1. Modi govt’s National Capital Goods policy will give sector much needed boost. Read how

Modi govt’s National Capital Goods policy will give sector much needed boost. Read how

Under the Make in India initiative, the CG policy would identify major sub-sectors such as machine tools, textile machinery and others as priority sectors.

By: | Updated: June 1, 2016 7:58 AM
capital-goods-re-L The fast track approval by the Cabinet of the National Capital Goods policy is noteworthy as the much awaited policy is critical for realising the Make in India vision. (Reuters)

A healthy and robust manufacturing sector with significant contribution to the GDP is at the core of consistent and sustainable economic growth of a nation. For India, which enjoys end-to-end capabilities across the manufacturing spectrum, the capital goods (CG) sector is of high strategic importance as it is considered to be the ‘mother’ of manufacturing.

While the sector is a vital chord of industrial development, India’s capital goods production has been historically plagued by a variety of issues—limited inclination of end user industries to use domestic sources due to lack of latest technology, sub-scale and fragmented nature of industry with a large number of small and medium enterprises, and sub-par visibility and promotion of India as a capital goods manufacturing hub alongside a set of continuing taxation and trade policy related issues. As a result, India’s imports of machinery and equipment have been rising across sub-sectors.

The fast track approval by the Cabinet of the National Capital Goods policy is noteworthy as the much awaited policy is critical for realising the Make in India vision. The policy incorporates extensive inputs from industry including those from the joint task force of the Department of Heavy Industry (DHI) and Confederation of Indian Industry (CII). It comes at an opportune time when the government has announced several infrastructure projects such as Smart Cities, industrial corridors, Housing for All, etc.

The CG policy strives to the increase the contribution of this sector to 20% from current 12% of total manufacturing activity by 2025. The share of domestic production in India’s total demand would be raised from 60% to 80%, and exports are targeted to go up from the current 27% to 40% of production to make India a net exporter of capital goods. The policy also aims to facilitate improvement in technology depth across sub-sectors, increase skill availability, ensure mandatory standards, and promote growth and capacity building of MSMEs.

Under the Make in India initiative, the CG policy would identify major sub-sectors such as machine tools, textile machinery and others as priority sectors. The existing CG scheme, to enhance competitiveness through centers of excellence, integrated industrial infrastructure parks and Technology Acquisition Fund, would receive additional funds. Cluster development would be a key target to provide critical components of competitiveness such as management of quality, energy, costs, plant maintenance, etc.

Transfer of technology, purchase of intellectual property rights, designs and drawings and commercialisation of research will be encouraged through a specific budgetary allocation. The policy proposes to set up a startup center for the CG sector with participation from the private sector to provide technical, business and financial support.

A key element of the policy is mandatory standardisation according to which minimum standards would be defined. With the help of the Bureau of Indian Standards, International Organisation for Standardisation and other institutions along with industry associations, these would go a long way towards imparting quality to the products. More research institutions are also proposed to be set up.

For skill development, a sector skills council for the CG sector would be set up along with five regional centers. A capital subsidy scheme to enable SMEs to replace their equipment with modern, efficient, computerised systems is also included. To map the progress, a continuous system of monitoring for timely corrective action will enable the policy to be optimally effective.

While the recommendations and intent of the National Capital Goods policy are well stated, it now demands intense implementation focus and programme management rigor. An important element will be to build and strengthen a supply chain and form stronger linkages with the rest of the world. Our international counterparts have been able to establish themselves in the arena of manufacturing as their focus has been to build local industries as preferred sources of procurement. If we are to enhance scale and quality, significant efforts will need to be made to provide an ecosystem to promote innovation, R&D and quality.

CG needs a TED (technology depth, export promotion and demand creation) boost. The need of the hour is to replicate and adopt global best practices in these three core areas, as also highlighted in the policy.

As an economy where we strive to excel and create a brand of our own in “manufacturing”; there has to be constant collaborative effort from manufacturers and the government to ensure that this industry becomes competitive and sustains higher growth through technology transfers, domestic R&D, and effective export strategy.

We in the industry will need to be consistent in our efforts towards the implementation of the key policy actions to make the Indian capital goods industry globally competitive. Importantly, the role of the state is very critical for overall balanced growth of the capital goods sector. The game changer has been unveiled, but there is still a long way to go.

The author is chairman, CII National Committee on capital goods and engineering

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