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First National Capital Goods Policy
May 30, 2016

The Union Government has given its approval for National Capital Goods Policy. This is first ever policy for Capital Goods sector with a clear objective of increasing production of capital goods from Rs. 2,30,000 crore in 2014-15 to Rs. 7,50,000 crore in 2025 and raising direct and indirect employment from the current 8.4 million to 30 million.

Salient Features of the Policy

  • The policy envisages increasing exports from the current 27 percent to 40 percent of production.

  • It will increase the share of domestic production in India’s demand from 60 percent to 80 percent thus making India a net exporter of capital goods.

  • The policy 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.

  • 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’. 

  • 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 roadmap of policy interventions. 

Background: The idea of a ‘National Capital Goods Policy’ was first presented by the Department of Heavy Industry in the ‘Make in India’ workshop held in December, 2014. The policy has been finalized after extensive stakeholder consultations with industry, academia, different ministries etc. 

  • The key recommendations and elements of the policy have been formulated to support and boost development of this crucial sector. 

  • 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.

What are Capital Goods?: Capital goods are man-made, durable items businesses use to produce goods and services. These items include tools, machinery, and equipment. Capital goods are also called durable goods, real capital, and economic capital. 

  • In accounting, capital goods are treated as fixed assets. 

  • That's also known as plant, property, and equipment (PP&E).

  • Capital goods are one of the key factors of production beside Natural Resources, Labour & Entrepreneurship. 

Main Features of Indian Capital Goods Manufacturing Industry

India’s Capital Goods manufacturing industry serves as the strong base for its engagement across sectors such as engineering, construction, infrastructure, and consumer goods. Today, the Capital Goods sector is a robust, multi-level, diversified segment of the Indian industry environment, playing a critical role in driving growth, creating jobs, and boosting exports.

  • The Capital Goods sector, a 32 billion dollar industry in India, covers several subsectors in the Indian manufacturing space.

  • The industry is dominated by the Heavy Electrical and Power Plant Equipment Segment which constitutes about 69 per cent of the aggregate production.

  • Significant manufacturing is carried out in the subsectors of Process Plant Equipment and Construction Equipment sectors as well.

  • The growth of the Capital Goods sector in India has been led by increasing demand, and sectoral production has expanded by a multiple of 2.5 in the ten years from 2004-05 to 2013-15.

  • India’s overseas engagement in the Capital Goods sector has been robust in the last decade, led by facilitative Government policies and aggressive companies.

  • Imports rose rapidly at a multiple of close to 6 times, aggregating 18.46 billion dollar in 2013-14 and meeting about a third to two-fifths of total demand.

  • Exports too have expanded robustly by more than four times to total 8.57 billion dollar in 2013-14, about half of which belong to the Heavy Electrical and Power Plant Equipment.

The Indian Capital Goods sector is notable for increasing diversification, rising value added production, and growing competitiveness. Several companies have shifted their strategies for greater geographical and sectoral diversification. Indian companies are stepping into the international tenders market for projects to great success. Equally, the domestic market is home to many global majors, which are taking advantage of the Indian ecosystem.

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