National Capital Goods Policy: A Step In The Right Direction for SMEs
The capital goods sector is famously called ‘the mother of all manufacturing industry’. What is a Capital Good? Explained simply, any good (plant/machinery/equipment) that is used in the manufacturing process of another good (either directly or indirectly) is called Capital Good. The market size of Capital Goods in India is worth USD 48 billion and production of USD 35 billion in 2014-15 1 and comprises several segments of the manufacturing sector. The Capital Goods sector in India contributes 12% to the total manufacturing activity. It provides direct employment to about 1.4 million people and indirect employment to 7 million people.
With exports expanding to a total of USD 9.41 billion in the Financial Year of 2014-15, the capital goods sector has achieved great success in overseas trade. Moreover, the ‘Make in India’ campaign, has leased a new life to the sector.
The primary objective of the Capital Goods policy is to increase the contribution of the Capital Goods sector from 12% to 20% of total manufacturing activity by 2025. Through this Policy, India aims to feature among the leading capital goods producing nations in the world.
Under the National Capital Goods policy which falls under the Department of Heavy Industries and Public Enterprises, the government has set a target of achieving an increase in production from USD 35 billion in FY 2014-15 to USD 115 billion in 2025. The agenda also envisages increasing exports from the current 27% to 40% of production. It places importance on raising the share of domestic production in India’s demand from 60% to 80% to make the country a prime exporter of capital goods.
To realise the objectives of the National Capital Goods Policy, the government has taken a few steps to increase the productivity of the manufacturing sector,
Creating an ecosystem for globally competitive Capital Goods sector
The policy stipulates the implementation of a uniform Goods and Services Tax (GST) across all sub-sectors. This step has been taken to make products more competitive in the market.
Additionally, policy action includes the setting up of Start-up Centres for the sector in collaboration with the Department of Heavy Industry (DHI) and Capital Goods (CG) industry in 80:20 ratios. This step has been taken to ensure any form of technical, business and financial aid to upcoming startups in both the manufacturing and services space.
Creation and Expansion of Market for Capital Goods sector
The policy aims at the simplification of the terms mentioned in procurement contracts. Provisions to promote products manufactured locally have been included. A proposal to revise primary qualification criteria for public procurement contact has also been made.
Heavy Industry Export & Market Development Assistance Scheme (HIEMDA) has been created to increase the promotion of experts. A branding plan in collaboration with the India Brand Equity Foundation (IBEF) is also in the making.
As a part of the ‘Make in India’ initiative, all significant capital goods sub-sectors like machine tools, textile machinery, etc will be integrated for the effective implementation of upcoming projects.
Human Resource Development
To enhance skill development, a sector skills council has been set up along with five regional centres. A plan to come up with a comprehensive skill development policy with the Capital Goods Skills Council is also in the pipeline.
Technology and IPR
The new policy also suggests an increase in the budget allocation in order to establish Centres of Excellence, Common Engineering Facility Centres, Integrated Industrial Infrastructure Park and Technology Acquisition Fund Programme.
To deal with the problem of lack of technological resources and expertise in the sector, the policy also wishes to launch a Technology Development Fund in order to provide aid for technology acquisition, transfer of technology and purchase of Intellectual Property Rights (IPR).
Introduction of Mandatory Standards
Implementation of global standards is one of the primary elements of any policy. If no definite standards are established, the company must abide by the standards set by the International Organisation for Standardisation’s (ISO) to ensure that the quality of the capital goods is not compromised.
Focus on SME Development
As mentioned earlier, the policy places emphasis on the introduction of new schemes to increase the competitiveness of the Capital Goods sector. These schemes are created to facilitate the development and growth of Small Medium Enterprises (SMEs). The Department of Heavy Industry is slated to sponsor 80% of the total fee of the cluster projects.
Capital Good is a large and important sector in India. The Make in India initiative and the National Capital Goods Policy promise to provide new rigour to the sector.
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