Capital goods sector must focus on tech upgrades: study

Written by Economy Bureau | New Delhi, Aug 28 | Updated: Aug 30 2008, 04:34am hrs
Indias capital goods industry has to change its orientation to go beyond capacity building and sales to extend their focus on technology upgrades and after-sales services for becoming more competitive globally, according to a study by the Export Import Bank of India.

The countrys apex foreign trade banks analysis of trade in select capital goods products revealed that the country is a net importer in most products. This indicated the explicit need for capacity expansion, including technology upgrade.

In 2006-07, India exported furnaces and burners of liquid fuel worth $10 million and imported items totaling $30 million. Also, in the category of centrifuges, dryers and purifiers, the total export was $116 million and imports were worth $343 million. This was because of insufficient technology, the banks research and planning group general manager S Prahalathan told FE.

The sale of capital goods is not a one-time transaction, it should be associated with technical support in transportation, erection, training, continuous service maintenance and periodical upgrade of technology, the study stated.

The bank emphasised that in order to capture the global market of $4.3 trillion, the sector could source technology from countries such as Germany, Switzerland, Italy and Spain, saying that a shift has taken place in manufacturing base from developed and developing countries.

Indian players should also effectively adopt the strengths of machining technologies in other developing countries such as China and Taiwan, the study noted. Exports and domestic sales would improve only through quality service and global technology, Prahalathan said.

On the output growth in the sector, the study said although the momentum marginally slowed down, the capital goods industry continues to be a driver of growth in Indias industrial production. Cumulative foreign direct investments in the capital goods industry during the period 2000 to 2007 amounted to $1.6 billion, said the bank, highlighting the rise in investments in the sector.

The growth in capital goods output during April-June quarter fell to 6.5% from 19.1% a year ago. The production grew at a slower pace of 5.6% against 23.1% in the same period last year. High interest rates, thanks to the Reserve Bank of Indias tighter monetary policy to tackle inflation, and higher input costs are the two key factors hurting industrial growth.