Wednesday, February 17, 2016

The government on Monday (15 Feb.)  unveiled the first-ever policy for the country's capital goods sector which envisages creation of 21 million additional jobs by 2025. The policy envisions increasing the share of capital goods in total manufacturing activity from 12 per cent at present to 20 percent by 2025.


  • The objectives of the National Capital Goods Policy are to create an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 7.5 lakh crore by 2025 from the current Rs 2.3 lakh crore.
  • It also aims to increase direct domestic employment from the current 1.4 million to at least 5 million and indirect employment from the current 7 million to 25 million by 2025, thus providing additional employment to over 21 million people.
  • The policy envisages increasing the share of domestic production in India's capital goods demand from 60 percent to 80 percent by 2025 and in the process improve domestic capacity utilization to 80-90 percent.
  • It  aims to facilitate improvement in technology depth across sub-sectors, increase skill availability, ensure mandatory standards and promote growth and capacity building of MSMEs.
  • It also aims to significantly enhance availability of skilled manpower with higher productivity in the capital goods sector by training 50 lakh people by 2025, and create institutions to deliver the human resources with the skills, knowledge and capabilities to fuel growth and profitability.
  • It sets the objective of increasing exports to 40 percent of total production (from Rs 61,000 crore to Rs 3,00,000 crore) by 2025, enabling India's share of global exports in capital goods to increase to 2.5 per cent and making the country a net exporter of capital goods.

Recommendations !
  • To create an ecosystem for globally competitive capital goods sector, the policy recommends devising a long term, stable and rationalized tax and duty structure.
  • It advocates adoption of a uniform Goods and Services Tax (GST) regime ensuring effective GST rate across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure level playing field.
  • The policy calls for ensuring parity of import duty structure with domestic duties, for example, equalise Countervailing Duty (CVD) and Excise duty; and Special Additional Duty (SAD) with Sales tax/ VAT or GST.
  • It recommends correcting the existing inverted duty structure anomalies and considering a uniform customs duty on imports of all capital goods related products.
  • Key policy recommendations include strengthening the existing scheme of the Department of Heavy Industry on enhancement of competitiveness of the capital goods sector by increasing budgetary allocation and increasing its scope to further boost global competitiveness.
  • It entails stepping up exports of India-made capital goods through a 'Heavy Industry Export & Market Development Assistance Scheme (HIEMDA)', launch of Technology Development Fund, setting up new testing and certification facility and upgrading existing ones, making standards mandatory in order to reduce sub-standard machine imports, among others.
  • The policy suggests allowing up to 50 per cent 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.
  • The policy calls for regulating second hand imports by specifying terms and conditions like allowing imports through designated ports, insisting on actual user license, make of equipment and country of origin certification, ensuring no preferential treatment under FTA with partner countries, and excluding second hand capital goods from the purview of duty concession under project imports.
  • It asks the government to consider "physical export" status for domestic manufacturers using such imports so that these manufacturers can avail duty drawback.
  • It also recommends eliminating "zero duty" clause for capital goods under Project Imports in the taxation policy, except if the goods are not manufactured in India.

FOREIGN POLICY /IMPORTS  k sandarbh me CAPITAL GOODs ki kya baatein hai ?

  • The policy says that machine tools should be excluded from trade agreements, specifically with strong countries such as Japan, Korea, Taiwan, and EU, and included in agreements with countries in South-East Asia, which do not have strong machine tools industries. This is a direct remedy to make imports expensive.

  • Encouraging acquisitions of potential overseas companies in key technologically competitive countries such as European Union, with the intent of acquiring technology knowhow as well as manufacturing competencies.

  • The other recommended policy measures include development of 'Technology Centres' in key markets of Thailand, Turkey, Brazil and Mexico,  greater incentives for promoting technology development by SMEs and encouraging them to avail 200 per cent weighted deduction on R&D initiatives, extending 'investment allowance' measure for a period of five years, as also reducing the permissible limit from Rs 100 crore to Rs 25 crore to enable reaping of benefits by SMEs. The section also talks about enhancing depreciation allowance to around 25 per cent for purchase of indigenous capital goods.


  • The National Policy on Capital Goods is envisaged to unlock the potential of this promising sector and establish India as a global manufacturing powerhouse.
  • It has, for the first time, taken a holistic look at the real problems impacting India's manufacturing sector. 
  • It covers all the major sub-sectors, and suggests not just visionary roadmaps but practical solutions to improve productivity and demand in each of them. 
  • And it is not limited to machine tools sector. It has specific chapters on textile machinery, earth moving and mining machinery, heavy electrical equipment, plastic machinery, process plant equipment, dyes, moulds and press tools, metallurgical machinery and food processing machinery.

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