of manufacturing sector in India. These include: • In Apr 2015, GoI launched New Foreign Trade Policy (2015-20) to support manufacturing exports and

improving the ‘Ease of Doing Business’. Under the policy, a scheme was introduced namely, ‘Merchandise Exports from India Scheme’ (MEIS) for incentivising export of specified goods to specified markets by consolidating with the earlier schemes.

• The new foreign trade policy also support indigenous manufacturing industry of capital goods by providing Specific Export Obligation under Export Promotion Capital Goods (EPCG) scheme to 75% of the normal export obligation in case capital goods are procured from indigenous manufacturers.

• The Government has introduced an additional investment allowance to new manufacturing units’ set-up during the period Apr 2015- Mar 2020 in notified backward areas of the states of Andhra Pradesh, Bihar, Telangana and West Bengal.

• In Nov 2015, GoI also launched the Technology Acquisition and Development Fund (TADF) as envisaged in the National Manufacturing Policy to provide the funding specific to acquisition and development of clean


and green technologies. Through subsidies, the fund will support manufacturing of equipment/ machines/devices for controlling pollution, reducing energy consumption and water conservation.

• The Government of India is targeting to roll out Goods and Service Tax (GST) from April 01, 2017. GST will be an important step into merging large number of central and state taxes into a single tax and is likely to benefit the manufacturing sector with reduction of multiplicity of taxes and development of common national market.

Though manufacturing industry is on a growing path but challenges remainSome of the challenges faced by the Indian manufacturing industry are:• Innovation: While many countries including China and Malaysia have steadily improved their innovation

capabilities, India has been on a declining trend. The Global Innovation Index (GII) which ranks economies in terms of their innovation capabilities placed India on 81st position, down from 66th in 2013. This is a sharp decline for India some of which can be attributed to a change in methodology.

• Financial Market Development: A robust financial sector is critical to development of the manufacturing sector as it not only affects operations but also impacts capital formation and potential investments. The Indian financial markets, though robust, are still in the development phase as evident by the low credit ratios. India ranks in the bottom three on this parameter amongst the peer countries. While domestic credit (as % of GDP) by financial sector and banks is as low as 75% and 52% for India, for United States the ratio stands at 254% and 78%, for Japan 374% and 110% and for China 169% and 142% respectively. Similarly, stock market capitalisation to GDP ratio for India is around 74%; well below the peer group average of 103%, with South Africa topping the chart with 284%.

• Logistics: The manufacturing sector spends a significant percentage of its revenue on logistics. But India is lagging far behind in logistics and Infrastructure development which is hampering the growth of the manufacturing sector. Thus focus should be given on gradual improvement of two major aspects, i.e. transportation as well as warehousing and storage.

Manufacturing sector to pick up in the coming years Manufacturing continues to remain a critical part in growth of both advanced and developing economies. The sector not only provides a path to rising incomes and living standards but also provides a vital source of innovation and competitiveness, making huge contributions to research and development, exports, and productivity growth. Indian manufacturing sector has evolved over the years but still needs to be raised to global competitiveness for country’s long term growth.

The GoI is taking various measures to enhance the competitiveness and encourage investment and improve business climate of the sector. The Make in India initiative which involves developing industrial corridors, new manufacturing cities, logistic hubs and residential townships along with the ‘Dedicated Railway Freight Corridor’ is also expected to provide boost to the investment demand in the coming years. The campaign is also a long term initiative which will help to realize the dream of transforming India into a “manufacturing hub”.

Further, the increased government expenditure on infrastructure development would have multiplier effect on employment, consumption, output and also spur investment in the manufacturing space. The government’s aims at raising the share of manufacturing in GDP to 25% by 2022 and achieve manufacturing sector growth of 12-14% per annum in the near future.

SERVICES


The majority of economies across the world are increasingly being characterized as service economies primarily due to the growing importance and share of the service sector in the economies of most developed and developing countries. In fact, the growth of the service sector is considered as an indicator of a country’s economic progress.

In 2014, the share of services in world GVA (gross value added) increased marginally to 66% over previous year however, it declined by 270 basis points as compared to 2001. On the other hand, share of services in world employment and exports accelerated to 50.9% and 20.6% as compared to 35.9% and 19.4% respectively. Among the world’s top 15 countries, India ranked ninth in terms of overall GDP and tenth in terms of services GVA in 2014. However, among these top 15 nations, in the period 2010-14, India recorded maximum growth in the services sector at 8.6% outpacing the world’s services sector growth of mere 2.5%. Further, Among the top 15 services producer countries, India has the highest share (32.6%) of services in total export followed by US (29%) and Spain (29.2%).

Country wise performance of service sector

Country

Services growth (%) Share of services in Services export growth

Y-o-Y (%) gVA (%) Employment (%) Total exports (%) Y-o-Y (%) CAgR (%)

2001 2014 2001 2014 2001 2014 2001 2014 2001 2014 2010-14US 2 2.3 77.4 78.4 75 81.2 27.2 29.8 -3.6 3.7 6.1

China 10.2 8 40.9 47.7 12.7 47 11 9 9.1 12.4 7.9

Japan 1.3 0.1 69 72 63.9 69.1 13.6 18.8 -6.9 19.2 5.2

Germany 3.3 1.3 68.7 69 64.6 70.4 12.8 15 5.6 4.3 4.9

UK 3.5 2.8 73.6 78.4 73.7 79.1 30.1 40 -0.8 7.9 5.8

France 1.9 0.7 74.7 78.9 69.9 75.8 19.8 31.4 -0.5 5.3 7.4

Brazil 2.3 1.1 68.2 71 59.4 76.6 13 14.8 -2.7 4.6 6.8

Italy 2.3 0 70.5 74.3 63.1 69.5 18.9 18 2.1 3.6 3.8

India 7.2 10.3 45.2 53 24 28.7 27.9 32.6 4.8 5 7.5

Russia 3.3 1 55.9 60 58.6 65.8 9.9 11.5 17.3 -6.1 7.5

Canada 3.5 2.4 65.9 69.9 74.8 78.2 12.7 15.2 -3.6 -4 3

Australia 3.8 2.6 69.9 70.1 67.9 69.5 21.8 18.1 -8.9 1.5 3.9

S Korea 4.9 3.1 59 59.4 62.6 69.5 16.3 15.6 -4.9 3.1 6.6

Spain 4 1.1 65.3 75.1 62 76.3 32.2 29.2 6 4.3 4.6

Mexico 1.1 2 57.6 59 56.1 62.4 7.2 5 -7.5 4.6 8.4

World 2.6 2.5 68.7 66 35.9 50.9 19.4 20.6 19.9 4.9 6.4Source: Economic Survey 2015-16Note: Rank and share are based on current prices (2014); growth rates are based on constant prices (US$); construction sector is excluded in services GDP; * for employment data in 2001 and 2014, the available data of nearest preceding years is used.

Services


As per the latest World Trade Organization data for 2015, during the first three quarters of 2015, services trade growth stood negative for the world. India’s services trade also registered negative growth of 1.4% and 0.1% in Q2 and Q3 of 2015, however services export growth, though low, was positive at 2.3%, 0.4% and 1% in Q1, Q2 and Q3 of 2015 respectively.

The services sector in India continued to remain the most vibrant sector in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

The service sector is an integral part of the India’s growth story. With share of 52.5% in the country’s GVA (at basic price) in FY16, service sector continues to drive economic growth. Apart from dominating the GVA, the sector contributes immensely towards employment, export and investment inflows. Service sector also grew at a faster CAGR of 8% as compared to industry and agriculture & allied services which grew at 6.3% and 1.7% during 2012-16.

% Share in GVA at Constant (2011-12) prices

0%

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Services GVA Industry GVA

Agriculture & allied % share of services in GVA

% share of industry in GVA % share

Source: RBI

As per the RBI in FY16, growth in the GVA of service sector stood at 8.2% surpassing the overall GVA growth of 7% but marginally lower than the growth in FY15. The slight slowing down was mainly due to the deceleration in growth of the combined category of public administration, defence and other services. The services sector is also prominent in most states of the country accounting for over 40% of the gross state domestic product (GSDP).


Growth Rate of GVA at Constant (2011-12) prices (%)

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

FY13 FY14 FY15 FY16

GVA at basic price Services Industry Agriculture & allied

Source: RBI

India’s service exports stood at US$ 158.1 bn in FY15 registering a marginal y-o-y growth rate of 4.1%. The impact of global slowdown lead to sluggishness in services exports which was more visible since the second half (H2) of FY15 with a 3.7% growth which further decelerated to 0.7% in the first half (H1) of FY16. In FY16, the exports further deteriorated by 2.4% y-o-y to US$ 154.3 bn with the major decline being recorded in transport segment. To tackle the decreasing trend and promote services export, GoI has taken a number of policy initiatives which include the Service Exports from India Scheme (SEIS) for increasing exports of notified services from India; organizing Global Exhibitions on Services (GES) and services conclaves to augment exports of various services and position India as a key player in world services trade.

Telecommunication, computer & information services, which accounted for the highest share of 49.6% in services export, grew at 1.6% in FY16. Travel, Personal, cultural & recreational services and other business services are amongst the sub-sectors that registered positive growth in exports during FY16.

Export (uS$ million)

Particulars fy13 fy14 fy15 fy16 CAgR (FY13-FY16)

Total services exports 145,677 151,813 158,107 154,311 1.45%Transport 17,334 17,380 17,485 14,004 -5.19%Travel 17,999 17,922 20,334 21,268 4.26%Financial services 4,949 6,650 5,661 4,944 -0.03%Telecommunications , computer, information services 67,785 72,054 75,334 76,563 3.09%Insurance & pension services 2,227 2,121 2,202 2,002 -2.63%Other business services 28,447 28,482 28,422 28,994 0.48%Construction 1,004 1,339 1,613 1,562 11.68%Personal, cultural & recreational services 911 1,323 1,192 1,325 9.82%Others 5,021 4,542 5,864 3,649 -7.67%

Source: RBI


Travel services which accounted for 13.8% share in services exports in 2015-16, witnessed an increase of 4.26% in compared to 13.5% in 2014-15 primarily on account of moderation in foreign tourist arrivals (FTAs). Transportation services which accounted for 9.1% in services export in 2015-16 witnessed a negative growth of 19.9% as against a growth of mere 0.6% in 2014-15 reflecting the slowdown in international trade.

% Share of service exports (2015-16)

50%

19%

14%

9%

3% 2%

1% 1% 1% Telecommunications, computer, informationervicesOther business services

Travel

Transport

Financial services

Others

Insurance & pension services

Construction

Personal, coultural & recreational services

Source: RBI

In FY16, total non-food credit outstanding in services sector grew 9% y-o-y to ` 15,410.7 billion accounting for 23.5% of the non-food credit outstanding. During 2011-16, non-food credit in the services sector grew at a CAGR of 11.5% with highest growth being registered in retail trading (18.6%) and professional services (18.3%). Trading and financial services sectors are the major contributors in services non-food credit with a share of 24.7% and 22.9% respectively in FY16.

Deployment of non-food gross bank credit outstanding (In ` bn)Services sector fy11 fy12 fy13 fy14 fy15 fy16

Transport operators 697.5 762.9 796.3 923.4 915.7 997.4

Computer software 138.6 143.0 169.1 185.9 172.1 191.0

Tourism, Hotels & Restaurants 276.4 323.2 354.4 398.8 370.4 370.5

Shipping 79.2 79.4 82.2 102.4 101.2 104.3

Professional Services 451.9 479.6 564.2 796.5 844.2 1,046.0

Trade 1,850.4 2,249.8 2,759.5 3,257.8 3,656.8 3,811.0

Wholesale Trade (other than food procurement) 946.9 1,203.7 1,501.0 1,675.7 1,800.8 1,686.1

Retail Trade 903.5 1,046.1 1,258.5 1,582.1 1,856.0 2,124.9

Commercial Real Estate 973.4 1,126.5 1,260.7 1,532.4 1,664.6 1,776.1

Non-Banking Financial Companies (NBFCs) 1,902.8 2,332.2 2,602.6 2,937.7 3,117.4 3,527.4

Other Services 2,571.9 2,733.0 2,929.8 3,239.6 3,288.6 3,586.9

Total services 8,942.0 10,229.6 11,518.9 13,374.5 14,131.0 15,411.0 Source: RBINote: Data are provisional and relate to select 47 banks, which account for 95 per cent of total non-food credit extended by all scheduled commercial banks; For 2013-14, 2014-15 and 2015-16 it is related to 46 banks.


During the five year period FY12-16, FDI received in services grew at a CAGR of 16.5% and stood at ` 454.15 bn accounting for 17.3% of total FDI inflows in the country in FY16. On a y-o-y basis, the FDI in services grew significantly at 65.9% in FY16. The high growth in services FDI inflows is primarily due to higher growth of three major categories, namely computer software and hardware; services sector category which itself consists of a basket of items like financial, banking, insurance, non-financial, outsourcing and R&D; and trading.

fDI in Services

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FDI in services Growth in FDI

Source: DIPP, Office of Economic Advisor

To increase FDI investment in the services sector and to ensure that India remains an increasingly attractive investment destination, GoI has made significant changes in the FDI policy regime in recent times. To provide simplicity to the FDI policy and bring clarity on application and approval requirements across various sectors, different kinds of foreign investments have been brought under one composite cap. Further, significant FDI-related liberalization took place in a number services and service-related sectors like construction development, broadcasting, civil aviation, cash and carry wholesale trading, wholesale trading, single brand retail trading, private sector banking, and credit information companies.

New Policies and MeasuresThe Government of India took various policy measures to boost the exports and overall growth of services sector in India. These include:

• In Apr 2015, GoI launched New Foreign Trade Policy (2015-20) to support services exports and improving the ‘Ease of Doing Business’. Under the policy, a scheme was introduced namely, ‘Service Exports from India Scheme’ (SEIS) for incentivising export of notified services from India by consolidating with the earlier schemes.

• India signed comprehensive bilateral trade agreements, including trade in services, with the governments of Singapore, South Korea, Japan and Malaysia. Further, an FTA in services and investment was also signed with the Association of South East Asian Nations (ASEAN) in September 2014, which came into effect from Jul 2015.


• The Government of India is targeting to roll out Goods and Service Tax (GST) from April 01, 2017. GST will be an important step into merging large number of central and state taxes into a single tax and is likely to benefit the services sector with reduction of multiplicity of taxes and development of common national market.

growth DriversThe services sector in India has and will continue to remain the most vibrant sector in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment. As per the report released by ILO (International Labour Organisation) on “Global Employment and Social Outlook: Trends 2015” job creation in the coming years will be primarily in the service sector. Some of the growth drivers for the sector are:

• Increasing Tourism including medical tourism: Tourism is an important source of foreign exchange earnings and a generator of employment of diverse kinds in India. The domestic tourist visits in the country has grown at CAGR of 13.8% from 1991 to 2014. Some of the initiatives taken by government to boost the sector include e–tourist visa facility for the citizens of 113 countries at 16 airports and launch of two schemes for thematic development of tourism. Further, to promote medical tourism GoI launched India’s Healthcare Portal which covers 143 accredited medical facilities and Advantage Health Care India which showcase India’s immense pool of medical capabilities as well as create opportunities for health-care collaboration between participating countries.

• Technology start-ups: With the Government’s Startup India programme and increasing focus on start-ups, the Indian technology sector will also see a tremendous growth in the coming years. Within one year, the number of start-ups in India has grown by 40% and crossed the 4200 mark creating 80,000-85,000 jobs in 2015. India has now evolved to become the third largest base of technology start-ups in the world.

future OutlookAfter displaying a resilient growth post the recovery of the global economy, India’s services sector showed a subdued performance owing to the global financial crisis. Despite the slowdown, services sector is expected to continue to grow backed by innovation and strong regulatory support. Government’s focus on infrastructure development, favourable regulatory policies like liberalization of FDI norms, increasing number of multimodal logistics service providers, growing trend of outsourcing logistics to third party service providers and entry of global players are expected to provide impetus to logistics services.

Further, easing visas by eTV and building tourism infrastructure could help the recovery of the tourism sector while the introduction of 4G and inclusion of fiber optic connectivity to increase the reach and bandwidth will give a push to the telecom industry. Announcements like the allocation of ` 10 billion to technology and start-up sectors along with promotion of cashless transactions via RUPay debit cards is expected to provide fillip to the retail sector. Overall, the growth prospects of the services sector are promising with the expected improvement in global growth and recovery in the industrial growth.

CHENNAI CLuSTER OVERVIEW


IntroductionChennai, formerly known as Madras, is the capital city of Tamil Nadu. It is the fourth most populous metropolitan area, the fifth most populous city in India and the world’s 36th largest metropolitan area. Chennai is famous for its culture and tradition, which emanates from its deep historic heritage.

Chennai is one of the leading cities in India in terms of trade and commerce. It is the fourth largest employer in India’s IT & ITES sector. It also ranks fourth in terms of highest number of higher education Institutes in the country. The prominent sectors in the city are automobile, technology, hardware manufacturing, plastics manufacturing, printing and healthcare industries. Chennai is also home to Kollywood (the Tamil film industry), which is the second largest movie industry in India. The service industry of Chennai chiefly includes repair & servicing of motor vehicles, computer servicing, event management, Spa, videography, photography, tailoring/fashion designing, embroidery work, pre-school care centers, among others.

geographical LocationChennai is situated on the north-east end of Tamil Nadu on the coast of Bay of Bengal, between 12° 09’ and 13° 09’ of the northern latitude and 80° 12’ and 80° 19’ of the southern longitude. The city is bordered on the east by the Bay of Bengal and on the remaining three sides by Kanchipuram and Thiruvallur districts. Along the Bay coast, it stretches about 25.6 kms from Thiruvanmiyur in the south to Thiruvottiyur in the north. Two rivers, Coovam and Adyar intersect the city with the Coovam running through the heart of the city and the Adyar flowing through the southern part of the city. The geographical area of Chennai district is approximately 178.20 sq kms. The entire area of the district has been classified as urban.

Demographic IndicatorsChennai is the most densely populated district in the state with a population density per sq km of 26,553 (Census 2011). The district has a population of 4,646,732 as per the 2011 Census, which increased at a Compounded Annual Growth Rate (CAGR) of 0.7% during 2001-2011. It accounts for 6.4% share in the total population of Tamil Nadu. Chennai has the highest urban population representing 12.5% of the state’s urban population. The sex ratio of the district is 989 females for every 1000 males, as against 996 for the state.

Population Snapshot: Chennai and Tamil Nadu (Numbers in million)Population Male female Total

Chennai2001 2.22 2.12 4.342011 2.34 2.31 4.65

Tamil Nadu2001 31.40 31.01 62.412011 36.14 36.01 72.15

Source: Census 2011

Chennai Cluster Overview


Chennai has the highest literacy rate among all the districts in the state of Tamil Nadu. Its literacy rate is 90.18%, as compared to the state’s literacy rate of 80.09%. As per Census 2011 date, total literates in Chennai district were 3.78 mn with male and female literacy rates of 93.7% and 86.6% respectively.

Literacy Scenarios: Chennai and Tamil Nadu (In %)Literacy rate Male female Overall

Chennai

2001 90.01 80.44 85.33

2011 93.70 86.64 90.18

Tamil Nadu

2001 82.42 64.43 73.45

2011 86.77 73.44 80.09Source: Census 2011

Economic OverviewChennai, being the capital of the state, is the centre for various activities of Tamil Nadu thus contributing significantly to the state’s economy. In FY12, Chennai’s gross district domestic product (at current prices) stood highest among all the districts at 4.15 bn higher by 11.3% than the previous year. Chennai contributed 6.9% to the gross state domestic product of Tamil Nadu. The per capita income of Chennai stood higher at ` 57,706 as compared to the state average of ` 53,507 in FY12. The tertiary sector contributed 87% to the GDDP of the district in FY12, whereas primary and secondary sector contributed 1.07% and 12% respectively. Readymade garments industry, software, Electronic and electronic components, Automobiles and Auto components were the main contributor to the growth of this sector.

InfrastructureChennai is the gateway of south India. Well-known for its culture and tradition, Chennai is an attractive destination for exporters as its two ways of transportation, airways and seaports help both large scale enterprises and SMEs alike to export to various parts of the world. Its transportation infrastructure comprises an international airport, two seaports and substantial rail and road network connectivity.

Road: Chennai’s road infrastructure includes major arterial roads that run either in an east-west or north-south direction. The total length of roads in Chennai City is about 2,847 km. The city is chiefly connected by four national highways, namely, Kolkata (NH5), Bengaluru (NH4), Thiruvallur (NH 205) and Trichy (NH 45). Anna Salai is one of the most famous roads in the city. Besides, other prominent arterial roads include Kamaraj Salai, Poonamalee High Road, Radhakrishnan Salai and Sardar Patel Road.

Railways: The Chennai Central railway station is the city’s largest railway station that runs trains to major cities and towns. The other two major railway stations are Chennai Egmore, which connects the cities and towns within Tamil Nadu, and Tambaram. The Chennai Central railway station is a hub for suburban trains, from which North Line, West Line and West North Line originate. Moreover, the Chennai Park Town station’s proximity to the central station enables it to facilitate connectivity to Tambaram/Chengalpet/Tirumalpur routes through South Line and South West Line.


The need for a new rapid transport system as the traffic volumes on the roads has been increasing substantially has compelled the Government of Tamil Nadu to implement the Chennai Metro Rail Project. The proposed Phase-1 of the project includes the creation of two initial corridors running from Washermenpet to Airport (23.1 km) and Chennai Central to St. Thomas Mount (22.0 km). The project is slated to be completed by the end of 2016 at an estimated cost of about ` 140 billion.

Airport: The Chennai International Airport (CIA) is the city’s airport for both domestic and international flights. CIA is considered to be the fourth busiest airport in India with respect to passenger traffic. The airport serves the South Indian metropolis of Chennai and serves as the Southern regional headquarters of the AAI, which comprises states like Tamil Nadu, Andhra Pradesh, Telengana, Karnataka and Kerala. The airport consists of the Anna International terminal and the Kamaraj Domestic terminal.

Ports: Chennai has two ports - the Chennai and Ennore Port. The Chennai port is one of the largest artificial ports in India and is the largest in the Bay of Bengal. The Chennai port is also one the busiest container hubs in India. It handles transportation of automobiles, motorcycles and general industrial cargo. The Ennore port handles various cargos such as coal, ore and other bulk and rock mineral products. Chennai and Ennore port recorded an annual cargo tonnage of 52.54 million tonnes (MT) and 30.25 MT during FY15, as compared to 51.11 MT and 27.34 MT respectively in FY14.

Currently, Govt is undertaking Chennai – Ennore port road connectivity project with road network of 30.1 km with an estimated project cost of ` 6 billion. Other projects being undertaken to improve the connectivity and facilities at the port include development of a Ro-Ro cum multi-purpose berth and multi level car parking facility; development of New Outer Harbour to the north of the Bharathi Dock on BOT basis at an estimated cost of ` 51 billion; and development of Integrated Dry Port & Multi-modal Logistics Hub near Sriperambudur at an estimated cost of ` 1 billion.

Educational InfrastructureChennai has a vibrant educational infrastructure. It houses government education institutions along with private institutions. It has five universities and a number of colleges in various field such as engineering, medical, agriculture, arts & science, law and polytechnic. The high number of professional colleges in the city provides adequate skilled manpower for the industry to thrive in this city.

Educational InfrastructureTypes of Institute Number Types of Institute Number

Universities 5 Polytechnic Institutions 6

Arts and Science Colleges 43 Technical Schools 5

Medical Colleges 6 I.T.Is 5

Engineering Colleges 170 Other Colleges 36

Primary Schools 664 Secondary Schools 463Source: Source: Chennai District, Statistical Hand book 2011-12,


Industrial ScenarioChennai is one of the leading industrial cities in India. The city has the fourth largest port in the country that provides it trade links to Japan, Singapore, Malaysia, Bangladesh, Burma, Ceylon and other far eastern countries. It is also the first to have developed a full-fledged container terminal to international standards. The city is India’s second largest exporter of software, information technology (IT) and information-technology-enabled services (ITES).

It is referred to as the Detroit of Asia since a major chunk of India’s automobile manufacturing industry is based in and around the city, which helps it record 60% of the country’s automotive exports. Chennai is a supplier of automobile components to global auto makers such as General Motors, Chrysler, Toyota, Ford and Volkswagen amongst others. Moreover, major automobile manufacturers such as Ford, Hyundai, BMW, Renault, Nissan, and Mitsubishi-HM, among others have their manufacturing base in the city.

The Tamil film industry known as Kollywood, the second largest movie industry in India, is also based in the city. Chennai is recognised as one of India’s leading audio and video production centres. Several audio and video production and postproduction processing activities such as digital recording, dubbing, mastering and animation are undertaken in Chennai for several films made all over India.

Chennai: Industry at a glanceParticulars Number

No. of micro manufacturing units 111,85

No. of micro services units 16,967

No. of small manufacturing units 2,288

No. of small service units 5,730

No. of medium manufacturing units 139

No. of medium service units 796

Total employment by MSME 229,467

Total Investment on P&M by MSME (` mn) 16,366.3Source: Industrial Profile of Chennai District, Ministry of MSMEs

Some of the large scale enterprises/public sector units operating in the city are the Steel Authority of India Ltd, Food Corporation of India, Chennai Petroleum Corporation Ltd, Oil & Natural Gas Corporation Ltd, State Trading Corporation of India Ltd, Shipping Corporation of India Ltd, Bharat Electronics Ltd and Integral Coach Factory. Auto parts, software, leather products, readymade garments, milk products, agriculture implements, food products, electronics items and marine products are the major exportable items from the city.

Prominent ClustersChennai is also the 4th biggest employer in IT & ITES sector in the country. Since 2000, the Old Mahapalipuram Road (OMR) is also known as the IT corridor of Chennai. Till 2006, IT development in this micro market was mainly driven by government nodal agencies – TIDCO, ELCOT and SIPCOT. However, post 2006, major private players including RMZ, Shapoorji & Pallonji, Tata Realty and others have developed IT parks along this road. The city comprises about 350 Tier I and II suppliers and more than 4,000 SME Tier III and IV suppliers.


Highlights of major clusters in Chennai:

Cluster Major products manufactured Micro/small units (No.)

Medium / large units

(No.)

Plastic Moulds & Dies, Auto components, electronic, Packaging & Transport, Household items, etc 2,480 20

Pharmaceuticals Indian System of Medicinal Products 100 2

Readymade-Garments Readymade Garments 669 20

Auto components / engineering Engine and Engine Parts, Electrical equipments etc 500 107

IT & ITeS Software & IT Enabled services 500 NA

Printing All type of Printing 1,000 20Source: Industrial Profile of Chennai District, Ministry of MSMEs

Highlights of Major Sectors in ChennaiSector Particulars Opportunities

IT &ITeS Chennai has about 1780 IT units, employing about 400,000 professionals

The State Government of Tamil Nadu is establishing an IT Investment Region near Chennai covering an area of 1600 sq km with a total investment of US$ 1.7 billion.

Automobiles & Auto Components Chennai has an installed capacity to produce over 380,000 cars and about 350,000 commercial vehicles each year

Tamil Nadu is expected to have significant capacity addition by 2017-18 with players like Yamaha, Toyota, Mahindra & Mahindra establishing their plants in the Region.

Textiles and Readymade garments Chennai is a Predominant cluster for readymade garments with exports worth US$ 1.2 Billion. Chennai is also a center for technical textile Industry with players present across categories like Agrotech, Buildtech, Clothtech, Indutech, Packtech.

The state has around 6 upcoming textile parks and two upcoming apparel parks.

Pharmaceuticals Chennai houses units manufacturing diverse products including tablets, capsules, dry syrups, external preparations, cytotoxic drugs, vaccines, APIs, bio-pharma products, etc.

Proposed TICEL Bio-tech park- II at Chennai covering an area of 5 acresthis park. The upcoming park has a lab space of 6.13 lakhs sq ft catering to Biotech Pharmaceutical, Bio IT & Nano technology and has the potential to employ over 1500 scientists.

Healthcare Chennai is the healthcare capital of India with robust network of over 300 multi-specialty hospitals with about 12,500 doctors

Two medical cities are expected to be set up in southern and western Tamil Nadu

Source: Tamil Nadu Industrial Guidance and Export Promotion Bureau


Investment ScenarioComputer software, chemicals & chemical products, automobile and non-electrical machinery has attracted the maximum investments in terms of total investments.

Investment Scenario in ChennaiIndustry Outstanding (uSD million) Completed (uSD million) Total (uSD million)

Computer software 1,191.7 1,056.4 2,248.0

Chemicals & Chemical products 953.8 204.8 1,158.6

Automobile 11.7 761.7 773.3

Non-electrical machinery 249.2 516.3 765.5

Electronics 1.2 645.2 646.3

Automobile ancillaries 232.5 363.0 595.5

Metal & Metal products 187.7 314.7 502.4

Consumer goods 143.9 227.2 371.1

Food & agro-based products 16.7 83.1 99.8

ITeS 6.7 87.5 94.2

Textiles 50.0 19.8 69.8

Construction materials - 58.6 58.6

Electrical machinery - 31.4 31.4

Miscellaneous manufacturing 5.0 36.7 41.7 Source: CAPEX, Chennai District Profile, Tamil Nadu Global Investors Meet 2015

Industrial InfrastructureMany knowledge based industries such as IT/ITeS, pharma, and engineering components are located in Chennai district due to strong infrastructure and support systems such as Special Economic Zones (SEZ), availability of skilled manpower and research institutions.

Snapshot of Notified SEZs in Chennai as on Sep 02 2016

Name of Developer Location Type Area (In Hectares)

Date of Notification

Tata Consultancy Services Ltd Siruseri and Egattur, Chennai, TN IT 28.53 17-July-2006

Hexaware Technologies Ltd SIPCOT IT Park, Siruseri, Chennai, TN IT/ITeS 11 31-Aug-2006

Shriram Properties and Infrastructure Private Ltd Perungalathur village, Chennai, TN IT/ITeS 10/ additional 13.40

28-Sep-2006 / 24-Sep-2007

Cognizant Technology Solutions India Pvt Ltd SIPCOT IT Park, Siruseri and Kazhipattur villages, Chennai, TN

IT/ITeS 10.85 (Addition 5.667) = 16.517

17-Dec-2007 / 6-Apr- 2016

Tril Infopark Ltd Kanagam village of Mambalam-Guindy Taluk and Thiruvanmiyur village of MylaporeTriplicane Taluk, Chennai District, TN

IT/ITeS 10.24 23-Jan-2009

Source: SEZIndia


Industrial corridorsThe Government also plans to develop the Industrial corridors along the roadways of important national and state highways linking Chennai to Bengaluru. CBIC is being developed to achieve accelerated development and regional industry agglomeration in the states of Tamil Nadu, Karnataka and Andhra Pradesh. The Chennai-Bangalore Industrial Corridor Project (CBIC) is an upcoming mega infrastructure project of Government of India which will be developed along Chennai, Sriperumbudur, Ponnapanthangal, Ranipet, Chittoor, Bangarupalem, Palamaner, Bangarpet, Hoskote and Bengaluru.

To develop the corridor, a comprehensive plan has been prepared by Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA). Further, Nippon Koei Ltd and PWC have been appointed as consultants to prepare a comprehensive integrated master plan by JICA. The corridor is expected to boost trade and commerce between South India and East Asia by enabling quicker movement of goods from these places to the Chennai and Ennore ports.

Tamil Nadu Vision 2023Tamil Nadu’s Vision 2023 envisages a few large infrastructure projects across the state in order to further boost its economic and industrial growth. As a part of Vision 2023, 217 developmental projects have been identified with a total investment of ` 15,000 bn. These initiatives will pave the way for sustainable and inclusive growth, and improvement in quality of life for all citizens in the state. Some of the key projects identified and under various stages of implementation for Chennai in Vision 2023 include:

Infrastructure projects under various stages of implementation in ChennaiProjects / Programmes Implementing agency

Complete doubling for Chennai - Kanyakumari line Indian Railways

Integrated Urban Road Development Programme - Phase II of Outer Ring Road – Chennai

Tamil Nadu Road Development Corporation

Chennai - Tuticorin freight corridor Indian Railways

24x7 Ready Water Supply in Extended Areas in Chennai CMWSSB

Sewerage in Extended areas - Chennai Corporation and Extended Areas CMWSSB

Strengthening/ Augmenting reservoir storage capacity - Chennai and Adjoining Areas PWD

Restoration of Chennai Waterways CoC, PWD, TNSCB, CMWSSB, DTP, Forest Department and Chennai River Restoration Trust

100% Sanitised and Open Defecation free city – Chennai CoC

Efficient Street Lighting - Chennai CoC and TANGEDCO

Piped Water Supply - Cities other than those covered under World Class cities programme and Chennai Agglomeration programme

CMA / TWAD / ULBs

Source: Tamil Nadu Vision 2023, Government of Tamil Nadu

SME Cluster Series 2016: Chennai 37Single Point Registrationfor Government Purchase

Revised Fees for the Benefit and Promotion of MSEs (w.e.f.02 Oct. 2016)New Fees

Turnover up-to Rs 100 lakhs

Turnover Exceeding Rs 100 lakh

With cap of Rs. 1 lac for all categories.

Category

Fresh Registra�on of Micro & Small Enterprises:

Concessions

Special

Package

for

Micro

Enterprises

CHENNAI CLuSTER INSIgHTS


Dun & Bradstreet India carried out a comprehensive study based on a primary survey of small and medium enterprises (SMEs) based in Chennai. The objective of the primary survey was to highlight the business trends of the SMEs operating in Chennai, in terms of their operations, financing, exports, outlook on growth prospects and major challenges faced. Companies with a total income below ` 1,000 mn during FY16 were considered for the purpose of the survey.

The following section highlights some of the key findings from our primary study:

Manufacturing enterprises dominate the Chennai cluster with over 60% representationThe Chennai cluster has large number of auto components and engineering manufacturing units. This was reflected by the survey results which show that Chennai cluster is dominated by the enterprises that are exclusively involved in manufacturing activities which represent 63% of the total respondents. Around 32% of respondents are services providers, whereas the 3% enterprises dealt in trading along with manufacturing business and 2% in manufacturing and services.

Segmentation by nature of operations

Manufacturing63%

Services32%

Manufacturing and Trading

3%

Manufacturing and Services

2%

Source: Dun & Bradstreet Research

Majority of the enterprises fall under the income bracket of ` 50mn to ` 500mnThe Chennai cluster is known for its auto components as well as engineering manufacturing units. There are a large number of small enterprises in these sectors which use low end technology and are mostly labor intensive. As a reflection of this scenario, about 85% of the enterprises were earning a total income of less than ` 500mn per annum. Further, around 15% respondents fell in the income bracket of ` 500mn – ` 1 bn.

Further, findings on total income revealed that around 70% of exclusive manufacturing enterprises had total income of in the range of ` 50mn to ` 500mn.

Chennai Cluster Insights


Classification of Total Income

0

10

20

30

40

50

60

70

Less ` 50 mn Between ` 50 mn-` 500 mn Between ` 500 mn-` 1000 mn

Perc

enta

ge

Income Bracket


The enterprises in Chennai export a large number of items including textile & garments, software products, engineering goods and auto components amongst others. This was indicated by the survey results which revealed that around 80% of the respondents belonging primarily to manufacturing sector are engaged in export of products and services. Around 41% SMEs’ export contribution to total income was in the range of 10% - 40% and also the same percentage of SMEs’ export contribution to total income was over 40%.

Majority of the respondents consider the business environment in Chennai to be moderately easyMajority of the respondents consider the business environment for starting and running a successful business for the micro, small and medium business in Chennai to be moderately easy. The study also revealed that around 17% of the respondents do consider business environment to be neutral as they find neither find it easy nor difficult to run their business. On the other hand, around 12% of the respondents were not satisfied with the business environment as they felt the business environment in Chennai to be either difficult or very difficult.

Business environment in Chennai

0

10

20

30

40

50

60

70

Extremely Easy ModeratelyEasy

Neutral Difficult ExtremelyDifficult

Perc

enta

ge



guidance on managing working capital is one of the major additional services expected from financial institutions by entrepreneurs of Chennai The survey tried to identify from the survey respondents the key additional services which financial institutions should provide to drive the growth of industry in Chennai. Around 61% of the respondents felt that financial institutions should provide guidance on how to manage the working capital management which is a key indicator of financial health of any business. SMEs also expect the financial institutions to provide information on industry or market which is indicated by 51% respondents.

Guidance on avoiding loan default and loan repayment flexibility are other additional services which entrepreneurs expected from financial institutions to drive industrial growth in Chennai.

Additional services expected from financial institutions to drive industrial growth in Chennai

10

34

51

61

0 10 20 30 40 50 60 70

Tips to avoid loan default

Loan repayment flexibility

Information update on the industry/market

Guidance on working capital management

Percentage


Central and State government policies related to SMEs is the one of the top most initiatives that will play an important role in the development of SMEs in ChennaiThe survey tried to understand the initiatives that SMEs believe are important for their development in Chennai. A significant 44% of respondents also felt that SME friendly policies would play an important role in development of SMEs in Chennai. Around 37% respondents felt that initiatives for international collaborations and the same percentage of respondents felt that assistance from local government and associations will also play an important role.


Initiatives important for SMEs development in Chennai

0 10 20 30 40 50

SME friendly policies

Initiatives for international collaborations

Assistance from local governmentbodies/SME centers/Associations

Easy access to tool room and testing centers


good Infrastructure facilities is the most positive aspect of doing business in ChennaiAccording to the respondents, the biggest positive aspect of doing business in Chennai is the good infrastructure facilities. Other positive aspects in the Chennai cluster were availability of skilled labor (41%), good business environment (24), availability of raw materials (10%) and favorable government policies (25%)

Positive aspects of doing business in Chennai

0 10 20 30 40 50 60

Good Infrastructure Facilities

Availability of Skilled Manpower

Good Business Environment

Easy Availablity of Raw Materials

Favourable government policies

Percentage


Cluster Series 2016...• The Chennai cluster is known for the following sectors –auto components and leather. The same was reflected in the survey as majority of the respondents

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