More reports on: Government policies

India's new capital goods policy targets 21 mn new jobs by 2025

25 May 2016

The union cabinet today gave its approval to India's first-ever policy on capital goods that intends to make the country a global hub for capital goods, helping to create over 21 million additional jobs by 2025.

The decision was taken at a meeting of the cabinet chaired by Prime Minister Narendra Modi in New Delhi.

"The policy will help in realising the vision of building India as the world-class hub for capital goods. It will also play a pivotal role in overall manufacturing as the pillar of strength to the vision of Make in India," an official release stated.

"This is the first-ever policy for the capital goods sector with a clear objective of increasing production of capital goods from Rs 2,30,000 crore in 2014-15 to Rs7,50,000 crore in 2025 and raising direct and indirect employment from the current 8.4 million to 30 million."

The policy envisions increasing the share of capital goods in total manufacturing activity to 20 per cent by 2025, from 12 per cent at present .

"Capital goods manufacturing if it happens in India along with the manufacturing that is going to happen downstream, the entire economy gets a fillip," railway minister Suresh Prabhu said.

The policy aims to increase direct domestic employment in the sector and related industry to at least 5 million from the current 1.4 million and indirect employment to 25 million from the current 7 million by 2025, potentially providing an additional employment to over 21 million people.

"The objectives of the policy will be met by the Department of Heavy Industry in a time-bound manner through obtaining approval for schemes as per the road map of policy interventions," the statement added.

The policy envisages ramping up exports to 40 per cent of production, from the current 27 per cent. It will increase the share of domestic production in India's demand to 80 per cent from 60 per cent, which would make India a net exporter of capital goods.

It also seeks to facilitate improvement in technology across sub-sectors, increase skill availability, ensure mandatory standards and promote growth and capacity building of MSMEs.

"The aim of the policy is create game-changing strategies for the capital goods sector. Some of the key issues addressed include availability of finance, raw material, innovation and technology, productivity, quality and environment-friendly manufacturing practices, promoting exports and creating domestic demand," the statement added.

The policy document also advocates adoption of a uniform goods and services tax (GST) regime ensuring effective GST rate across all capital goods sub-sectors with a view to ensuring a level-playing field.

To achieve the objectives the policy proposes a new scheme Heavy Industry Export & Market Development Assistance Scheme (HIEMDA) on pilot basis, Technology Development Fund under PPP model, start-up centre for capital goods sector.

In addition, the policy recommended strengthening the existing scheme on Enhancement of Competitiveness of Capital Goods and modernise the CG manufacturing units, especially SMEs.

The policy has proposed a comprehensive set of actions, which would enable the achievement of the objectives for the sector and had recommended a set of nine new initiatives and policy actions and they are:

  • Devising a long term, stable and rationalized tax and duty structure to ensure cost competitiveness of the sector;
  • Drafting a comprehensive public procurement policy with amended qualifying criteria and introducing special provisions in contracts for domestic value addition;
  • Promoting development of new technology through indigenous sources;
  • Providing Technology Upgradation Fund support across all capital goods sub-sectors;
  • Creating a level playing field vis--vis imports by restricting imports of second hand machinery and mitigating duty disadvantages;
  • Supporting availability of short and long term of financing at competitive rates to capital goods manufacturers;
  • Enabling skill development by setting up sub-sector specific Skill Councils;
  • Enabling higher participation of India in standard creation and developing support system to improve compliance; and
  • Developing manufacturing clusters with shared facilities especially for SMEs.

The policy proposes a governance mechanism for smooth implementation and effectiveness of the policy. The mechanism will be in the form of inter-ministerial and inter-departmental committees at the highest level to ensure due consideration of the interests of all stakeholders.

The capital goods sector operates in a dynamic local and global environment and it is imperative for the policy to undergo a periodic review and revision to maintain its relevance.

The National Capital Goods Policy 2016 will be reviewed every five years and revised appropriately to take account of progress in implementation and emerging trends in the national and international environment.

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