CCEA announces scheme to enhance competitiveness of capital goods sector

15 September 2014

The Cabinet Committee on Economic Affairs (CCEA) today approved a `Scheme for Enhancement of Competitiveness of the Capital Goods Sector', which would attempt to make the Indian capital goods sector globally competitive.

The scheme covers sub sectors, including machine tools, textile machinery, construction and mining machinery, and process plant machinery. The proposed scheme addresses the issue of creation of necessary technological depth in the capital goods sector, besides creating common industrial facility centres, an official release said.

The scheme will be implemented in the 12th Plan period and spill over to the 13th Plan period with an estimated outlay of Rs930.96 crore. The gross budgetary support (GBS) from the government for the scheme would be Rs581.22 crore and the balance Rs349.74 crore would be contributed by the stakeholder industries.

The scheme has five components to achieve the desired result in pilot mode:-

  • Creation of `Advanced Centres of Excellence' for R & D and technology development with national centres of excellence in education and technology such as the Indian Institute of Technology Delhi, IIT-Bombay, IIT-Madras, IIT-Kharagpur and the Central Manufacturing Technology Institute (CMTI), Bangalore.
  • Establishment of `Integrated Industrial Infrastructure Facilities' popularly known as Machine Tool Parks with a basic objective of making the machine tool sector more competitive by providing an ecosystem for production. Establishment of Machine Tool Parks will cut down logistic cost substantially and would be a step forward in making the sector cost effective, having enhanced export capability and favourable for attracting more investment. The park would be established by a special purpose vehicle (SPV) formed by local industries, industry associations, financial institutions, central / state governments, R & D institutions etc.
  • `Common Engineering Facility Centre' for textile machinery will be set up with active participation of the local industry and the industry association, which in turn would improve facilitation to the users along with visibility. The common engineering facility that can be provided within such set-ups are common foundry, common heat treatment, testing laboratories, design centre, common prototyping, general and specific machinery, etc. The facility would enable textile machinery and other capital goods manufacturers to develop capital goods to meet the large requirements and improve capacity utilization, thereby reducing the variable cost of operation. This would also be established by a SPV formed by local industries, industry associations, financial institutions, central/state governments, R&D institutions etc.
  • `Testing and Certification Centre' for earth moving machineries in view of the fact that it is soon going to be made a mandatory requirement and at present there is no test facility to test earthmoving machinery like that in the automobile industry. By setting up of the test centre, the import of second hand and outdated machinery could be restricted through mandatory testing and certification, In addition, the centre would facilitate evaluating the performance, statutory and regulatory requirements of construction and mining machinery and equipment. The setting up of test and certification centre for earthmoving machinery will be done by the SPV specifically created by the Department of Heavy Industry with the approval of the cabinet. After approval of the scheme, a separate proposal for information of SPV for implementation of this particular scheme component will be sent to the cabinet for approval.
  • The creation of a `Technology Acquisition Fund' under the `Technology Acquisition Fund Programme (TAFP)' in order to help the capital goods industry to acquire and assimilate specific technologies, for achieving global standards and competitiveness within a short period of time. The TAFP will provide financial assistance to Indian capital goods industry to facilitate acquisition of strategic and relevant technologies, and also development of technologies through contract route, in-house route or through joint route of contract and in-house. The fund may extend partial support to industry to enhance their technology level, for achieving superior product quality / functionality, production capacity, safety and sustainability performance. This programme would bridge the technology gaps identified in the 12th Plan Working Group Report on "Capital Goods and Engineering Sector".

The capital goods value addition contributes 9-12 per cent of the total manufacturing value added, which establishes that manufacturing is the key end-user sector of capital goods and drives the performance of the latter.

Besides the huge investment involved in setting up capital goods units, the apparent consumption of capital goods constitutes 17-21 per cent of the gross domestic investment in the country. Investments in capital goods sector, however, have declined with the decline in the relative profitability of the sector with respect to other sectors. The capital goods sector determines global competitiveness of the manufacturing sector by being a vehicle of technology.

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