A robust manufacturing sector is an essential element of the Indian growth story, particularly important in ensuring employment for a large and growing age population. The “Make in India” program has been designed to facilitate investment, innovation, skill, protect intellectual property and build best-in-class manufacturing infrastructure.
The Capital Goods sector is of strategic importance for enabling robust manufacturing growth. With strong base for its engagement across sectors such as engineering, construction, infrastructure and consumer goods, the sector is to play a critical role in bringing the required competitiveness to the entire manufacturing sector and supporting in realizing “Make in India”.
The sector provides direct employment to ~1.4 million people, and indirect employment to ~7 million people, the Capital Goods industry is also one of the key contributors to value added manufacturing and is significant for overall economic development of India.
To boost to this very critical segment for achieving the vision of 'Make in India' the Department of Heavy Industry has proposed a comprehensive policy agenda. The draft policy envisions to provide for an enabling ecosystem for globally competitive capital goods sector and elevate Capital Goods' (CG) share in the total manufacturing from the present 12 percent to 20 percent by 2025 by ensuring sustained incentive for domestic manufacturers to service domestic as well as export market demand. For making India a manufacturing hub for critical inputs that is, machinery and equipment the policy has taken this opportunity to catalyze collaborative approach on various fronts to ensure opportunities across the value chain get adequately captured. Once ratified it would be the 1stever National Policy on Capital Goods.
To achieve higher growth, enabling eco-system, creation and expansion of market, promotion of exports, development of human resources, enhancement of technology & IPR, standards, focus on SMEs and building necessary support services have been outlined as the key strategic pillars for the Indian capital goods sector.
To build competitiveness in the sector the policy pitches for devising a long-term, stable and rationalized tax and duty structure. Proposals of uniform customs duty on imports of all capital goods related products, allowing up to 50 percent cenvat credit to manufacturers using such products as raw material or intermediates for further processing or using such goods in the manufacturing of finished goods would support in creating a favorable operating ecosystem for Indian CG manufacturers, while at the same time ensure cost competitiveness. With a view to ensure level playing field, the policy proposes adoption of uniform Goods and Services Tax regime, ensuring effective GST rate across all capital goods sub-sectors competitive with import duty after set-off. A transparent and participative mechanism under the Tariff Commission with representation from the Department of Revenue, DHI and industry associations has also been proposed to consistently review and ensure a rationalized duty structure with no inverted duty instances.
Presently, production of capital goods sector has not grown fast enough to match the pace of domestic demand leading to a growing dependence of imports. Envisaging on increasing exports to 40% of production while increasing share of domestic production in India's demand to 80% by 2025, policy focusses on actively promoting exports to tap opportunities in line with India's evolving trade map as well as developing the Indian CG manufacturing brand in global markets. For improved access to focus export markets it is proposed to constitute sub-sector specific committees to assess non-tariff barriers and consider them for removal. A Rs. 1,500 Cr pilot scheme is proposed for market development assistance. All capital goods sub-sectors are recommended to be integrated as priority sectors under 'Make in India' and development of a comprehensive branding plan for the sector with the support of India Brand Equity Foundation (IBEF) is proposed.
To expand and nurture domestic demand creation for Indian CG manufacturers the policy endeavors to facilitate a policy-driven ecosystem with coordinating support from end user ministries. An inter-ministerial committee with user industries and PSUs has been proposed to deliberate and review the public procurement guidelines to address the needs of the sector, such as simplification of procurement contract conditions and amendment of qualification criteria, and the issue of second-hand imports, which have been limiting the domestic demand.
Increasing the proportion of value addition would require greater innovation within the country. To bridge the technology gaps prevailing in the sector, the policy has focused on facilitating improvement in technology depth across sub-sectors, increase skill availability, ensure standards and promote growth and capacity building of SMEs. To increase the technology depth to elevate India's manufacturing competitiveness the draft calls for Technology Upgradation Fund Support (TUFS) for all capital goods sub-sectors and creating a Technology Development Fund for Rs. 1,000 Cr under PPP model. The upgradation of development, testing and certification infrastructure and set up of 10 more CMTI like institutes is also proposed. To strengthen existing capital goods scheme the policy recommends on increasing the scope of the present 'Scheme on Enhancement of Competitiveness of Capital Goods' by adding a set of components including technology, standards, skills, industrial parks and cluster development among others and increasing budgetary allocation to the scheme proportionally.
Focused efforts are required for increasing the pool of skilled manpower in India. To ensure skill availability the policy envisions to enhance the availability of the skilled manpower in the capital goods sector by training 50 lakh people by 2025. To achieve this, it recommends on creation of relevant institutions to deliver human resource and proposes to build capacity of existing training facilities in both public and private domain through PPP model and adequate funding anchored around the sector Skills council, setting up of 5 regional state of the art green-field Centers of Excellence and aligning existing Indian Technology Institutes (ITIs) through the hub and spoke model while increasing proximity to industrial clusters.
At the same time to curb inflow of sub–standard capital goods the policy endeavors to improve Indian standard development organizations (SDOs) and mandate technical and safety standards which conform to international standards and ensuring compliance to the same.
On availability of industrial financing, the draft pitches for subvention fund 'Start-up Center for Capital Goods Sector' with a funding of Rs. 25 Cr for setting up capital goods units and allow External Commercial Borrowings under automatic route for all capital goods. It also pitches for set up at least 5 Incubation Centers across the country in PPP mode and stresses on a continuous promotion of SMEs with the aim of supporting their evolution to local champions.
Last but not the least to translate policy intent in to policy driven action culminating in desired results draft also recommends to ensure establishment of governance mechanisms at appropriate levels.
The above measures inspire a lot of hope and the policy once approved will provide a new platform for Indian players to take advantage of the large Indian demand in sector and catapult for larger role in global markets.
I am delighted by the progress of the DHI-CII Joint Task Force on Capital Goods & Engineering, which has completed the drafting of the National Capital Goods Policy after extensive consultation across stakeholders from various sub-segments. The document well captures the key themes and concerns of the industry including Demand Creation, Promotion of Exports, Technology and IPR, Introduction of Mandatory Standards, and Focus on SME Development.
It is expected that the policy will be launched during the Make In India Week to be held during 13-18 Feb, 2016 at Mumbai. Needless to say, CII will only add speed and vigour to its efforts for the promotion of the sector. Through the CII National Committee on Capital Goods, we will lend all the possible support to the Government for implementing the recommendations made in the policy.