Draft National Policy on Capital Goods and Engineering
A draft base paper on National Policy on Capital Goods was prepared by the Department of Heavy Industry (DHI)- Confederation of Indian Industry (CII) Joint Task Force on Capital Goods and Engineering.
WHAT ARE CAPITAL GOODS?
Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery.
Consumer goods are the end result of this production process.
“Capital Goods” sector comprises of plant and machinery, equipment / accessories required for manufacture / production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological upgradation and expansion. It also includes packaging machinery and equipment, refrigeration equipment, power generating sets, equipment and instruments for testing, research and development, quality and pollution control.
Capital goods sector is extremely crucial for the development of the country’s economy for the following two important reasons: –
1.Capital Goods is considered as a strategic sector and development of domestic capabilities is essential from a national self-reliance and security perspective .
2.Capital Goods sector has multiplier effect and has a bearing on the growth of user industries as it provides critical inputs, i.e., machinery and equipment to the remaining sectors covered under the manufacturing activity.
The capital goods sector contributes 12% to the total manufacturing activity (which is about 15% of the GDP).
It is a large and diverse sector in India with a market size of INR 2, 50, 000 Cr in 2013–14 and a domestic production of close to INR 1, 92, 000 Cr.
The sector is estimated to grow to a market size of approx INR 4, 65, 000 Cr in 2016–17 with domestic production of approx INR 4, 00, 000 Cr.
The sector is a major employer, with close to 13, 00, 000 people employed across various sub-sectors. The sector has grown at the rate of 15% per annum over the last decade.
Heavy electrical and power plant equipment is the largest sub-sector contributing to approx 65% of total capital goods requirement.
The sector contributes significantly to exports with over Rs 52, 000 crores in 2013-14 which have grown at approx 20% per annum over the last decade.
The sector also imports to the extent of Rs. 1, 14, 500 crore, which is 37% of the total demand of capital goods.
The capital goods component in industrial production has lagged in recent years due to slow pace of domestic demand leading to growing dependence on imports and following slow growth in the world economy.
Further, in the globalized world and as trade barriers in the form of tariffs are reduced, not all capital goods manufacturers have been able to tap the global opportunity.
Today, the sector has witnessed a gradual improvement and registered a positive growth from April to December 2014 at 5.7%.
Imports continue to address ~35-40% of domestic demand for capital goods with the proportion being significantly higher in “critical components” segment for each subsector.
Machine tools, heavy electrical and power plant equipment are sub-sectors that are particularly weak in self reliance with ~40% of demand being met by imports.
Indian share in global exports in the capital goods sector is still low, ranging between 0.1% and 0.6%, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7% and 16.3% depending on the sub sector.
The prospects for growth of the capital goods sector in India have always been projected to be good. Basis this, industry has invested significantly in capacity while the market 3 growth has not been commensurate with the same. This has led to large blocks of underutilized capacity, waiting to capitalize on the latent demand in the market.
Beyond 4-5 large players, the market is fragmented with the majority of operative units in the SME sector. These SMEs are challenged vis-à-vis large foreign competitors with low operating scale and issues related to access to capital.
Historically, lower appetite for capital investment in R& D and limited know-how of process technologies, the technology profile of domestic products ranges from basic to intermediate.
Support facilities, technology development institutions and skilled man-power continue to lag behind global standards
Cost disabilities such as higher cost of power, finance and infrastructure leading to higher operating cost.
“To increase the share of capital goods contribution from present 12% to 20% of total manufacturing activity by 2025”
Become one amongst top 10 capital goods producing nations of the world 4 – Raise exports to a significant level of at least 40% of total production.
Creating an Eco-system for globally competitive Capital Goods Sector.
Creation and Expansion of Market for Capital Goods Sector
Promotion of Exports
Human Resource Development
Technology & IPR
Introduction of Mandatory Standards
Focus on SME Development