Narendra Modi government to create Make in India fund for capital goods sector

Written by fe Bureau | New Delhi | Updated: Oct 23 2014, 18:38pm hrs
Narendra ModiThe Narendra Modi government has decided to create a fund to help Indian industry acquire cutting-edge technology in the capital goods sector. (PTI)
The Narendra Modi government has decided to create a fund to help Indian industry acquire cutting-edge technology in the capital goods sector and finance new production units of capital-intensive heavy equipment. Starting with R930 crore this fiscal, budgetary allocations would be made to create/replenish the fund on a yearly basis and it will remain till the objective of strengthening the Indian capital goods industry is achieved, a top government official told FE.

While the government will provide 80% of the corpus of the fund, respective industry associations will contribute the rest. The idea is to provide direct state subsidy to the industry concerned in capacity creation/technology assimilation, the source added. In addition to financing technology acquisition, the fund will be used for setting up certain common engineering and industrial infrastructure and testing facilities that would reduce the cost of capital goods production units. It will also be used to set up design centres and testing laboratories that would be commonly used by capital goods producers, the official added.

The scheme, which will be rolled out in the next few weeks, will primarily focus on three segments machine tools, textile machinery and earth moving equipment.

This fund will differ from the existing ones like the Technology Upgradation Fund Scheme for the textile sector where the user industry gets interest subsidy on loans taken to upgrade machinery including imported ones, because the focus of the new scheme is on domestic production of capital goods.

India imported about R1.55 lakh crore worth capital goods machinery last year more than half of the total domestic demand for machinery worth roughly R3 lakh crore. In the case of machine tools, we meet 60% of the demand with imports, which is not a happy situation, said a person familiar with the development, adding that the proposed scheme was a bold attempt at changing the scenario. Most of India's capital goods imports are from China and South Korea.

The move comes at a time when gross fixed capital formation, a measure of investments in the economy, slipped to 32.3% of GDP in 2013-14 from 33.9% a year ago and the manufacturing sector contracted 0.7% in 2013-14 from a growth of 1.1% a year ago. Manufacturing output has in April-June showed tentative signs of recovery with a growth of 3.5% against contraction of 3.9% in the same period a year ago. The move to finance capital goods sector projects also coincides with reforms in energy pricing, an essential step for boosting manufacturing. According to industry experts, capital goods purchases account for about 21% of gross domestic investments and the value addition in this sector accounts for about 12% of total value addition in the manufacturing sector, indicating its fortunes have a close correlation with the economys overall health. Industry sources said the measures are likely to stimulate the sector, which has suffered from the delays in project clearances that has afflicted the infrastructure industry in the last few years.

The proposed scheme is also set to fund certain energy research projects of the Indian Institutes of Technology including in nuclear energy. One project that would get financing under the project is the design and construction of advanced supercritical boilers that would help power plants to reduce coal consumption without losing the amount of energy produced. The Indira Gandhi Centre for Atomic Research is designing and developing this equipment, which will be constructed by BHEL and ultimately be used by NTPC.