The government has proposed tax incentives among
other steps to boost the capital goods sector, which, in turn, would
give a fillip to Prime Minister Narendra Modi's pet project, 'Make in
India'. The draft National Capital Goods Policy, released by the
Department of Heavy Industries, was aimed at increasing the share of
capital goods contribution from present 12 per cent to 20 per cent of
the total manufacturing activity by 2025.
The department suggested various measures to promote specific segments. For instance, in the field of food processing machinery, it proposed abolishing various duties on equipment and components vital for making final machinery, especially those not manufactured in India. Currently, some of the critical equipment are not manufactured in India and manufacturers need to import them. In some cases, duties on these vital equipment reach up to 30 per cent. In the case of printing machinery, it suggested setting up of a research and development centre and testing labs and provision of ready-to-move infrastructure on lease.
The draft, on which inputs from the Confederation of Indian Industry was taken, also urged the government to initiate and spearhead bilateral technology alliances with select countries for steel plant equipment to boost metallurgical machinery.
For dies, moulds and press tools 3.1, the department advised the government to provide special depreciation rates spread over three years for better return on investment (ROI) due to frequent technology obsolescence. It proposed allowing up to 50 per cent CENVAT credit to manufacturers using such products.
It pitches for adoption of uniform goods and services tax (GST) regime, ensuring effective GST rates across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure a level-playing field. The draft makes a case for providing incentives for domestic and global mergers and acquisitions.
It also called for providing incentives for venture funding and risk capital to start-ups. Defining the objective of the policy, the draft says it is aimed at creating an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 5 lakh crore by 2025 from the current Rs 2.2 lakh crore. The policy aims to increase domestic employment from the current 15 lakh to at least 50 lakh by 2025 thus providing additional employment to over 35 lakh people.
It is for the first time that a policy on capital goods is being framed and the department aims to draw up the policy by mid-November, after which it will be sent to the Union Cabinet for approval.
"This is the final draft of the policy, including comments of all the stakeholders related to the industry. After the inputs are received, we shall go for final round of consultations. We hope to frame the policy by mid-November," Heavy Industry Secretary Rajan Katoch was quoted by PTI as saying.
India is a net importer of capital goods across sub-sectors. Around Rs 1.22 lakh crore worth of capital goods were imported in to India in 2014-15. Imports have grown at 15 per cent per annum over five years, signifying consistent demand in the market but from sources outside India. The draft policy further envisages increasing exports to 40 per cent of total production (from Rs 62,000 crore to Rs 2,00,000 crore) by 2025, enabling India's share of global exports in capital goods to increase to 2.5 per cent.
Other objectives of the policy are to improve skill availability in the capital goods sector by training 50 lakh people by 2025; improve technology depth by increasing research intensity from 0.9 per cent to at least 2.8 per cent of GDP; promote standards to curb inflow of sub-standard capital goods by mandating technical and safety standards and to promote promote growth and build capacity of SMEs to compete with established domestic and international firms. The draft paper points out imports continue to address 35 to 40 per cent of domestic demand with the proportion being significantly higher in "critical components" segment for each sub-sector.
Moreover, it said India's share in global exports in the capital goods sector is still low, ranging between 0.1 and 0.6 per cent, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7 and 16.3 per cent depending on the sub sector. The paper also sheds light on the large blocks of underutilised capacity, waiting to capitalise on the latent demand in the market. The paper highlights the fact that support facilities, technology development institutions and skilled man-power continue to lag behind global standards, even as cost disabilities such as higher cost of power, finance and infrastructure lead to higher operating cost.
The department suggested various measures to promote specific segments. For instance, in the field of food processing machinery, it proposed abolishing various duties on equipment and components vital for making final machinery, especially those not manufactured in India. Currently, some of the critical equipment are not manufactured in India and manufacturers need to import them. In some cases, duties on these vital equipment reach up to 30 per cent. In the case of printing machinery, it suggested setting up of a research and development centre and testing labs and provision of ready-to-move infrastructure on lease.
The draft, on which inputs from the Confederation of Indian Industry was taken, also urged the government to initiate and spearhead bilateral technology alliances with select countries for steel plant equipment to boost metallurgical machinery.
For dies, moulds and press tools 3.1, the department advised the government to provide special depreciation rates spread over three years for better return on investment (ROI) due to frequent technology obsolescence. It proposed allowing up to 50 per cent CENVAT credit to manufacturers using such products.
It pitches for adoption of uniform goods and services tax (GST) regime, ensuring effective GST rates across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure a level-playing field. The draft makes a case for providing incentives for domestic and global mergers and acquisitions.
It also called for providing incentives for venture funding and risk capital to start-ups. Defining the objective of the policy, the draft says it is aimed at creating an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 5 lakh crore by 2025 from the current Rs 2.2 lakh crore. The policy aims to increase domestic employment from the current 15 lakh to at least 50 lakh by 2025 thus providing additional employment to over 35 lakh people.
It is for the first time that a policy on capital goods is being framed and the department aims to draw up the policy by mid-November, after which it will be sent to the Union Cabinet for approval.
"This is the final draft of the policy, including comments of all the stakeholders related to the industry. After the inputs are received, we shall go for final round of consultations. We hope to frame the policy by mid-November," Heavy Industry Secretary Rajan Katoch was quoted by PTI as saying.
India is a net importer of capital goods across sub-sectors. Around Rs 1.22 lakh crore worth of capital goods were imported in to India in 2014-15. Imports have grown at 15 per cent per annum over five years, signifying consistent demand in the market but from sources outside India. The draft policy further envisages increasing exports to 40 per cent of total production (from Rs 62,000 crore to Rs 2,00,000 crore) by 2025, enabling India's share of global exports in capital goods to increase to 2.5 per cent.
Other objectives of the policy are to improve skill availability in the capital goods sector by training 50 lakh people by 2025; improve technology depth by increasing research intensity from 0.9 per cent to at least 2.8 per cent of GDP; promote standards to curb inflow of sub-standard capital goods by mandating technical and safety standards and to promote promote growth and build capacity of SMEs to compete with established domestic and international firms. The draft paper points out imports continue to address 35 to 40 per cent of domestic demand with the proportion being significantly higher in "critical components" segment for each sub-sector.
Moreover, it said India's share in global exports in the capital goods sector is still low, ranging between 0.1 and 0.6 per cent, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7 and 16.3 per cent depending on the sub sector. The paper also sheds light on the large blocks of underutilised capacity, waiting to capitalise on the latent demand in the market. The paper highlights the fact that support facilities, technology development institutions and skilled man-power continue to lag behind global standards, even as cost disabilities such as higher cost of power, finance and infrastructure lead to higher operating cost.
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