Draft capital goods policy proposes a rational duty structure

24 October 2015

Government on Friday proposed a long term, stable and rationalised tax and duty structure to promote the capital goods sector, one of the most critical segments for achieving the vision of 'Make in India'.

The National Policy on Capital Goods was drafted by the Department of Heavy Industry in active consultation with industry associations and trade bodies. This is the first time that a policy on capital goods is being framed.

Capital goods sector is the most critical sector for achieving the vision of ''Make in India'' as the sector has multiplier effect on other sectors of the economy.

The National Policy on Capital Goods envisages unlocking the potential for this promising sector and establishing India as a global manufacturing powerhouse.

The draft policy aims at increasing the share of capital goods in the country's manufacturing activity from 12 per cent at present to 20 per cent by 2025.

The emphasis is on creation of an ecosystem that will support a globally competitive capital goods sector.

It proposes uniform customs duty on imports of all capital goods related products. It also proposes allowing up to 50 per cent CENVAT credit to manufacturers using such products as raw material or intermediates for further processing or using such goods in the manufacturing of finished goods.

The  policy is based on the assumption of a uniform goods and services tax regime ensuring effective GST rate across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure a level playing field.

The draft policy proposes incentivising domestic and global mergers and acquisitions. It also pitches for providing incentives for venture-funding and risk capital for start-ups.

Creation of a globally competitive ecosystem would help achieve capital goods production in excess of Rs5,00,000 crore by 2025 against the current Rs2,20,000 crore, says the draft .

This would, in turn, increase employment from the current 1.5 million to at least 5 million by 2025 thus creating additional 3.5 million jobs.

The department has invited comments f5om all stakeholders with a view to draw up the policy by mid-November, after which it will sent to the union cabinet for approval.

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