Recommendations for Capital Goods industry

28 Nov 2019

The capital goods sector serves all sectors of the manufacturing economy. A robust, efficient and technologically-advanced capital goods sector can provide a boost to overall manufacturing in India.

The Government envisions to become a $ 5 trillion economy in the next 7 years from the current $ 2.5 trillion, and the manufacturing sector is expected to be a significant driver to this goal. The capital goods sector is a key contributor to manufacturing and needs to grow at 17-18% to achieve this vision. It is important to note that an efficient capital goods sector will bring efficiency in user industries.

Implementation of the National Capital Goods Policy 2016 formulated with the vision to increase the share of capital goods contribution from the present 12% to 20% of total manufacturing activity by 2025 would be a significant enabler to realize this vision.

CII recommends several measures to boost this important sector.

Short-term Measures

  • Allow higher depreciation on domestically-manufactured capital goods at 25%, to encourage investment and faster technology upgradation. This will spur demand for indigenous manufacture of capital goods, and generate employment.
  • Continue with weighted deduction for R&D expenditure (which is being phased out) to encourage industry to invest in R&D.
  • Implement the ‘Public Procurement (Preference to Make in India), Order 2017’ (PPO 2017) for applicability across Central and State Governments, agencies and undertakings, public sector enterprises and undertakings, and government- controlled boards. Set import substitution targets for user sectors of 20% in the next 3 years, and 40% in the next 5 years.
  • On government tenders, the ‘prior supply’ condition prevents domestic manufacturers from participation where new, advanced technologies are involved. The prior supply condition must be judiciously relaxed to accommodate similar equipment/technological capacity to supply the tendered items.

– The tenderer may make an evaluation of the company’s existing technology to supply the tendered item and relax the prior supply condition if the evaluation is positive.

– In the case of technology transfer for Indian suppliers from overseas technology partners, the credentials of past supply from the technology partner should be sufficient qualification for the Indian suppliers.

– History of prior supply by the company to other governments and/or OEMs may be considered.

  • Include capital goods (and, indeed, all engineering goods manufactured in India) in the ‘List of Products and Services Eligible for Discharge of Defence Offset Obligations’. This can potentially give a great thrust to exports, while facilitating meeting defence offset obligations.
  • Discourage the import of used equipment and machinery by disallowing the depreciation allowance on such imports, and by restricting imports to actual users only.
  • New schemes to finance MSMEs may be adopted to ensure that they have adequate working capital. Payments to MSMEs from larger units may be made mandatory by Letter of Credit, beyond a threshold order value.

Medium-term Measures

  • Prioritize and shortlist 10 countries (to be rotated) as key emerging markets to promote ‘Made in India’ capital goods, and build Brand India. The countries could include the African nations, Thailand, Vietnam, Indonesia, Malaysia, Turkey, Brazil, Russia, Mexico, and the UAE.
  • Support the development of high-tech training centers in manufacturing technology (including emerging areas like digital manufacturing, additive manufacturing, smart machines, IoT, Industry 4.0, data analytics etc) by companies, industry associations and academic institutions, for widespread implementation.
  • To strengthen domestic technology capabilities, a system of ‘Risk Sharing Contract Development Order’ must be adopted on long-term requirements of capital goods.
  • Co-develop technology and products for key end- user industries, such as the railways and mass rapid transport systems, to ensure that India emerges as a key supplier.

Enforce minimum acceptable safety and performance standards for machinery to enhance competitiveness, and curb the inflow of sub-standard capital goods.