The domestic capital goods industry, highly fragmented and under-performing, could receive a boost with the Modi government reading a comprehensive national policy for the sector with a plan to enforce it from December.
The domestic capital goods industry, highly fragmented and under-performing, could receive a boost with the Modi government reading a comprehensive national policy for the sector with a plan to enforce it from December. A Rs 3,000-crore package to revamp of two state-run firms — HMT and the Ranchi-based Heavy Engineering Corporation (HEC) — would be part of the policy which will have a thrust on indigenisation, technology assimilation and skilling, official sources told FE.
The move, in consonance with the government’s Make In India and Skill India initiatives, would aim at reducing the Indian industry’s import dependence for machinery and equipment. Currently, around 37% of India’s capital goods demand is met by imports and there are policies like the export promotion capital goods scheme to let the investors cut the cost of machinery imports.
Sources said R2,000 crore would be allocated from the central budget to revamp HMT in collaboration with Germany, including its famed Fraunhofer Institutes and research establishments and set up skill development institutes in the PSU’s premises. This is to help HMT focus on its core expertise, which is manufacturing of machine tools, but at the higher end of the value chain with the latest German technology. In parallel, three loss-making units of the PSU — HMT Watches, HMT Bearings and HMT Chinar Watches — would be shut down and some 2,900 workers in these units would be offered a voluntary retirement scheme.
Another R1,000 crore would be released to modernise HEC, using Russian and Czech technologies. HEC manufactures equipment for mining, crushing, mineral processing and steel plants, besides producing cranes, castings and forgings. The Czech Republic, the sources said, has offered financing support to boost exports from HEC and the government is negotiating for concessional rates. New Delhi is also in talks with Russia for soft loans to set up a “Centre of Excellence in Design” for heavy equipment at HEC’s Ranchi campus.
* To boost locally-made capital goods, reduce reliance on imports
* Highly fragmented industry needs support for skilling, technology, R&D
* Development councils to be set up for each sub-sectors
Simultaneously, the government is also considering using the existing resources in HMT Watches’ Bengaluru campus to establish a National Machine Tool Institute and start skilling programmes. The institute could have branches in the HMT units in Karnataka, Uttarakhand, Telangana and Jammu and Kashmir, as well as in the firm’s campuses in Rajasthan, Haryana and Kerala.
The government would release the final draft of the national capital goods policy by this month-end. It would focus on ways to discourage import of out-dated second-hand/substandard machinery through effective implementation of an age profile of such machinery and mandatory standards.
Capital goods imports have marginally fallen from Rs 1.35 lakh crore in FY12 to Rs 1.16 lakh crore in FY15. Export of these goods, much lower in comparison to imports, grew from Rs 39,974 crore in FY12 and Rs 60,441 crore in FY15. Domestic capital goods production had stagnated at around Rs 2 lakh crore in these years. Although notorious for short-term fluctuation, the output of capital goods — a proxy for fixed corporate investments — grew 4% in the April-July period on top of an 8.7% expansion a year earlier.
Besides a few big players, the Indian capital goods industry comprises hundreds of smaller units and employs around 13 lakh people. The plan, the sources said. is to set up a ‘development council’ each for sub-sectors including machine tools, heavy electrical equipment, dies, moulds and press tools, machinery related to plastics, printing, textiles, earth-moving and mining. These councils will then work out a ‘code’ for quality and operational standards, set up testing centres and in turn help the industry to grow. To promote domestic manufacturing of these items by SMEs, who have difficulties in getting access to capital at affordable cost, an interest subsidy of up to 4% is also being considered.
The government is also looking at ways to provide preference in public procurement policies to domestic manufacturers within the WTO norms, in addition to addressing the problems of inverted duty structure. The industry has sought free trade agreements with countries in new markets such as Latin America and Africa to boost India’s exports.