Strengthening Manufacturing: National Capital Goods Policy

8 Months agoThe National Capital Goods Policy aims to achieve an increase in production from USD 35 billion in FY 2014-15 to USD 115 billion in 2025.

Among all the sectors, it is the Capital Goods sector that is often called the ‘mother of all manufacturing industry’.1 By definition, any good (plant, machinery, equipment) that is used to manufacture other products (either directly or indirectly) is called a Capital Good.

Capital Goods market size in India is worth USD 48 billion and production of USD 35 billion in 2014-15 1 and comprises several segments of the manufacturing sector. The sub sectors include: Machine tools, textile machinery, Earthmoving machinery, plastic processing machinery, process plant equipment, dies, moulds & press tools, printing machinery, metallurgical machinery and food processing machinery. The Heavy Electrical and Power Plant Equipment segment occupies the largest share of aggregate production. The other significant sub-sectors are Process Plant Equipment and Construction Equipment.

The Capital Goods sector in India contributes 12% to the total manufacturing activity.2 It provides direct employment to about 1.4 million people and indirect employment to 7 million people.3

The sector has witnessed success in overseas trade, with exports expanding to a total of USD 9.41 billion4 in the Financial Year (FY) 2014-15. Furthermore, the government’s push to manufacturing through the ‘Make in India’ initiative and several other incentives has provided an impetus to this growing sector.

Strengthening the Capital Goods Sector

To realise the objectives of the National Capital Goods Policy, the government has taken the following steps to overcome the issues faced by this sector.

  1. Creating an ecosystem for globally competitive Capital Goods sector

In order to create an ecosystem for a globally competitive Capital Goods sector, the policy envisages the implementation of a uniform Goods and Services Tax (GST) across all sub-sectors.5

Another significant policy action includes the setting up of Start-up Centres for the sector in collaboration with Department of Heavy Industry (DHI) and Capital Goods (CG) industry in 80:20 ratios. This step will ensure any form of technical, business and financial aid to upcoming Start-ups in both the manufacturing and services space.6

  1. Creation and Expansion of Market for Capital Goods sector

The aim of this Policy is to simplify terms mentioned in procurement contracts. There has also been a proposal to make revisions to the primary qualification criteria of public procurement contracts. Apart from these policy actions, provisions have been made in contracts to promote indigenously manufactured products.7

  1. Promotion of exports

In order to enhance the promotion of exports, the Heavy Industry Export & Market Development Assistance Scheme (HIEMDA) has been created. A branding plan in collaboration with the India Brand Equity Foundation (IBEF) is also in the pipeline.8

As a part of the vision of the ‘Make in India’ initiative, all the significant capital goods sub-sectors like machine tools, textile machinery, etc will be integrated for the effective implementation of upcoming projects.9

  1. Human Resource Development

In the sphere of skill development, a sector skills council has been set up along with five regional centres. There is also a plan to formulate a comprehensive skill development policy with the Capital Goods Skills Council.10

  1. Technology and IPR

The new policy recommends a raise in the allocation of budget to establish Centres of Excellence, Common Engineering Facility Centres, Integrated Industrial Infrastructure Park and Technology Acquisition Fund Programme.11

Since there is a substantial gap in technology depth across sub-sectors, the policy aims to launch a Technology Development Fund to provide aid for technology acquisition, transfer of technology and purchase of Intellectual Property Rights (IPR).

  1. Introduction of Mandatory Standards

A key element of the policy is to ensure to the implementation of global standards. If there are no defined standards, International Organisation for Standardisation’s (ISO) guidelines must apply to make sure that quality of the capital goods are not compromised.12

  1. Focus on SME Development

The policy lays emphasis on the introduction of new schemes to boost the competitiveness of the Capital Goods sector through cluster development. These schemes are created to aid in the development and growth of Small Medium Enterprises (SMEs).13 The Department of Heavy Industry will sponsor 80% of the total fee of the cluster projects.

National Capital Goods Policy: A step in the right direction

The primary objective of the Capital Goods policy is to increase the contribution of the Capital Goods sector from the current 12% to 20% of total manufacturing activity by 2025.14 Through this Policy, India aims to feature among the leading capital goods producing nations in the world.

Under the National Capital Goods policy which is under the aegis of the Department of Heavy Industries and Public Enterprises, the government has a clear mission to achieve an increase in production from USD 35 billion in FY 2014-15 to USD 115 billion in 2025.15 The agenda also envisages increasing exports from the current 27% to 40% of production. It emphasises on raising the share of domestic production in India’s demand from 60% to 80% to make the country an exporter of capital goods.16

Apart from the objectives mentioned above, the target of the National Capital Goods Policy is to ensure improvement in technology across sub-sectors, increase availability of skilled labour and promote growth and capacity building of MSMEs.

Governance Mechanism for Policy Initiative

Since the National Capital Goods Policy is vital for the development of the manufacturing sector, it requires a joint effort from both Central and State Ministries, industry associations, manufacturing firms and end-user firms.

It has been proposed that a group be formed to work with state governments and help in the development and implementation of Capital Goods policies. This group will monitor the status of implementation of projects in the end user industry segments for capital goods as well as the efficient utilisation of allocated funds.17

Meanwhile, the state government will work in close collaboration with the central government to ensure the smooth implementation of these policies and actively contribute towards the task of cluster development.

Capital Goods is a large and important sector and significantly contributes to the manufacturing activity in India. The National Capital Goods Policy is a major step to unleash the potential of this sector and is formulated to achieve the overall vision laid down by the ‘Make in India’ initiative.

Citations:
1. National Capital Goods Policy 2016: Building India of Tomorrow, Pg7
2. National Capital Goods Policy 2016: Building India of Tomorrow, Pg5
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
3. http://dhi.nic.in/UserView/index?mid=1361
4. National Capital Goods Policy 2016: Building India of Tomorrow, Pg8
5. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 33
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
6. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 33
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf​​
7. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 34
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
8. National Capital Goods Policy 2016: Building India of Tomorrow, Pg35
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
9. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 02
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
10. National Capital Goods Policy 2016: Building India of Tomorrow, Pg38
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
11. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 39
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
12. National Capital Goods Policy 2016: Building India of Tomorrow, Pg 41
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
13. National Capital Goods Policy 2016: Building India of Tomorrow, Pg42
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
14. National Capital Goods Policy 2016: Building India of Tomorrow, Pg31
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
15. National Capital Goods Policy 2016: Building India of Tomorrow, Pg02
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
16. National Capital Goods Policy 2016: Building India of Tomorrow, Pg02
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf
17. National Capital Goods Policy 2016: Building India of Tomorrow, Pg51
http://dhi.nic.in/writereaddata/Content/NationalCapitalGoodsPolicy2016.pdf