National Capital Goods Policy

The government of India had unveiled its National Capital Goods Policy in 2016, aimed at the manufacturing sector in the country, which has been lagging behind potential. This policy is set to boost the ambitious‘Make in India’ initiative. In this article, you can read about the National Capital Goods Policy for the UPSC civil services exam.

National Capital Goods Policy, 2016

Capital goods refer to machinery and equipment required for the production of goods or services, and are not for direct consumption. The capital goods industry in India contributes 12% to the manufacturing sector, which translates to 2% of the Gross Domestic Product (GDP). This sector employs approximately 1.4 million people directly and about another 7 million indirectly.

The National Capital Goods Policy is a manufacturing sector policy devised by the Government of India aimed at increasing the production of capital goods from the 2014-15 value of approximately Rs.230, 000 Cr to Rs.750, 000 Cr by 2025. Another stated aim is to increase the employment to approximately 30 million people. This is for the first time that the government has come up with a policy for capital goods.

Issues in the sector

Manufacturing is a key component of economic development. It creates employment opportunities and also makes a nation self-reliant. The capital goods sector contributes significantly to the manufacturing sector’s growth.

• The growth of the capital goods sector has been slow. It has grown only at a rate of 1.1% in the time period 2013 – 2016. But, during the 12th Five Year Plans, the target growth rate for this sector was 16.8%.
• Import of capital goods have been increasing, growing at a rate of 9.8% for the five year period from 2010. The share of imports in this market was 40% in 2014 – 15.
• Also, in exports, India’s share of global exports is only about 0.8%.
• Insufficient growth of domestic market for capital goods.
• Declining share of domestic production in the total domestic consumption and growth of more imports.
• Inadequate capacity expansion in infrastructure and power industries, and institutional issues such as inadequate inter-ministerial coordination.
• Import of second-hand machinery discouraged domestic production of capital goods. The provision of a zero import duty concession for several items imported under the “project imports” category has put the domestic industry at a disadvantage.
• We have FTAs with many countries that have an advantage over India with respect to capital goods production, and this hampers our domestic industry.
• Inverted duty structure is prevalent in certain category of imports which means the import duty is lower on finished goods rather than on the components and raw materials. This has also affected the competitiveness of the industry.
• Another problem affecting this sector is low technology depth and low spend on research and development.
• Another cause for lack of competitiveness is that the sector is fragmented into small units operating on uneconomic scales.
• There is also a non-availability of long-term finance for the sector.
• Low level of skill development in the sector is also a cause for worry.

National Capital Goods Policy 2016 Features

This policy was drafted by the government to address all the issues mentioned above and boster the ‘Make in India’ programme.

• Increasing exports – currently, it is 27% of the production. The policy seeks to increase it to 40%.
• Push for domestic production – currently, the share of domestic production in the demand is 60%. The policy seeks to increase it to 80% and making India a net exporter of capital goods.
• Improvement in technology – the policy aims to increase the skill availability, improve technology, and promote growth and capacity building of Micro, Small and Medium Enterprises.
• HIEMDA Scheme – Heavy Industry Export & Market Development Assistance Scheme aims to augment Indian-made capital goods export.
• Budgetary allocation – the policy seeks to increase the budgetary allocation to the sector and strengthen the current Department of Heavy Industries.
• Technology Development Fund – A technology development fund will be started under the PPP model to finance acquisition or transfer of technology, and commercialise capital goods technologies.
• Integrate subsectors – the policy seeks to integrate all the subsectors and also introduce mandatory standards and reduce sub-standard machinery.
• Start-up Center – the policy also plans to have a start-up center to aid start-ups in the manufacturing sector. This will offer technical, financial and business support to the start-ups.
• Standardisation – the policy aims for mandatory standardisation. This includes defining minimum acceptable standards and also adoption of international standards.

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