Draft of National Capital Goods Policy is ready
The capital goods industry is set to receive a boost as the Indian government released a draft of its National Capital Goods Policy. The policy aims to double India's production of capital goods from Rs.2.2 trillion to over Rs.5 trillion by 2025, and create 3.5 million jobs. The last date for sharing views and comments on the draft policy is 31 October 2015.
A "Joint Task Force" was set up in mid-2015 between the Department of Heavy Industry (DHI) and Confederation of Indian Industry (CII) to formulate the National Capital Goods Policy. It would address issues faced by the capital goods sector to evolve a roadmap to realize the potential of domestically manufactured capital goods. Specialized sub-sector strategies will also be crucial in providing focus and direction.
A growth rate of 16.8% per annum in production of capital goods in the 12th Five Year Plan (2012-2017) was the target of the former Planning Commission. However, the sector's compounded annual growth rate has been a disappointing 0.3%.
The National Capital Goods Policy is the first policy on capital goods in India. It is crucial for Modi's "Make in India" vision as the capital goods sector has a multiplier effect on other sectors in the economy.
The National Capital Goods Policy will attempt to bolster India's production of capital goods. It aims to improve India's domestic capacity utilization to 80-90% by increasing the share of domestic production in India's capital goods demand from 56% to 80% by 2025. It also aims to improve the share of capital goods from 12% to 20% in total value manufacturing by 2025.
India has a meagre share in the global exports of capital goods. Depending on the sub-sector, India's contribution is roughly between 0.1%-0.6%. In comparison, countries like China, Germany, Japan contribute 7.7%-16.3% in global exports depending on the sub-sector.
India's capital goods sector contributed Rs.625 billion to the country's exports in 2014-2015. The new policy aims to increase that to Rs.2 trillion by 2025, which will also see India's share in global exports of capital goods increase from 0.6% to 2.5%. An increase in the domestic production of capital goods will bring down India's annual expense of $20 billion for capital goods imports.
The National Capital Goods Policy will also seek to encourage foreign direct investment (FDI) in high technology manufacturing on a long term basis. They plan to give out tax incentives on capital investments from 15%-25%. Micro, small and medium enterprises (MSMEs) will be supported by an advisory group, interest subvention schemes like Technology Upgradation Fund Scheme (TUFS), and concessional rates of interest at 2%-4%.