India is currently the third largest economy of the world with respect to Gross Domestic Product (GDP) on Purchasing Power Parity (PPP) basis. India’s growth has been fueled by the services sector, which contributes 53% of the Gross Value Added (GVA).
Manufacturing, on the other hand, contributes only 17% of India’s GVA. India’s manufacturing value added is less than a tenth compared to that of China and India’s share of global manufacturing value added is 2%. In other countries such as South Korea and Germany, contribution of manufacturing value added currently ranges between 20-30%.
A strong manufacturing sector is critical to sustained growth of the economy as it generates employment potential – exploiting India’s ‘demographic dividend’ and builds strategic self-reliance in key industries thereby promoting a favorable trade balance.
Recognizing this, the Government of India announced the ‘National Manufacturing Policy’ in 2011 with the vision to increase the share of manufacturing in Gross Value Added (GVA) to 25% and create 100 million jobs.
The Capital Goods industry is one of the key contributors to value added manufacturing and is significant for overall economic development of India. The Prime Minister‟s Group constituted under the Chairman of the National Manufacturing Competitiveness Council (NMCC) identified Capital Goods as one of the strategic sectors for strengthening national capabilities in the long-term.
Capital goods consist of plant machinery, equipment and accessories required, either directly or indirectly, for manufacture or production of goods or for rendering services, including those required for replacement, modernization, technological upgradation and expansion of manufacturing facilities.
The growth and development of capital goods is critical for India to achieve the vision of “Make in India” by increasing share of manufacturing to 25% of Gross Value Added. This in turn will help generate additional jobs, improve India’s trade balance and increase domestic self-reliance. The National Policy on Capital Goods is envisaged to unlock the potential of this promising sector and establish India as a global manufacturing powerhouse.
VISION OF THE POLICY
The National Capital Goods Policy is formulated with the vision to increase the share of capital goods contribution from present 12% to 20% of total manufacturing activity by 2025.
MISSION
The policy is envisaged to achieve the following missions:
- To become one of the top capital goods producing nations of the world by raising the total production to over twicethe current level;
- To raise exports to a significant level of at least 40% of total production and thus gain substantial share in global exports of capital goods; and
- To improve technology depth in Indian capital goods from the current basic and intermediate levels to advanced levels.
OBJECTIVES OF POLICY
The objectives of the National Capital Goods Policy are to:
Increase total production: To create an ecosystem for a globally competitive capital goods sector to achieve total production in excess of ~Rs. 500,000 Cr by 2025 from the current Rs. 220,000 Cr.
Increase employment: To increase domestic employment from the current 15,00,000 to at least50,00,000 by 2025 thus providing additional employment to over 35,00,000 people.
Increase domestic market share: To increase the share of domestic production in India’s capital goods demand from 56% to 80% by 2025 and in the process improve domestic capacity utilization to 80-90%.
Increase exports: To increase exports to 40% of total production (from Rs 62,000 Cr to ~Rs 200,000 Cr) by 2025, enabling India’s share of global exports in capital goods to increase to ~2.5%.
Improve skill availability: 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.
Improve technology depth: To improve ‘technology depth’ in capital goods sub-sectors by increasing research intensity in India from 0.9% to at least 2.8% of GDP to rank amongst the Top-10 countries in research intensity and achieve global benchmarks for intellectual property in the capital goods sector.
Promote standards: To curb inflow of sub-standard capital goods by mandating technical and safety standards which conform to international standards and ensuring compliance to the same.
Promote SMEs: To promote growth and build capacity of SMEs to compete with established domestic and international firms and become national and global champions of capital goods in the future.
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ANALYSIS
The Capital Goods sector is a very large and important sector and a key contributor to manufacturing activity in India. The growth of the sector has been lagging in recent years and the sector is facing a variety of issues and challenges. The National Capital Goods Policy is envisaged to immediately address the needs of the sector and proactively facilitate growth and development of the sector. The policy has laid out a vision and mission for the sector for the coming decade and proposed a comprehensive set of policy actions which would enable the achievement of the objectives for the sector.
The smooth implementation and effectiveness of the policy will require alignment and joint action of several ministries and departments and have implications on multiple stakeholders and user industries. To this end, a governance mechanism has been proposed 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 National Capital Goods Policy is a major step to unleash the potential of this promising sector and is envisaged to contribute significantly to achieving the overall vision for manufacturing and “Make in India” as laid out by the Government of India.