Govt unveils first-ever policy for capital goods sector

Government today unveiled the first-ever policy for the country's capital goods sector which envisages creation of 21 million additional jobs by 2025.

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

"The capital goods policy was cleared by Prime Minister Narendra Modi last week," Union Heavy Industries Minister Anant Geete told PTI.

The objectives of the National Capital Goods Policy are to create an ecosystem for a globally competitive capital goods sector to achieve total production in excess of Rs 7.5 lakh crore by 2025 from the current Rs 2.3 lakh crore.

It also aims to increase direct domestic employment from the current 1.4 million to at least 5 million and indirect employment from the current 7 million to 25 million by 2025, thus providing additional employment to over 21 million people.

"The capital goods sector is currently going through many challenges and issues and to address those challenges, the government has launched the comprehensive policy document, the National Capital Goods Policy, today," Geete said at a Make in India Week seminar in Mumbai.

The National Policy on Capital Goods is envisaged to unlock the potential of this promising sector and establish India as a global manufacturing powerhouse, said the policy document unveiled today.

The policy envisages increasing the share of domestic production in India's capital goods demand from 60 per cent to 80 per cent by 2025 and in the process improve domestic capacity utilization to 80-90 per cent.

To create an ecosystem for globally competitive capital goods sector, the policy recommends devising a long term, stable and rationalized tax and duty structure.

It advocates adoption of a uniform Goods and Services Tax (GST) regime ensuring effective GST rate across all capital goods sub-sectors competitive with import duty after set-off with a view to ensure level playing field.

The policy calls for ensuring parity of import duty structure with domestic duties, for example, equalize Countervailing Duty (CVD) and Excise duty; and Special Additional Duty (SAD) with Sales tax/ VAT or GST.

It recommends correcting the existing inverted duty structure anomalies and considering a uniform customs duty on imports of all capital goods related products.

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

Key policy recommendations include strengthening the existing scheme of the Department of Heavy Industry on enhancement of competitiveness of the capital goods sector by increasing budgetary allocation and increasing its scope to further boost global competitiveness.

It entails stepping up exports of India-made capital goods through a 'Heavy Industry Export & Market Development Assistance Scheme (HIEMDA)', launch of Technology Development Fund, setting up new testing and certification facility and upgrading existing ones, making standards mandatory in order to reduce sub-standard machine imports, among others.  

The policy suggests 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.

It sets the objective of increasing exports to 40 per cent of total production (from Rs 61,000 crore to Rs 3,00,000 crore) by 2025, enabling India's share of global exports in capital goods to increase to 2.5 per cent and making the country a net exporter of capital goods.

It also aims to significantly enhance availability of skilled manpower with higher productivity in the capital goods sector by training 50 lakh people by 2025, and create institutions to deliver the human resources with the skills, knowledge and capabilities to fuel growth and profitability.

The policy calls for regulating second hand imports by specifying terms and conditions like allowing imports through designated ports, insisting on actual user license, make of equipment and country of origin certification, ensuring no preferential treatment under FTA with partner countries, and excluding second hand capital goods from the purview of duty concession under project imports.

It also recommends eliminating "zero duty" clause for capital goods under Project Imports in the taxation policy, except if the goods are not manufactured in India.

It asks the government to consider "physical export" status for domestic manufacturers using such imports so that these manufacturers can avail duty drawback.