Domestic players should be essential part of skill ecosystem

Steel consumption has been intractably linked with the growth of capital goods industry. The various components of capital goods — namely, textile, earth moving, mining, plastic, metallurgy, food processing and printing machinery along with machine tools, heavy electrical and process plant equipment, moulds and press tools — use a wide range of steel products from rounds, wire rods, plates, plain and coated sheets, coils to HR/CR sheets, electrical sheets, cast structurals and alloys and stainless steel.

The demand from the capital goods industry has led to a variety of product development by the steel industry, although in case of CRGO steel not much progress has been achieved by the indigenous producers and the entire requirement of around 2, 50,000 tonne of value added CRGO sheets continue to be imported each year. Capital goods industry comprises around 20-25% in manufacturing and hence the dream of enhancing the share of manufacturing in GDP from the current 16% to 25% by 2022 would be difficult to achieve if capital goods industry fails to grow at a much higher rate in the coming years.

The just released National Capital Goods Policy 2016 has highlighted some of the critical factors responsible for the slow growth of the sector that has grown by an annual average rate of only 1.1% in the past 3 years. These are high imports of capital goods including import of second- han machinery, zero duty imports under project import category, low level of exports (India is a net importer in capital goods), gaps in high-end, heavy duty, high precision technology, lack of skill availability, low cost competitiveness due to high incidence of tax and duty structure and inverted duty structure for several products. It has also blamed the lack of positive bias towards domestic value addition in public procurement policies.

While the capacity utilisation is only 60-70%, imports have taken 40-45% of the market share. In case of machine tools, textile machinery, earthmoving and mining machinery, process plant equipment and metallurgical machinery, more than 50% of the demand is catered to by imports. The policy envisages increasing production of capital goods by an annual average rate of 11.3% from 2014 to 2025, raising direct and indirect employment from the current 8.4 million to 30 million by 2025 and increasing share of indigenous production of capital goods in the country’s demand from 60 to 80%. The thrust on Make in India programme by indigenisation of various segments under manufacturing bodes well for the capital goods industry. Large scale import substitution by enhancing domestic capabilities would go a long way to boost up the capital goods sector. It is worthwhile to find a similarity of the issues especially the demand drivers between capital goods and steel industry.

As regards inverted duty structure, it is pointed out that as Boilers are imported with 0-5% duty under project imports and 7.5% duty otherwise, the seamless alloy steel/ carbon steel cold drawn tubes (HS Code 73045110), pipes and tubes (HS Code 73049000), structural steel (HS Code 73089090) carry 10-12.5% customs duty. Similar is the case for turbines (HS Code 8406/8410/8411). The domestic steel industry has created fresh capacities and has also upgraded the existing capacities to produce value added steel. It includes boiler plates, pipes and tubes and structural steel.

Unless otherwise restricted by procurement clauses, there is no reason why the domestic availability of these steel products cannot fulfill the requirement of the capital goods sector and cut down imports. A long-term plan of substituting imports by domestic availability of erstwhile imported steel products can be worked out jointly by both the sectors.

The policy emphasises the need for developing a comprehensive skill development plan with capital goods skill council by upgrading the existing training centres and developing Centres of Excellence. The successful implementation of this policy requires a concerted action on behalf of the large, medium and small players in the sector to realise the urgent need of skill development training based on the NSQF aligned courses (QPs/NOSs) developed by the sector skill councils represented by the industry as well as upskilling and reskilling of the existing work force.

There is a need for attitudinal changes by the management of the domestic players to appreciate the efforts by the skill development council in their own sector and to become an essential part of the skill ecosystem of the country.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.